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Exhibit 10.1 FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER This First Amendment to Agreement and Plan of Merger (this “First Amendment”) is made and entered into as of this 21st day of December 2006 by and among SunPower Corporation, a Delaware corporation (“Parent”), and PowerLight Corporation, a California corporation (the “Company”). BACKGROUND A. Parent, Pluto Acquisition Company LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Parent, the Company, and Thomas L. Dinwoodie, as the representative of certain shareholders of the Company, entered into that certain Agreement and Plan of Merger dated as of November 15, 2006 (the “Merger Agreement”). B. Section 6.3 of the Merger Agreement provides that prior to the adoption of the Merger Agreement and the approval of the Merger by the shareholders of the Company, the Merger Agreement may be amended by a written instrument signed on behalf of Parent and the Company. C. The shareholders of the Company have not yet adopted the Merger Agreement and approved the Merger. D. In accordance with Section 6.3 of the Merger Agreement, Parent and the Company have agreed to amend the Merger Agreement and certain exhibits to the Merger Agreement as set forth herein. STATEMENT OF AGREEMENT The parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Definitions. Unless otherwise defined herein, all capitalized terms used herein have the meanings given to them in the Merger Agreement. ARTICLE II AMENDMENTS TO THE MERGER AGREEMENT AND EXHIBITS 2.01 Section 2.3(b) of Merger Agreement. The last sentence of Section 2.3(b) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, the last sentence of Section 2.3(b) of the Merger Agreement reads in its entirety: -------------------------------------------------------------------------------- “No consent, approval, order or authorization of, or registration, declaration or filing with, any government, any court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any stock exchange or similar self-regulatory organization or any quasi-governmental or private body exercising any regulatory, taxing or other governmental or quasi-governmental authority (each a “Governmental Entity”) is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (w) the filing of the Certificate of Merger, the Agreement of Merger and the CA Certificate of Merger, (x) such filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) and any required foreign antitrust filing, (y) applicable requirements if any, of the Exchange Act, state securities or “blue sky” laws (the “Blue Sky Laws”), and (z) if necessary in accordance with Section 4.5(d), the issuance of the Merger Permit (as defined in Section 4.5(d)(ii)), or, if necessary in accordance with Section 4.5(e), the approval by the Securities and Exchange Commission (the “SEC”).” 2.02 Section 2.27 of Merger Agreement. Section 2.27 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 2.27 reads in its entirety: “Disclosure. None of the information supplied or to be supplied by or on behalf of the Company or any of its Subsidiaries for inclusion or incorporation by reference in the Private Placement Information Statement (as defined in Section 4.5(c)), if a Private Placement Information Statement is mailed to the shareholders of the Company in accordance with Section 4.5(c), will, at the time that the Private Placement Information Statement is mailed to the shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company or any of its Subsidiaries for inclusion or incorporation by reference in the Merger Permit Information Statement (as defined in Section 4.5(d)(i)), if a Merger Permit Information Statement is mailed to the shareholders of the Company in accordance with Section 4.5(d)(iii), will, at the time that the Merger Permit Information Statement is mailed to the shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company or any of its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement (as defined in Section 4.5(e)(ii)), if a Proxy Statement is mailed to the shareholders of the Company in accordance with Section 4.5(e)(x), will, at the time that the Proxy Statement is mailed to the   2 -------------------------------------------------------------------------------- shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of the Company or any of its Subsidiaries for inclusion or incorporation by reference in the Registration Statement (as defined in Section 4.5(e)(i)), if a Registration Statement is filed with the SEC in accordance with Section 4.5(e)(ii), will, at the time that the Registration Statement is filed with the SEC or at the time it becomes effective under the Securities Act of 1933, as amended (the “Securities Act”), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. Notwithstanding the foregoing, no representation or warranty is made by the Company with respect to statements made or incorporated by reference in the Private Placement Information Statement, the Merger Permit Information Statement, the Proxy Statement or the Registration Statement based on information supplied by or on behalf of Parent for inclusion or incorporation by reference in the Private Placement Information Statement, the Merger Permit Information Statement, the Proxy Statement or the Registration Statement.” 2.03 Section 3.3(b) of Merger Agreement. The last sentence of Section 3.3(b) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, the last sentence of Section 3.3(b) of the Merger Agreement reads in its entirety: “No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent and Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (A) the filing of the Certificate of Merger, the Agreement of Merger and the CA Certificate of Merger, (B) such filings as may be required under the HSR Act and any required foreign antitrust filing, (C) applicable requirements if any, of the Securities Act, the Exchange Act, state securities or the Blue Sky Laws, and (D) if necessary in accordance with Section 4.5(d), the issuance of the Merger Permit by the California Commissioner, or, if necessary in accordance with Section 4.5(e), the approval by the SEC in connection with the Registration Statement and the Parent Information Statement (as defined in Section 4.13(b)).” 2.04 Section 3.12 of Merger Agreement. Section 3.12 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 3.12 reads in its entirety: “Disclosure. None of the information supplied or to be supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or incorporation by reference in the Private Placement Information Statement, if a Private Placement Information Statement is mailed to the shareholders of the Company in accordance with   3 -------------------------------------------------------------------------------- Section 4.5(d), will, at the time that the Private Placement Information Statement is mailed to the shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or incorporation by reference in the Merger Permit Information Statement, if a Merger Permit Information Statement is mailed to the shareholders of the Company in accordance with Section 4.5(e)(iii), will, at the time that the Merger Permit Information Statement is mailed to the shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement, if a Proxy Statement is mailed to the shareholders of the Company in accordance with Section 4.5(f)(x), will, at the time that the Proxy Statement is mailed to the shareholders of the Company, at the time of the Company Shareholders’ Meeting or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or incorporation by reference in the Registration Statement, if a Registration Statement is filed with the SEC in accordance with Section 4.5(f)(ii), will, at the time that the Registration Statement is filed with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. Notwithstanding the foregoing, no representation or warranty is made by Parent with respect to statements made or incorporated by reference in the Private Placement Information Statement, the Merger Permit Information Statement, the Proxy Statement or the Registration Statement based on information supplied by or on behalf of the Company for inclusion or incorporation by reference in the Private Placement Information Statement, the Merger Permit Information Statement, the Proxy Statement or the Registration Statement.” 2.05 Section 4.5 of Merger Agreement. Section 4.5 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 4.5 reads in its entirety: “Securities Matters. (a) The parties hereto acknowledge and agree that if a Private Placement Information Statement has been mailed to the shareholders of the Company and the Merger is   4 -------------------------------------------------------------------------------- consummated in the manner described in the Private Placement Information Statement, the securities issuable to the Company Shareholders pursuant to the Merger shall constitute “restricted securities” under the Securities Act. Such securities shall bear the legend set forth below. “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR, UPON REASONABLE REQUEST BY THE COMPANY, AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.” (b) Prior to the Closing, the Company shall use its commercially reasonable efforts to prevent the number of Company Shareholders who are Unaccredited Investors (as defined in Section 8.4) from increasing to more than thirty-five such Unaccredited Investors. As soon as practicable after the execution of the First Amendment, but in any event prior to January 5, 2007, the Company shall use its commercially reasonable efforts to arrange for a purchaser representative (as contemplated by Regulation D under the Securities Act) reasonably satisfactory to Parent (the “Purchaser Representative”) to represent each shareholder of the Company that is an Unaccredited Investor in connection with the transactions contemplated by this Agreement. The Company shall use commercially reasonable efforts to obtain a written agreement in a form reasonably acceptable to Parent (a “Purchaser Representative Agreement”) from each Unaccredited Investor. The Company must obtain a Purchaser Representative Agreement from each Unaccredited Investor (the “Purchaser Representative Condition”) in order to fulfill the Purchaser Representative Condition. (c) As soon as practicable after the execution of the First Amendment, the parties shall prepare, and within one business day after the fulfillment of the Purchaser Representative Condition, the Company shall deliver to the Company Shareholders, an information statement relating to this Agreement and the transactions contemplated hereby (the “Private Placement Information Statement”). Each of the Company, Parent and Merger Sub shall use commercially reasonable efforts to cause the Private Placement Information Statement to comply with all requirements of applicable federal and state securities laws including the requirements of Rule 506 of Regulation D promulgated under the Securities Act. Each of the Company, Parent and Merger Sub shall provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Private Placement Information Statement or in any amendments or supplements thereto. The Private Placement Information Statement shall constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock to be received by the holders of Company Capital Stock in accordance with this Agreement. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Private Placement Information Statement, the Company, Parent and Merger Sub shall cooperate in delivering any such amendment or supplement to all the holders of Company Capital Stock. Anything to the contrary contained   5 -------------------------------------------------------------------------------- herein notwithstanding, (x) the Company shall not include in the Private Placement Information Statement any information with respect to Parent, Merger Sub or their respective Affiliates or associates, the form and content of which information shall not have been approved by Parent prior to such inclusion; provided, however, that Parent shall not withhold approval of any information required to be included by federal or state law, and (y) Parent shall not include in the Private Placement Information Statement any information with respect to the Company or its Affiliates or associates, the form and content of which information shall not have been approved by the Company prior to such inclusion; provided, however, that the Company shall not withhold approval of any information required to be included by federal or state law. Subject to the provisions of Section 4.4, the Private Placement Information Statement shall include the unqualified recommendation of the Company’s board of directors (the “Company Board”) in favor of adoption of this Agreement and the unanimous recommendation of the Company Board (the “Company Board Recommendation”) that the terms and conditions of the Merger and this Agreement are fair, just, reasonable, equitable, advisable and in the best interests of the Company and its shareholders. Subject to the provisions of Section 4.4, the Company Board Recommendation shall not be withdrawn or modified in a manner adverse to Parent, and no resolution by the Company Board or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent shall be adopted or proposed. The Company and Parent shall cooperate in delivering any such amendment or supplement to all the holders of Company Capital Stock. (d) Except as otherwise set forth in Section 4.5(d)(iii) and 4.5(d)(iv), as soon as practical after the execution of the First Amendment: (i) Parent shall prepare, with the cooperation of the Company, an application for permit (the “Merger Permit Application”) in connection with the Hearing (as defined in this Section 4.5(d)(i)) and the notice sent to the shareholders of the Company in accordance with, and meeting the requirements of California law (the “Hearing Notice”), concerning a hearing (the “Hearing”) held by the California Commissioner to consider the terms and conditions of this Agreement and the Merger and the fairness of such terms and conditions in accordance with Section 25142 of the California Corporate Securities Law of 1968 (“California Securities Law”), and the parties shall prepare (based on a form provided by Parent) an information statement relating to this Agreement and the transactions contemplated hereby (the “Merger Permit Information Statement”). Each of the Company, Parent and Merger Sub shall use commercially reasonable efforts to cause the Merger Permit Application, the Hearing Notice and the Merger Permit Information Statement to comply with all requirements of applicable federal and state securities laws. Each of the Company, Parent and Merger Sub shall provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Merger Permit Application, the Hearing Notice or the Merger Permit Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the Merger Permit Application, the Hearing Notice and the Merger Permit Information Statement. The Merger Permit   6 -------------------------------------------------------------------------------- Information Statement shall constitute a disclosure document for the offer and issuance of the shares of Parent Common Stock to be received by the holders of Company Common Stock, in accordance with this Agreement. Whenever any event occurs that is required to be set forth in an amendment or supplement to the Merger Permit Information Statement, the Company, Parent and Merger Sub shall cooperate in delivering any such amendment or supplement to all the holders of Company Common Stock and/or filing any such amendment or supplement with the California Commissioner of Corporations (the “California Commissioner”) or its staff and/or any other government officials. Subject to Section 4.4, the Merger Permit Information Statement shall include the Company Board Recommendation that the terms and conditions of the Merger and this Agreement are fair, just, reasonable, equitable, advisable and in the best interests of the Company and its shareholders. Subject to the provisions of Section 4.4, the Company Board Recommendation shall not be withdrawn or modified in a manner adverse to Parent, and no resolution by the Company Board or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent shall be adopted or proposed. (ii) Each of Parent, Merger Sub and the Company shall cause to be filed no later than December 29, 2006 (or such later date as the Company and Parent may hereafter agree) with the California Commissioner, the Merger Permit Application and the Hearing Notice and to obtain, as soon as practicable, a permit approving the fairness of this Agreement and the Merger in accordance with Section 25121 of California Securities Law such that the issuance of the Merger Consideration shall be exempt in accordance with Section 3(a)(10) of the Securities Act from the registration requirements of Section 5 of the Securities Act (the “Merger Permit”). In the event that the Private Placement Information Statement is mailed to the Company Shareholders, each of Parent, Merger Sub and Company shall use commercially reasonable efforts to cause the Merger Permit Application to be withdrawn and terminated. (iii) As soon as permitted by the California Commissioner, and so long as the Private Placement Information Statement shall not have been mailed to the Company Shareholders, the Company shall deliver the Hearing Notice to all shareholders of the Company entitled to receive such notice under California Securities Law. The Company and Parent shall notify each other promptly of the receipt of any comments from the California Commissioner or its staff and of any request by the California Commissioner or its staff or any other government officials for amendments or supplements to any of the documents filed therewith or any other filing or for additional information and shall provide each other with copies of all correspondence between such party or any of its representatives, on the one hand, and the California Commissioner, or its staff or any other government officials, on the other hand, with respect to the filing. If the California Commissioner issues the Merger Permit, then as soon as practicable thereafter the Company shall deliver the Merger Permit Information Statement to all shareholders of the Company. Each of Parent and the Company shall not, and shall use reasonable efforts to cause its respective Subsidiaries and representatives   7 -------------------------------------------------------------------------------- not to, directly or indirectly, solicit the vote of any shareholder of the Company, in connection with the Merger in violation of any applicable federal or state securities laws. (iv) The Company shall promptly advise Parent, and Parent shall promptly advise the Company, in writing if at any time prior to the Effective Time either the Company, Parent or Merger Sub shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Hearing Notice, the Merger Permit Application, and/or the Merger Permit Information Statement, in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. The Company and Parent shall cooperate in delivering any such amendment or supplement to all the shareholders of the Company and/or Company Options and/or filing any such amendment or supplement with the California Commissioner or its staff and/or any other government officials. (e) If a Private Placement Information Statement is not mailed to the shareholders of the Company and if Parent and the Company determine in writing that the Merger Permit cannot be obtained, or cannot reasonably be expected to be obtained, in each case in time to permit the Closing to occur on or before June 30, 2007, or if a Private Placement Information Statement is not mailed to the shareholders of the Company in accordance with Section 4.5(c) and the California Commissioner notifies Parent, Merger Sub or the Company of the California Commissioner’s determination not to grant the Hearing, not to permit the mailing of the Notice of Hearing and/or not to issue the Merger Permit, then: (i) Each of Parent, Merger Sub and the Company shall use commercially reasonable efforts to cause the Stock Consideration to be registered on a registration statement on Form S-4 with the SEC (the “Registration Statement”). (ii) Parent shall prepare, and the Company shall reasonably cooperate in such preparation, and Parent shall file with the SEC, as soon as practicable after the execution of this Agreement, the Registration Statement, which shall include the consent solicitation or proxy statement/prospectus to be sent to the Company Shareholders in connection with the Company Shareholders Meeting or any consent solicitation conducted in lieu thereof (as amended or supplemented, the “Proxy Statement”), and Parent shall use commercially reasonable efforts to cause the Registration Statement to become effective as soon thereafter as practicable. (iii) Each of Parent and Merger Sub shall use commercially reasonable efforts to cause the Registration Statement and the Company shall use commercially reasonable efforts to cause the Proxy Statement to comply with all applicable requirements of federal and state securities laws. (iv) Each of Parent (for itself and Merger Sub) and the Company shall provide promptly to the other such information concerning its business and   8 -------------------------------------------------------------------------------- financial statements and affairs as (i) in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Registration Statement, the Proxy Statement, or in any amendments or supplements thereto, or (ii) such other party may reasonably request, and to cause its counsel, auditors and other representatives to cooperate with the other party’s counsel, auditors and other representatives in the preparation of the Registration Statement and the Proxy Statement. (v) Subject to the provisions of Section 4.4, the Proxy Statement shall include the Company Board Recommendation that the terms and conditions of the Merger and this Agreement are fair, just, reasonable, equitable, advisable and in the best interests of the Company and its shareholders. Subject to the provisions of Section 4.4, the Company Board Recommendation shall not be withdrawn or modified in a manner adverse to Parent, and no resolution by the Company Board or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent shall be adopted or proposed. (vi) Each of Parent (for itself and Merger Sub) and the Company shall notify the other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Registration Statement or the Proxy Statement or any other filing or for additional information and shall provide the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Registration Statement or the Proxy Statement or other filing. Each of Parent and the Company will respond promptly to any comments from the SEC and will use commercially reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as practicable after such filing. (vii) The Company shall promptly advise Parent, and Parent shall promptly advise the Company, in writing if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Registration Statement or the Proxy Statement, in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law, and the Company and Parent shall cooperate in delivering any such amendment or supplement to all the holders of the Company Common Stock and/or filing any such amendment or supplement with the SEC or its staff and/or any other government officials. (viii) Parent shall promptly prepare and submit to Nasdaq a listing application covering the shares of Parent Common Stock to be issued in the Merger and pursuant to Company Options after the Effective Time, and shall use its reasonable best efforts to obtain, prior to the Effective Time, approval for the quotation of such Parent Common Stock, subject to official notice of issuance to Nasdaq, and the Company shall cooperate such respect to such quotation.   9 -------------------------------------------------------------------------------- (ix) As soon as practicable after the date hereof, each of Parent and the Company shall make all other filings required to be made by it with respect to the Merger and the transactions contemplated hereby under the Securities Act, the Exchange Act and applicable Blue Sky Laws and the rules and regulations thereunder. (x) As soon as practicable after the Registration Statement is declared effective by the SEC, the Company shall deliver the Proxy Statement to all holders of the Company Common Stock, the Company Warrants and/or the Company Options.” The Parties hereby agree that, should they both agree at any time to proceed with one of the options set forth in this Section 2.5 in a sequence other than as set forth above, or to revisit one of the options set forth in this Section 2.5 after a prior effort to pursue that option, the Parties may so proceed without the need for a future amendment to the Agreement or this First Amendment. 2.06 Section 4.6 of Merger Agreement. Section 4.6 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 4.6 reads in its entirety: “Solicitation of Shareholders. The Company shall take all action necessary in accordance with the CGCL, the Articles of Incorporation and the Company’s bylaws to call, convene and hold the Company Shareholders Meeting or to secure the written consent of its shareholders adopting this Agreement and approving the Merger (i) as soon as practicable after the date that Purchaser Representative Condition is satisfied, and, in any event, no later than three business days after such date, or, (ii) if the Purchaser Representative Condition is not satisfied by January 5, 2007, (A) as soon as practicable after the date that the California Commissioner issues the Merger Permit and in any event no later than three business days after such date, or (B) if the California Commissioner notifies Parent or the Company of the California Commissioner’s determination not to grant the Hearing, not to permit the mailing of the Notice of Hearing and/or not to issue the Merger Permit, as soon as practicable after the date that the Registration Statement is declared effective by the SEC, and, in any event, no later than three business days after such date. If the Company calls a Company Shareholders Meeting, then the Company shall consult with Parent regarding the date of the Company Shareholders Meeting and shall not postpone or adjourn (other than for the absence of a quorum) the Company Shareholders Meeting without the prior written consent of Parent. The Company shall solicit from shareholders of the Company proxies or consents to be voted on the adoption of this Agreement and the approval of the Merger and, subject to the provisions of Section 4.4, shall take all other action necessary or advisable to secure the vote or consent of the Company Shareholders required to effect the transactions contemplated by this Agreement.”   10 -------------------------------------------------------------------------------- 2.07 Section 4.13(b) of Merger Agreement. Section 4.13(b) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 4.13(b) reads in its entirety: “As soon as practicable after either the satisfaction of the Purchaser Representative Condition, the filing of the Merger Permit Application or the filing of the Registration Statement, and in any event within seven business days thereafter, Parent shall prepare and file with the SEC a preliminary information statement (the “Parent Information Statement”) to be sent to the stockholders of Parent relating to the action by written consent approving and adopting the Parent Stock Plan Amendment. The Company shall provide promptly to Parent such information concerning its business and affairs as, in the reasonable judgment of the Company or its counsel, may be required or appropriate for inclusion in the Parent Information Statement, or in any amendments or supplements thereto. 2.08 Section 4.23 of Merger Agreement. Section 4.23 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 4.23 reads in its entirety: “SAS 100 Review and Year-End Audit. As promptly as practicable upon agreement between Parent and the Company, the Company will cause its external accountants complete their review under Statement on Auditing Standards No. 100 of the Company’s interim financial statements for each period for which such statements are required to be included, or are included, in the Registration Statement or any other filing of Parent with the SEC, including financial statements as of and for the nine-month period ended September 30, 2006. As promptly as practicable after December 31, 2006, the Company will begin preparing and, when reasonably appropriate, cause its external accountants to audit the financial statements of the Company as of and for the year ended December 31, 2006.” 2.09 Section 5.1(d) of Merger Agreement. Section 5.1(d) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 5.1(d) reads in its entirety: “SEC Approval. If a Registration Statement is filed with the SEC in accordance with Section 4.5(e)(ii), the Registration Statement shall have been declared effective by the SEC, and no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose, shall have been initiated or threatened by the SEC.” 2.10 Section 5.1(e) of Merger Agreement. Section 5.1(e) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 5.1(e) reads in its entirety: “Nasdaq Quotation. If a Registration Statement is filed with the SEC in accordance with Section 4.5(e)(ii), or if a Permit is filed with the California   11 -------------------------------------------------------------------------------- Commissioner, the shares of Parent Common Stock to be issued in the Merger shall have been authorized for quotation on Nasdaq, subject to official notice of issuance.” 2.11 Section 5.1(f) of Merger Agreement. Section 5.1(f) is hereby added to the Merger Agreement. Section 5.1(f) reads in its entirety: “California Commissioner Approval. If a Merger Permit Information Statement has been mailed to the shareholders of the Company, the Merger Permit shall have been issued by the California Commissioner and no stop order suspending the effectiveness of the Merger Permit or any part thereof shall have been issued and no proceeding for that or similar purposes shall have been initiated or threatened by the Department of Corporations of the State of California.” 2.12 Sections 5.3(k) and (l) of Merger Agreement. Sections 5.3(k) and (l) are hereby added to the Merger Agreement. Sections 5.3(k) and (l) read in their entirety: “(k) Securities Compliance. If a Private Placement Information Statement has been mailed to the shareholders of the Company in accordance with Section 4.5(c), Parent shall have received evidence reasonably satisfactory to Parent that the issuance of Parent Common Stock as Merger Consideration to the Company Shareholders complies with Rule 506 of Regulation D promulgated under the Securities Act. (l) Purchaser Representative. If a Private Placement Information Statement has been mailed to the shareholders of the Company in accordance with Section 4.5(c), there shall be a Purchaser Representative reasonably satisfactory to Parent representing each of the Unaccredited Investor and such Purchaser Representative shall have executed documentation reasonably satisfactory to Parent.” 2.13 Section 6.1(b) of Merger Agreement. Section 6.1(b) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 6.1(b) reads in its entirety: “(b) by either Parent or the Company, if the Closing shall not have occurred on or before June 30, 2007 (the “Termination Date”); provided, however, that the right to terminate this Agreement under this Section 6.1(b) shall not be available to any party whose breach of this Agreement has resulted in the failure of the Closing to occur on or before the Termination Date;” 2.14 Section 8.4(pp) of Merger Agreement. Section 8.4(pp) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 8.4(pp) reads in its entirety: “(pp) “Unaccredited Investor” means an investor who is not an “Accredited Investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act; and”   12 -------------------------------------------------------------------------------- 2.15 Section 8.4(qq) of Merger Agreement. Section 8.4(qq) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Section 8.4(qq) reads in its entirety: “(qq) “Vested Company Options” means the portion of all Company Options that is or may become vested prior to the Closing.” 2.16 Exhibit J to Merger Agreement. Items 12 and 13 of the “Parent and Merger Sub Deliveries” listed on Exhibit J to the Merger Agreement are hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Items 12 and 13 of the “Parent and Merger Sub Deliveries” read in their entirety: “12. an executed copy of the Certificate of Merger, the Agreement of Merger and the CA Certificate of Merger and related officer’s certificates; 13. a legal opinion from Jones Day, counsel to Parent and Merger Sub, covering the matters set forth on Exhibit K; and” 2.17 Exhibit J to Merger Agreement. Exhibit J to the Merger Agreement is hereby amended by adding item 14 to the “Parent and Merger Sub Deliveries.” Item 14 of the “Parent and Merger Sub Deliveries” reads in its entirety: “14. if a Private Placement Information Statement has been mailed to the shareholders of the Company, a copy of a Registration Rights Agreement substantially in the form attached as Exhibit M duly executed by Parent.” 2.18 Exhibit J to Merger Agreement. Items 14 and 15 of the “Company Deliveries” listed on Exhibit J to the Merger Agreement are hereby amended and superseded in all respects by the provisions of this First Amendment. As amended and restated, Items 14 and 15 of the “Company Deliveries” read in their entirety: “14. an Excess Parachute Payment Waiver, duly executed by each Person described in Section 4.17(a); 15. a representation letter to tax counsel as contemplated by Section 4.12;” 2.19 Exhibit J to Merger Agreement. Exhibit J to the Merger Agreement is hereby amended by adding items 16, 17 and 18 to the “Company Deliveries.” Items 16, 17 and 18 of the “Company Deliveries” read in their entirety: “16. if a Private Placement Information Statement has been mailed to the shareholders of the Company, a copy of the Representation Agreement in substantially the form attached hereto as Exhibit N executed by each shareholder of the Company; 17. if a Private Placement Information Statement has been mailed to the shareholders of the Company, a copy of a Retention of Purchaser Representative Agreement in substantially the form attached hereto as Exhibit O executed by the Company and the Purchaser Representative;   13 -------------------------------------------------------------------------------- 18. if a Private Placement Information Statement has been mailed to the shareholders of the Company, a copy of the Purchaser Representative Agreement in substantially the form attached hereto as Exhibit P executed by the Purchaser Representative and each Company Shareholder that is an Unaccredited Investor; and “19. if a Private Placement Information Statement has been mailed to the shareholders of the Company, a copy of a Registration Rights Agreement substantially in the form attached as Exhibit M duly executed by each shareholder of the Company.” 2.20 Exhibits M, N, O and P to Merger Agreement. The documents attached to this First Amendment as Exhibits A, B, C and D are hereby added as Exhibits M, N, O and P, respectively, to the Merger Agreement. ARTICLE III Miscellaneous 3.01 Effect of First Amendment. On and after the date hereof, each reference in the Merger Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Merger Agreement, and each reference in any of the agreements or certificates to be delivered in connection with the Merger Agreement to the “Merger Agreement,” “thereunder,” “thereof” or words of like import referring to the Merger Agreement, shall mean and be a reference to the Merger Agreement as amended by this First Amendment. The Merger Agreement as amended by this First Amendment constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, representations or other arrangements, whether express or implied, written or oral, of the parties in connection therewith except to the extent expressly incorporated or specifically referred to herein. In the event of a conflict between the respective provisions of the Merger Agreement and this First Amendment, the terms of this First Amendment shall control. Except as specifically amended by the terms of this First Amendment, the terms and conditions of the Merger Agreement are and shall remain in full force and effect for all purposes. 3.02 Counterparts. Two original counterparts of this First Amendment are being executed by the parties hereto, and each fully executed counterpart shall be deemed an original without production of the others and will constitute one and the same instrument. 3.03 Governing Law. This First Amendment will be governed by and construed and interpreted in accordance with the internal substantive laws of the State of California, applicable to contracts made and to be performed wholly within such state, and without regard to the conflicts of law principles thereof. [Signature Page Follows]   14 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, each of the parties hereto has caused this First Amendment to be executed by its duly authorized officers, as of the date first above written.   SUNPOWER CORPORATION By:   /s/ Thomas H. Werner Name:   Thomas H. Werner Title:   Chief Executive Officer POWERLIGHT CORPORATION By:   /s/ Thomas L. Dinwoodie Name:   Thomas L. Dinwoodie Title:   Chief Executive Officer

Exhibit 10.10 Compensation Arrangement with Luther C. Kissam, IV, dated August 29, 2003 August 29, 20003 Luther C. Kissam, IV 34 Godwin Lane Ladue, MO 63124 Dear Luke: I will summarize Albemarle's offer to you to join the company as Vice President, General Counsel and Secretary. Since there are several components, I will address each separately. 1.     Salary - $260,000   2. Bonuses - Target is 50% of base salary under the Annual Incentive Plan of the corporation, which is performance based. Attached is a copy of the plan description for your reference. As the plan is calculated for the calendar year, your first year bonus amount will be prorated for 2003 based on time worked and actual performance, with a minimum payment of $65,000.   3. In addition to the minimum bonus noted above, Albemarle will pay you a total of $65,000 for loss of 2003 annual incentive earnings at your current employer. This payment will be made on the first pay period following your date of hire. The full amount of this payment is to be repaid should you leave the company voluntarily within three years of your date of hire.   4. Albemarle will award you fifty thousand stock options under the company's existing plan. A copy of the plan description is also attached. The price of those options will be the composite closing price of the stock on your first day of employment. The options will have a ten year term and will completely vest after three years from the date of grant. These will be confirmed as a separate agreement following your hire. 5. The company will issue to you a grant of 10,000 Performance Units upon your hire under the same terms and conditions as all other eligible employees received through a grant made by the Board of Directors in January 2002. This grant of Performance Units, where each unit is valued equivalent to a share of common stock, is contingent on the company achieving Growth in Operating Profit and Return on Gross Assets targets over the four calendar years starting with 2002 and ending with 2005. In early         86 -------------------------------------------------------------------------------- Luther C. Kissam, IV August 29, 2003 Page Two   2006 a determination of an earned award based on actual corporate performance will be made which may be anywhere from 0 to 200% of the original grant. Once earned, the award will be vested in three equal amounts, paid half in stock and half in cash in January of the next three years. This grant of Performance Units will be confirmed as a separate notice of award following your hire. 6.     Albemarle's retirement program, subject to approval by its Executive Compensation Committee, provides a bridge for mid-career senior executives joining the company. The idea behind this provision assures the executive who works 15 years for Albemarle a retirement equal to 60 percent of final average pay. You would accumulate four percent for each year of service with a cap of 60 percent. This is then offset by benefits from other qualified pension plans, social security, etc. which will include benefits earned at your previous employer. Attached is a copy of the Supplemental Executive Retirement Plan, which contains these provisions. 7. You will participate in Albemarle's savings plan, which provides a company match of 50% on personal savings contributed by you of up to ten percent. Should the amounts exceed so-called high income caps, such excess will be carried by the company until paid out at retirement. 8. You will be eligible to participate in the Albemarle Executive Deferred Compensation Plan at the next enrollment period later this year. The program allows participants to defer up to 50% of salary and up to 100% of bonus (net of FICA, including Medicare, taxes) each year. Deferrals are credited to one or more accounts which may be distributed at or before retirement based on your election. Deferrals are credited with the investment performance of funds which largely mirror those available in the Savings Plan. Attached is a booklet which describes this program. 9. In the event a Change of Control were to occur and one or more of the following events happen with respect to your employment within a period of 24 months thereafter, you may resign and receive a lump sum payment and other benefits as described below. The events include: (1) a change or diminution of responsibilities or compensation, (2) a reduction of benefit eligibility or benefit level (3) refusal by a successor company to assume this severance agreement, or (4) termination.   If you resign or are terminated under conditions described in the paragraph above, you will receive: (1) a lump sum payment equal to two times your annual salary and Annual Incentive at the previous year's payment amount, (2) all vested outstanding stock options become exercisable, (3) all vested restricted stock becomes nonforfeitable, and (4) as a mid-career hire, should a Change of Control under conditions as described in the paragraph above occur during the first ten years of 87 -------------------------------------------------------------------------------- Luther C. Kissam, IV August 29, 2003 Page Three   employment, you will receive an adjusted benefit payable at normal retirement age under the pension plan described in item 6 of this letter calculated without offset from other benefits. 10.     In the event that your employment is terminated within the first five years for reasons other than for cause, Albemarle will pay you a severance equal to one times your then current annual compensation including both salary and annual incentive compensation at target. 12. You will be eligible for the full benefit package provided by the company. Information on health and life insurance and other benefits are attached. Answers to questions you have will be provided separately by Jack Harsh. 13. Relocation allowances provide full coverage for moving and packing household goods. You will be entitled to the provisions of the policy as are transferred employees. If you can sell your residence, the company prefers you do so. In the event you cannot do so in a reasonable time, the company will buy the house based on the average of two appraisals. The mechanics of this transaction are covered in the relocation policy. 14. Your vacation eligibility is four weeks per year starting in 2004. 15. Your expected date of employment is on or before October 1, 2003. This offer is subject to a preemployment physical examination and substance screening under the company's policy. In addition, upon your acceptance of this offer and start of employment with Albemarle, this letter will represent our mutual agreement relating to the terms of your employment with Albemarle. Sincerely,        Mark C. Rohr  President, CEO  Enclosures cc: F. D. Gottwald, Jr. W. M. Gottwald J. P. Harsh 88 --------------------------------------------------------------------------------

EXHIBIT 10 MICROS SYSTEMS, INC. EXECUTIVE RETIREMENT PLAN Revised April 27, 2005 ARTICLE 1 PURPOSE MICROS Systems, Inc. (hereafter called “the Corporation”) recognizes the contributions to its growth and success made by certain key employees and desires to retain the services of such individuals and to assure the Corporation of the continued benefit of their services.  Accordingly, the Corporation hereby establishes the MICROS Systems, Inc. Executive Retirement Plan (the “Plan”) to provide retirement benefits to these employees as described herein in order to reward and retain such individuals. ARTICLE 2 DEFINITIONS AND CERTAIN PROVISIONS Administrator.  “Administrator” shall mean the Board of Directors or, to the extent designated by the Board, the Committee. Annual Benefit.  “Annual Benefit” means ten equal annual payments, each of which shall be equal to the product of the Participant’s (i)  Final Base Compensation multiplied by (ii) the applicable Benefit Percentage.  The first payment of the Annual Benefit shall be made on the date specified in Section 5.1 or 5.2, as applicable, and the last payment will be made on the ninth anniversary of such date. Beneficiary.  “Beneficiary” means the person or persons designated as such in accordance with Article 6. Benefit Percentage.  “Benefit Percentage” means (i) 18% if the Participant’s employment with the Corporation terminates prior to the date the Participant attains age 63 (including if the Participant’s employment is terminated on account of his or her death prior to attaining age 63); (ii) 21% if the Participant’s employment with the Corporation terminates on or after the date the Participant attains age 63 but prior to the date the Participant attains age 64; (iii) 24% if the Participant’s employment with the Corporation terminates on or after the date the Participant attains age 64 but prior to the date the Participant attains age 65; or (iv) 30% if the Participant’s employment with the Corporation terminates on or after the date the Participant attains age 65. Board of Directors or Board.  “Board of Directors” or “Board” means the Board of Directors of the Corporation. Change in Control.  “Change in Control” means:  (i) the acquisition (other than from the Corporation) by any Person, as defined herein, of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50% or more of (A) the then-outstanding shares of capital stock of the Corporation (the “Common Stock”), or (B) the combined voting power of the then-outstanding securities of the Corporation entitled to vote generally in the election of directors (the “Corporation Voting Stock”); or (ii) the effective time of any merger, share exchange, consolidation, or other business combination involving the Corporation if immediately after such transaction persons who hold 50% of the outstanding voting securities entitled to vote generally in the election of directors of the surviving entity (or the entity owning 100% of such surviving entity) are not persons who, immediately prior to such transaction, held Common Stock.  For purposes of this definition, a “Person” means 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, other than any employee benefit plan sponsored or maintained by the Corporation and by entities controlled by the Corporation or an underwriter of the Common Stock in a registered public offering. -------------------------------------------------------------------------------- Code.  “Code” shall mean the Internal Revenue Code of 1986, as amended. Committee.  “Committee” means the Compensation Committee of the Board of Directors. Corporation.  “Corporation” means MICROS Systems, Inc., and any successor corporation. Date of Employment.  “Date of Employment” means, for purposes of determining Years of Service, the date upon which the Participant commenced employment with the Corporation. Effective Date.  “Effective Date” means August 25, 2004. Final Base Compensation. “Final Base Compensation” means the annual base salary, not including annual bonuses, stock option income or other remuneration, the Participant earned over the twelve-month period during which the Participant worked full-time and excluding any periods of leave or other absences, immediately preceding the Participant’s termination of employment with the Corporation.  Final Base Compensation shall be determined without regard to any elective reduction thereof resulting from the Participant’s participation in any of the Corporation’s employee benefit plans. Participant.  “Participant” means an employee of the Corporation designated on Schedule A hereto.  Plan.  “Plan” means this MICROS Systems, Inc. Executive Retirement Plan, as set forth herein. Vested Benefit.  “Vested Benefit” means the nonforfeitable Annual Benefit provided under the Plan to a Participant who has satisfied the requirements in Section 4.2 of the Plan. Years of Service.  “Years of Service” means the total number of completed twelve-month periods during which the Participant was in the continuous employ of the Corporation beginning from the Participant’s Date of Employment. ARTICLE 3 ADMINISTRATION OF THE PLAN 3.1 Duties and Powers of the Administrator.  The Administrator shall be responsible for the control, management, operation and administration of the Plan and the proper execution of its provisions.  It shall also be responsible for the construction of the Plan and the determination of all questions arising hereunder. In furtherance of the foregoing, the Administrator shall have the sole power, responsibility and discretion (i) to establish, interpret, enforce, amend, and revoke from time to time such rules and regulations for the administration of the Plan and the conduct of its business as it deems appropriate, (ii) to determine the entitlement of Participants and their Beneficiaries to benefits under the Plan, and (iii) to decide any disputes that may arise relative to the rights of the Participants and their Beneficiaries with respect to such benefits.  Any action which the Administrator is required or authorized to take shall be final and binding upon each and every person who is or may become interested in the Plan.  Notwithstanding anything in the Plan to the contrary, on and after the occurrence of a Change in Control, the Administrator shall not have any discretion in the administration of the Plan, and notwithstanding anything in the Plan to the contrary, any court or tribunal that adjudicates any dispute, controversy or claim in connection with benefits under the Plan will apply a de novo standard of review to any determinations made by the Administrator in the administration of the Plan.     3.2 Expenses.  The expenses of administering the Plan shall be paid by the Corporation. 2 -------------------------------------------------------------------------------- 3.3 Claims Administration.  In the event that benefits under the Plan are not paid to the Participant, or to his Beneficiary, and such individual feels he is entitled to receive such benefits, then such individual shall make a written claim to the Administrator.  The Administrator shall review the written claim within a reasonable time after it is submitted, and if the claim is denied, in whole or in part, the Administrator shall provide written notice of such denial within 90 days of receipt of such claim.  Such written notice of denial shall be written in a manner calculated to be understood by the claimant and shall include the following:       (i) the specific reason or reasons for the denial;         (ii) specific reference to pertinent Plan provisions on which the denial is based;         (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and         (iv) a description of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action following an adverse determination on review.         Within 60 days after receipt by the claimant of written notice of the denial, the claimant may appeal such denial by filing a written application for review with the Administrator.  Such written application shall state the grounds upon which the claimant seeks to have the claim reviewed, and may include written comments, documents, records and other information relating to the claim for benefits.  The claimant shall be provided, upon 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 Administrator shall then review the decision, taking 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, and shall notify the claimant in writing of the results of the redetermination within 60 days of receipt of the application for review.  Such written notification shall be written in a manner calculated to be understood by the claimant, and shall include the following:       (i) the specific reason or reasons for the adverse determination;         (ii) specific reference to pertinent Plan provisions on which the adverse determination is based;         (iii) a statement that the claimant is entitle to receive, upon 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; and         (iv) a statement of the claimant’s right to bring a civil action regarding the adverse benefit determination.       3.4 Legal Fees.  In the event any Participant or Beneficiary in good faith initiates any dispute, controversy or claim for benefits under the Plan after the occurrence of a Change in Control or after the Participant becomes age 62, provided he or she has no fewer than eight Years of Service, the Corporation shall pay to the Participant or Beneficiary all reasonable legal fees and expenses incurred by the Participant or Beneficiary in connection with such good faith dispute, controversy or claim.  Such payments shall be made within five business days after delivery of the Participant’s or Beneficiary’s written requests for payment accompanied with such evidence of the reasonable fees and expenses incurred as the Corporation may reasonably require. 3 -------------------------------------------------------------------------------- ARTICLE 4 PARTICIPATION AND VESTING 4.1 Participation.  Participation in the Plan shall be limited to those employees of the Corporation specified on Schedule A attached hereto.     4.2 Vesting.  A Participant (or his or her designated beneficiary) shall not be eligible to receive any benefit under the Plan unless and until the Participant has no fewer than eight Years of Service and either (i) the Participant has attained age 62, or (ii) there is a Change in Control, or (iii) the Participant dies prior to attaining age 62.  If a Participant terminates employment with the Corporation prior to satisfaction of the conditions specified in this Section 4.2, such Participant shall not be entitled to receive any benefits under this Plan. ARTICLE 5 BENEFITS 5.1 Payments of Vested Benefit.  The Corporation shall pay to a Participant his Vested Benefit (if any) commencing upon the later of (i) the first business day of the month next following the month in which the Participant’s employment with the Corporation terminates, (ii) the first business day of the month next following the month in which the Participant attains age 62, or (iii) with respect to any Participant who is a “key employee” (as defined in section 416(i) of the Code without regard to paragraph (5) thereof), to the extent required by Code section 409A, the first business day which is six months after such Participant’s separation from service with the Corporation (as determined in accordance with Code section 409A).     5.2 Survivor Benefits.  If a Participant dies prior to commencement of the payment of his Vested Benefit (if any) under the Plan, the Corporation will pay to the Participant’s Beneficiary the Participant’s Vested Benefit (if any) beginning on the first business day of the month next following the month in which the Participant dies.  If a Participant dies after the commencement of the Participant’s Vested Benefit under the Plan, then any remaining annual payments of the Participant’s Vested Benefit that, but for such death, would have been paid to the Participant shall be paid to the Participant’s Beneficiary.     5.3 Withholding: Unemployment Taxes.  To the extent required by the law in effect at the time payments are made, the Corporation shall withhold from payments made hereunder any taxes required to be withheld by the federal or any state or local government. ARTICLE 6 BENEFICIARY DESIGNATION 6.1 Designation of Beneficiary.  Each Participant shall have the right, at any time, to designate any person or persons as Beneficiary or Beneficiaries to whom payment under the Plan shall be made in the event of Participant’s death prior to complete distribution to Participant of the benefits due under the Plan.  Each Beneficiary designation shall become effective only when filed in writing with the Corporation during the Participant’s lifetime on a form prescribed by the Corporation.     6.2 Amendment of Beneficiary Designation.  The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed.  Any finalized divorce or marriage (other than a common law marriage) of Participant subsequent to the date of filing of a Beneficiary designation form shall revoke such designation, unless in the case of divorce, the previous spouse was not designated as Beneficiary, and, unless in the case of marriage, the Participant’s new spouse had previously been designated as Beneficiary.  The spouse of a married Participant domiciled in a community property jurisdiction shall join in any designation of Beneficiary or Beneficiaries other than the spouse. 4 -------------------------------------------------------------------------------- 6.3 Failure to Designate a Beneficiary.  If a deceased Participant failed to designate a Beneficiary as provided herein, or if his Beneficiary designation is revoked by marriage, divorce, or otherwise without execution of a new designation, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s Vested Benefit, then the remaining amounts (if any) of the Participant’s Vested Benefit shall be paid to the Participant’s estate.     ARTICLE 7 AMENDMENT AND TERMINATION OF PLAN     The Board of Directors, in its sole discretion, may at any time amend the Plan in whole or in part or in any respect, or may at any time terminate the Plan, provided, however that no amendment or termination shall eliminate or decrease any Vested Benefit theretofore accrued and vested by any Participant prior to such amendment or termination.     ARTICLE 8 MISCELLANEOUS   8.1 Unsecured General Creditor.  Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any specific property or assets of the Corporation, nor shall they be beneficiaries of, or have any right, claims, or interests in any insurance policies, annuity contracts, or the proceeds therefrom owned or which may be acquired by the Corporation.  Such insurance policies or other assets of the Corporation shall not be held under any trust for the exclusive benefit of Participants, their Beneficiaries, heirs, successors, or assigns, or held in any way as collateral security solely for the fulfilling of the obligations of the Corporation under the Plan.  Any and all of the Corporation’s assets and insurance policies shall be, and remain, subject to the general unsecured creditors of the Corporation.  The Corporation’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Corporation to pay money in the future.     8.2 Nonassiqnability.  Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, or interest therein which are, and all rights to which are, expressly declared to be unassignable and non-transferable.  No part of the amount payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.     8.3 Employment Not Guaranteed.  Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract for services with any Participant or a legal right to continued employment of any Participant as an employee of the Corporation, nor shall the adoption and continuation of the Plan or designation of any employee of the Corporation as a Participant interfere with the rights of the Corporation to discharge any Participant and to otherwise treat him without regard to the effect which such discharge might have upon him as a Participant.     8.4 Gender Singular and Plural.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter as the identity of the person or persons may require.  As the context may require, the singular may be read as the plural and the plural as the singular.     8.5 Captions.  The captions of the Articles and Sections of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 5 -------------------------------------------------------------------------------- 8.6 Validity.  In the event any provision of the Plan is held invalid or void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan.     8.7 Notice.  Any notice or filing required or permitted to be given to the Corporation or the Administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the principal office of the Corporation, directed to the attention of the Secretary of the Corporation.  Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail as of the date shown on the postmark on the receipt for registration or certification.     8.8 Applicable Law.  To the extent not preempted by Federal law, this Plan shall be governed and construed in accordance with the laws of the State of Maryland other than the conflicts provisions thereof.     8.9 Compliance with Code Section 409A.  Notwithstanding anything in this Plan to the contrary, the Plan is intended to meet requirements of Code section 409A, and any provision of the Plan which is inconsistent with Code section 409A shall be disregarded and shall not create any right in any Participant or Beneficiary.           IN WITNESS WHEREOF, this Plan has been executed the 19th day of November, 2004, to be effective as of the Effective Date, and amended as hereinabove the 27th day of April, 2005.   /s/ John Puente   --------------------------------------------------------------------------------   Chairman, Compensation Committee 6 --------------------------------------------------------------------------------

Exhibit 10.2 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. MULTICELL TECHNOLOGIES, INC. AMENDED AND RESTATED WARRANT TO PURCHASE COMMON STOCK July     , 2006 Void After July 31, 2010 RECITALS 1. MultiCell Technologies, Inc., a Delaware corporation, with its principal office at 701 George Washington Highway, Lincoln, RI 02865 (the “Company”) issued to the Anthony J. Cataldo a Warrant to Purchase Common Stock on or about August 1, 2005 (the “Original Warrant”). 2. Anthony Cataldo’s relationship with the Company was mutually terminated as of July     , 2006. 3. In connection with such termination, the parties have agreed to amend and restate the Original Warrant as set forth in this Amended and Restated Warrant to Purchase Stock (the “Warrant”). This Warrant Certifies That, for value received, Anthony J. Cataldo, or his assigns (the “Holder”), is entitled to subscribe for and purchase at the Exercise Price (defined below) from the Company up to 1,000,000 shares of Common Stock of the Company (the “Common Stock”). 1. Definitions. As used herein, the following terms shall have the following respective meanings: (a) “Exercise Period” shall mean the period commencing with the date hereof and ending on July 31, 2010. (b) “Exercise Price” shall mean $1.40 per share, subject to adjustment pursuant to Section 5 below. (c) “Exercise Shares” shall mean the shares of the Company’s Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Sections 2 and 6 below. -------------------------------------------------------------------------------- (d) “Necessary Consents” shall mean approval, by both the board of directors of the Company (the “Board”) and the stockholders of the Company, of an amendment to the Company’s Certificate of Incorporation (the “Amended Certificate”) to either (i) increase the authorized number of shares of Common Stock of the Company to a number that is sufficient to cover the Exercise Shares (in addition to the outstanding shares of capital stock of the Company and agreements and instruments exercisable for or convertible into capital stock of the Company) or (ii) effect a reverse split of the Company’s outstanding Common Stock which results in a number of authorized but unissued shares of Common Stock sufficient to cover the Exercise Shares (in addition to the outstanding shares of capital stock of the Company and agreements and instruments exercisable for or convertible into capital stock of the Company). 2. Conditions to Exercise. 2.1 Time Based Exercisability. Subject to the terms of this Warrant, all of the one million (1,000,000) Exercise Shares shall be exercisable as of the date of issuance of this Amended and Restated Warrant to Purchase Common Stock. 2.2 [Reserved]. 2.3 Not Exercisable Until Necessary Consents Obtained. Notwithstanding Sections 2.1 and 2.2 above, or any other provisions of this Warrant, this Warrant will not be exercisable until the Company has received the Necessary Consents and filed the Amended Certificate with the Delaware Secretary of State. 3. Mechanics of Exercise. 3.1 Subject to the limitations on exercise set forth in Section 2 above, the rights exercisable under this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; (b) Payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) This Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such   -2- -------------------------------------------------------------------------------- surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 3.2 Net Exercise. If the fair market value of one share of the Company’s Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:           X =    Y (A-B)               A Where    X =    the number of shares of Common Stock to be issued to the Holder    Y =    the number of shares of Common Stock purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of this Warrant being canceled (at the date of such calculation)    A =    the fair market value of one share of the Company’s Common Stock (at the date of such calculation)    B =    Exercise Price (as adjusted to the date of such calculation) For purposes of the above calculation, the fair market value of one share of Common Stock shall be equal to the closing sales price (or the closing bid if no sales were reported) for one share of Common Stock of the Company as quoted on the Over The Counter Bulletin Board (“OTB”), the American Stock Exchange, or such other stock exchange as the Common Stock is then trading, on the last market trading day prior to the day of determination; if the Common Stock is not then trading on the OTB or other exchange, the fair market value shall be determined in good faith by the Board. 4. Covenants of the Company. 4.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. 4.2 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.   -3- -------------------------------------------------------------------------------- 5. Representations of Holder. 5.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring this Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of this Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of this Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, Holder’s account only. 5.2 Securities Are Not Registered. (a) The Holder understands that this Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the “Act”) on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding his representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention. (b) The Holder recognizes that this Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register this Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration. (c) The Holder is aware that neither this Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. 5.3 Disposition of Warrant and Exercise Shares. (a) The Holder further agrees not to make any disposition of all or any part of this Warrant or Exercise Shares in any event unless and until: the Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of this Warrant or Exercise Shares under the Act or any applicable state securities laws.   -4- -------------------------------------------------------------------------------- (b) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear a legend substantially as follows: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. 6. Adjustment of Exercise Price. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under this Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of this Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had this Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment; provided, however, that such adjustment shall not be made with respect to, and this Warrant shall terminate if not exercised prior to, the events set forth in Section 8 below. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 7. Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value (determined in accordance with Section 3.2) of an Exercise Share by such fraction. 8. Early Termination. In the event of, at any time during the Exercise Period, any capital reorganization, or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another corporation (other than a merger solely to effect a reincorporation of the Company into another state), or the sale or other disposition of all or substantially all the properties and assets of the Company in its entirety to any other person, the Company shall provide to the Holder twenty (20) days advance written notice of such event, and this Warrant shall terminate unless exercised prior to the date of such event. 9. Market Stand-Off Agreement. Holder shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by Holder, for a period of time specified by the managing underwriter(s) (not to exceed ninety (90) days) following the effective date of a registration statement of the Company filed under the   -5- -------------------------------------------------------------------------------- Act. Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the managing underwriter(s) which are consistent with the foregoing or which are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to such Common Stock (or other securities) until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 9 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 10. No Stockholder Rights. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 11. Transfer of Warrant. Subject to applicable laws and the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company. 12. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 13. Notices, etc. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to Holder at 100 Hardman Avenue, Napa, CA 94558, or at such other address as the Company or Holder may designate by ten (10) days advance written notice to the other parties hereto. 14. Acceptance. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 15. Governing Law. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California.   -6- -------------------------------------------------------------------------------- In Witness Whereof, the Company has caused this Amended and Restated Warrant to Purchase Common Stock to be executed by its duly authorized officer as of July     , 2006.   MultiCell Technologies, Inc. By:   /s/ Stephen Chang   Stephen Chang   Chief Executive Officer Address:     701 George Washington Highway     Lincoln, RI 02865       -7- -------------------------------------------------------------------------------- NOTICE OF EXERCISE TO: MultiCell Technologies, Inc. (1) The undersigned hereby elects to purchase              shares of Common Stock of MultiCell Technologies, Inc. (the “Company”) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: __________________________ (Name) __________________________ __________________________ (Address) (3) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in -------------------------------------------------------------------------------- accordance with said registration statement, or, if requested, the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.               (Date)     (Signature)               (Print name)   -2- -------------------------------------------------------------------------------- ASSIGNMENT FORM (To assign the foregoing Warrant execute this form and supply required information. Do not use this form to purchase shares.) For Value Received, the foregoing Warrant and all rights evidenced thereby are hereby assigned to     Name:  ___________________________________________________________________________________________________ (Please Print)   Address:  ___________________________________________________________________________________________________ (Please Print) Dated:                             , 20     Holder’s Signature:  __________________________________________________________________________________________________ Holder’s Address:  ___________________________________________________________________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Exhibit 10.18 LOGO [g20877immage001.jpg] INDEMNIFICATION AGREEMENT THIS AGREEMENT, made on this 25th day of April, 2006, by and between Biovest International, Inc. (“BioVest”), a Delaware corporation with a place of business at 324 S. Hyde Park Ave., Suite 350, Tampa FL 33606, and Dennis Ryll, with an address of (“Guarantor”) is as follows: In consideration of Guarantor performing certain services for BioVest, to wit, acting as a Guarantor in connection with a New Market Tax Credit loan transaction from U.S. Bank (the “Loan”) to Biovest’s wholly-owned subsidiary, Biovax, Inc. (“Biovax”) in an aggregate amount of $6,000,000, BioVest hereby agrees and undertakes to indemnify Guarantor, and to hold Guarantor harmless from and against any and all claims, causes of actions, and liabilities of any kind to the fullest extent permitted by law to the extent that Guarantor is called upon to pledge and/or advance funds, assets, or collateral in connection with the guarantee being executed by Guarantor in connection with this Loan.   Biovest International, Inc. By   /s/ James A. McNulty   James A. McNulty, CFO & Secretary

RESTRICTED STOCK AGREEMENT Award Details:     Participant:   Plan Year:   Number of Restricted Shares:   Date of Grant:   Fair Market Value (at close of business on Date of Grant): Agreement: This Restricted Stock Agreement (“Agreement”) is entered into as of the Date of Grant between the Participant and The St. Joe Company, a Florida corporation (the “Company”), pursuant to the Company’s Stock Incentive Plan established for the Plan Year designated above (the “Plan”). WHEREAS, the Company desires to grant, and the Participant desires to receive, an award of Restricted Shares pursuant to the terms and conditions of the Plan and this Agreement, NOW, THEREFORE, the Participant and the Company hereby agree as follows: 1. The Plan and Defined Terms. The provisions of the Plan and the Award Details listed above are incorporated into this Agreement by reference. Capitalized terms used but not defined in this Agreement or the Award Details set forth above shall have the meanings ascribed to them in the Plan. 2. Grant of Restricted Shares. As of the Date of Grant, the Company hereby grants to the Participant the number of Restricted Shares listed above, subject to the terms and conditions of the Plan and this Agreement. 3. Vesting of Restricted Shares. The Restricted Shares shall vest as follows:      ; provided, however, that such vesting shall be accelerated or delayed as a result of the first of the following events to occur: (a) Death. If the Participant dies, the Restricted Shares shall become vested in full as of the date of the Participant’s death. (b) Disability. If the Participant becomes totally or permanently disabled (as those terms are defined in the Company’s long-term disability plan, as in effect on the date of such determination), the Restricted Shares shall become vested in full as of the date of the disability. (c) Corporate Event. If there is a Corporate Event, the Restricted Shares shall become vested in full on the date of the Corporate Event. For purposes of this Subsection, “Corporate Event” means (a) the consummation of a merger or similar transaction as a result of which the Company’s stockholders own 50% or less of the surviving entity’s voting securities after such merger or similar transaction, (b) the sale, transfer, exchange or other disposition of all or substantially all of the Company’s assets, or (c) the liquidation or dissolution of the Company. A transaction shall not constitute a Corporate Event if its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction. (d) Termination for Cause. If the Participant’s employment is terminated for Cause, the Committee may revoke all or any portion of the Restricted Shares. (e) Retirement. If the Participant retires, the Restricted Shares shall continue to vest after his or her retirement according to the terms of this Agreement so long as the Participant does not perform services (in an employee, independent contractor or other capacity) on a substantially full-time basis for any third party. For purposes of this Agreement, “retirement” shall mean (i) termination of employment for other than Cause after completion of five continuous years of service with the Company and attainment of age 55, or (ii) as otherwise determined by the Compensation Committee. The Compensation Committee shall determine, in its sole discretion, if services are performed on a “substantially full-time basis.” For purposes of vesting under this Section, the Participant’s service remains “continuous” even if the Participant goes on military leave, sick leave, or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service is required by the terms of the leave or by applicable law. However, the Participant must return to active work promptly, for a substantial period of time, upon the termination of such approved leave, or an interruption of service will be deemed to have occurred as of the date such leave began. 4. Restrictions on Transfer of Restricted Shares. Until the Restricted Shares become vested pursuant to Section 3, the Restricted Shares shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. 5. Forfeiture of Restricted Shares. If the Participant’s employment terminates, all Restricted Shares that are not vested under Section 3 as of the date of such termination of employment shall automatically be forfeited and canceled (without any payment to the Participant) as of the date of termination of employment. No additional Restricted Shares shall vest after the Participant’s employment terminates. If the Participant retires, this paragraph shall not apply unless and until the Participant is found to be working on a substantially full-time basis in violation of paragraph 3(e). 6. Stock Certificates. The Participant hereby acknowledges that stock certificate(s) for the number of Restricted Shares awarded under this Agreement will not be delivered by the Company to the Participant until such Restricted Shares vest. 7. Voting and Dividend Rights. The Participant shall have the same voting and dividend rights with respect to the Restricted Shares as the Company’s other shareholders, provided, however, that any dividends paid as Common Shares shall be subject to the same transfer restrictions and forfeiture provisions as the Restricted Shares. 8. Regulation by the Committee. This Agreement and the Restricted Shares shall be subject to such administrative procedures and rules as the Committee shall adopt. All decisions of the Committee upon any question arising under the Plan or under this Agreement shall be conclusive and binding upon the Participant. 9. Compliance with Law and Regulations. The obligations of the Company hereunder are subject to all applicable Federal and state laws and to the applicable rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed and any other government or regulatory agency. The Company shall not be required to remove restrictions from Restricted Shares prior to (a) the listing of the Common Shares on any such stock exchange and (b) the completion of any registration or qualification of such Common Shares under any Federal or state law, or any rule, regulation or other requirement of any government or regulatory agency which the Company shall, in its sole discretion, determine to be necessary or advisable. In making such determination, the Company may rely upon an opinion of counsel for the Company. The Participant shall not have the right to compel the Company to register or qualify the Common Shares subject to this award under Federal or state securities laws. 10. Conditions of Acceptance. As a condition of accepting the Restricted Shares, Participant agrees as follows: (a)  Company Policies. Participant agrees that he or she has read and will comply with The St. Joe Company Insider Trading Policy and The St. Joe Company Code of Conduct. Copies of such policies are available on the Company’s website, through the office of the Company’s Senior Vice President of Human Resources or through the office of the Company’s General Counsel. (b) Restrictions on Resale and Marital Property Settlements. Participant agrees not to sell any vested Restricted Shares if applicable laws or Company policies prohibit such a sale. Regardless of any marital property settlement agreement, the Company is not obligated to honor or recognize Participant’s former spouse’s interest in unvested Restricted Shares. 11. Amendment of Severance and Employment Agreements. By executing this Agreement, the Participant and the Company hereby agree that this Agreement constitutes an amendment to the Participant’s employment agreement and/or severance agreement (if any) with the Company to the effect that any provision of such employment or severance agreement that grants accelerated vesting and/or lapse of restrictions on restricted stock in the event of a “change in control” (as defined therein) shall not apply to the Restricted Shares awarded under this Agreement. Participant agrees to execute any additional documentation requested by the Company to further evidence such amendment. 12. Adjustments. In the event of a stock split, a stock dividend or any other event described in the Article of the Plan entitled “Protection Against Dilution,” the number of Common Shares subject to this award may be adjusted pursuant to the Plan if deemed appropriate by the Committee in its sole discretion. 13. Term of Agreement. This Agreement terminates when all Restricted Shares are either vested or forfeited and canceled as provided in the Plan and this Agreement.   14.   Tax Matters. (a) Participant shall be liable for any and all taxes, including withholding taxes, arising out of this grant or the vesting of Restricted Shares hereunder. Participant acknowledges that, at his or her option, Participant (i) shall be entitled to make the election permitted under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), to include in gross income in the taxable year in which the Restricted Shares are granted, the fair market value of such shares at the time of grant, notwithstanding that such shares may be subject to a substantial risk of forfeiture within the meaning of the Code, or (ii) may elect to include in gross income the fair market value of the Restricted Shares as of the date on which such restriction lapses. (b) The Participant may elect to satisfy any withholding tax obligation arising out of the grant or the vesting of Restricted Shares hereunder (unless Participant shall make an election under Section 83(b) of the Code with respect thereto) by having the Company retain vested Restricted Shares having a fair market value equal to the Company’s minimum withholding obligation (which amount may be rounded to the next highest whole share). 15. No Retention Rights. Neither the Restricted Shares nor anything contained in this Agreement shall give Participant the right to be retained by the Company or a subsidiary of the Company as an employee or in any other capacity. The Company and its subsidiaries reserve the right to terminate Participant’s service at any time, with or without Cause. 16. Applicable Law. This Agreement will be interpreted and enforced under the laws of the State of Florida. 17. Participant’s Access to the Plan. Participant may obtain an additional copy of the Plan by contacting The St. Joe Company Human Resources Department in Jacksonville, Florida. [Signature Page Follows] 1 This Agreement and the Plan constitute the entire understanding between Participant and the Company regarding this award. Any prior agreements, commitments or negotiations concerning this award are superseded. This Agreement may be amended only by another written agreement, signed by both parties. PARTICIPANT       Date               Participant Signature           THE ST. JOE COMPANY       Date         By:       Name:       Title:             2

Exhibit 10.26   EMPLOYEE RETENTION AGREEMENT by and among THE DIME SAVINGS BANK OF WILLIAMSBURGH, DIME COMMUNITY BANCSHARES, INC. and CHRISTOPHER D. MAHER     made and entered into as of June 30, 2006 EMPLOYEE RETENTION AGREEMENT This EMPLOYEE RETENTION AGREEMENT (“Agreement”) is made and entered into as of June 30, 2006 by and among THE DIME SAVINGS BANK of WILLIAMSBURGH, a savings bank organized and operating under the federal laws of the United States and having its executive offices at 209 Havemeyer Street, Brooklyn, New York 11211 (“Bank”); DIME COMMUNITY BANCSHARES, INC., a business corporation organized and existing under the laws of the State of Delaware and having its executive offices at 209 Havemeyer Street, Brooklyn, New York 11211 (“Holding Company”); and Christopher D. Maher, an individual residing at 2 Helene Drive, Randolph, New Jersey 07869 (“Officer”). W I T N E S S E T H: WHEREAS, the Bank desires to secure for itself the Officer’s services; and WHEREAS, the Bank recognizes that a third party may at some time in the future pursue a Change of Control of the Bank or the Holding Company and that this possibility may result in the departure or distraction of the Bank’s officers; and WHEREAS, the Bank has determined that appropriate steps should be taken to encourage the continued attention and dedication of the Bank’s officers, including the Officer, to their duties for the Bank without the distraction that may arise from the possibility of a Change of Control of the Bank or the Holding Company; and WHEREAS, the Bank believes that, by assuring certain officers, including the Officer, of reasonable financial security in the event of a Change of Control of the Bank or the Holding Company, such officers will be in a position to perform their duties free from financial self interest and in the best interests of the Bank and its shareholders; and WHEREAS, for purposes of securing the Officer’s services for the Bank, the Board of Directors of the Bank (“Board”) has authorized the proper officers of the Bank to enter into an employee retention agreement with the Officer on the terms and conditions set forth herein; and WHEREAS, the Board of Directors of the Holding Company has authorized the Holding Company to guarantee the Bank’s obligations under such an employee retention agreement and to provide for certain tax indemnification payments; and WHEREAS, the Officer is willing to make the Officer’s services available to the Bank on the terms and conditions set forth herein;         NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Bank, the Holding Company and the Officer hereby agree as follows-       Section 1. Effective Date (a) This Agreement shall be effective as of the date first above written and shall remain in effect during the term of this Agreement which shall be for a period of three (3) years commencing on the date of this Agreement, plus such extensions as are provided pursuant to section 1(b); provided, however, that if the term of this Agreement has not     2 --------------------------------------------------------------------------------     otherwise terminated, the term of this Agreement will terminate on the date of the Officer’s termination of employment with the Bank; and provided, further, that the obligations under section 8 of this Agreement shall survive the term of this Agreement if payments become due hereunder. (b) Prior to each anniversary date of this Agreement, the Board shall consider the advisability of an extension of the term in light of the circumstances then prevailing and may, in its discretion, approve an extension to take effect as of the upcoming anniversary date. If an extension is approved, the term of this Agreement shall be extended so that it will expire three (3) years after such anniversary date. (c) Notwithstanding anything herein contained to the contrary: (i) the Officer’s employment with the Bank may be terminated at any time, subject to the terms and conditions of this Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a continuation of the Officer’s employment following the expiration of the Assurance Period upon such terms and conditions as the Bank and the Officer may mutually agree upon.  Section 2.  Assurance Period.   (a) The assurance period (“Assurance Period”) shall be for a period commencing on the date of a Change of Control, as defined in section 10 of this Agreement, and ending on the third anniversary of the date on which the Assurance Period commences, plus such extensions as are provided pursuant to the following sentence. The Assurance Period shall be automatically extended for one (1) additional day each day, unless either the Bank or the Officer elects not to extend the Assurance Period further by giving written notice to the other party, in which case the Assurance Period shall become fixed and shall end on the third anniversary of the date on which such written notice is given; provided, however, that if following a Change of Control, the Office of Thrift Supervision (or its successor) is the Bank’s primary federal regulator, the Agreement shall be subject to extension not more frequently than annually and only upon review and approval of the Board. (b) Upon termination of the Officer’s employment with the Bank, any daily extensions provided pursuant to the preceding sentence, if not theretofore discontinued, shall cease and the remaining unexpired Assurance Period under this Agreement shall be a fixed period ending on the later of the third anniversary of the date of the Change of Control, as defined in section 10 of this Agreement, or the third anniversary of the date on which the daily extensions were discontinued. Section 3. Duties. During the period of the Officer’s employment that falls within the Assurance Period, the Officer shall: (a) except to the extent allowed under section 6 of this Agreement, devote his full business time and attention (other than during weekends, holidays, vacation per-iods, and periods of illness, disability or approved leave of absence) to the business and affairs of the Bank and use his best efforts to advance the Bank’s interests; (b) serve in the position to which the Officer is appointed by the Bank, which, during the Assurance Period, shall be the position that the Officer held on the day before the Assurance Period commenced or any higher office at the Bank to which he may subsequently be appointed; and (c) subject to the direction of the Board and the By-laws of the Bank, have such functions, duties, responsibilities and authority commonly associated with such position.   3 --------------------------------------------------------------------------------   Section 4. Compensation. In consideration for the services rendered by the Officer during the Assurance Period, the Bank shall pay to the Officer during the Assurance Period a salary at an annual rate equal to the greater of: (a) the annual rate of salary in effect for the Officer on the day before the Assurance Period commenced; or (b) such higher annual rate as may be prescribed by or under the authority of the Board;   provided, however, that in no event shall the Officer’s annual rate of salary under this Agreement in effect at a particular time during the Assurance Period be reduced without the Officer’s prior written consent. The annual salary payable under this section 4 shall be subject to review at least once annually and shall be paid in approximately equal installments in accordance with the Bank’s customary payroll practices. Nothing in this section 4 shall be deemed to prevent the Officer from receiving additional compensation other than salary for his services to the Bank, or additional compensation for his services to the Holding Company, upon such terms and conditions as may be prescribed by or under the authority of the Board or the Board of Directors of the Holding Company. Section 5. Employee Benefit Plans and Programs Except as otherwise provided in this Agreement, the Officer shall, during the Assurance Period, be treated as an employee of the Bank and be eligible to participate in and receive benefits under any qualified or non-qualified defined benefit or defined contribution retirement plan, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans, and such other employee benefit plans and programs, including, but not limited to, any incentive compensation plans or programs (whether or not employee benefit plans or programs), any stock option and appreciation rights plan, em-ployee stock ownership plan and restricted stock plan, as may from time to time be maintained by, or cover employees of, the Bank, in accordance with the terms and conditions of such employee benefit plans and programs and compensation plans and programs and with the Bank’s customary practices.   Section 6. Board Memberships. The Officer may serve as a member of the boards of directors of such business, community and charitable organizations as he may disclose to and as may be approved by the Board (which approval shall not be unreasonably withheld), and he may engage in personal business and investment activities for his own account; provided, however, that such service and personal business and investment activities shall not materially interfere with the performance of his duties under this Agreement.   Section 7. Working Facilities and Expenses. During the Assurance Period, the Officer’s principal place of employment shall be at the Bank’s executive offices at the address first above written, or at such other location within the City of New York at which the Bank shall maintain its principal executive offices, or at such other location as the Bank and the Officer may mutually agree upon. The Bank shall provide the Officer, at his principal place of employment, with a private office and support services and facilities suitable to his position with the Bank and necessary or appropriate in connection with the performance of his assigned duties under this Agreement. The Bank shall reimburse the Officer for his ordinary and necessary business expenses,     4 --------------------------------------------------------------------------------     including, without lim-itation, the Officer’s travel and entertainment expenses, incurred in connection with the perfor-mance of the Officer’s duties under this Agreement, upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require.   Section 8. Termination of Employment with Severance Benefits. (a) In the event that the Officer’s employment with the Bank shall terminate during the Assurance Period, or prior to the commencement of the Assurance Period but within three (3) months of and in connection with a Change of Control as defined in section 10 of this Agreement on account of: (i) The Officer’s voluntary resignation from employment with the Bank within ninety (90) days following: (A) the failure of the Bank’s Board to appoint or re-appoint or elect or re-elect the Officer to serve in the same position in which the Officer was serving, on the day before the Assurance Period commenced or a more senior office; (B) the failure of the stockholders of the Holding Company to elect or re-elect the Officer as a member of the Board, if he was a member of the Board on the day before the Assurance Period commenced; (C) the expiration of a thirty (30) day period following the date on which the Officer gives written notice to the Bank of its material failure, whether by amendment of the Bank’s Organization Certificate or By-laws, action of the Board or the Holding Company’s stockholders or otherwise, to vest in the Officer the functions, duties, or responsibilities vested in the Officer on the day before the Assurance Period commenced (or the functions, duties and responsibilities of a more senior office to which the Officer may be appointed), unless during such thirty (30) day period, the Bank fully cures such failure; (D) the failure of the Bank to cure a material breach of this Agreement by the Bank, within thirty (30) days following written notice from the Officer of such material breach; (E) a reduction in the compensation provided to the Officer, or a material reduction in the benefits provided to the Officer under the Bank’s program of employee benefits, compared with the compensation and benefits that were provided to the Officer on the day before the Assurance Period commenced; (F) a change in the Officer’s principal place of employment that would result in a one-way commuting time in excess of the greater of (I) 30 minutes or (II) the Officer’s commuting time immediately prior to such change; or   (ii) the discharge of the Officer by the Bank for any reason other than for “cause” as provided in section 9(a); then, subject to section 21, the Bank shall provide the benefits and pay to the Officer the amounts provided for under section 8(b) of this Agreement; provided, however, that if benefits or payments become due hereunder as a result of the Officer’s termination of employment prior to the commencement of the Assurance Period, the benefits and payments provided for under section 8(b) of this Agreement shall be determined as though the Officer had remained in the service of the Bank (upon the terms and conditions in effect at the time of his actual termination of service) and had not terminated employment with the Bank until the date on which the Officer’s Assurance Period would have commenced.     5 --------------------------------------------------------------------------------   (b) Upon the termination of the Officer’s employment with the Bank under circumstances described in section 8(a) of this Agreement, the Bank shall pay and provide to the Officer (or, in the event of the Officer’s death, to the Officer’s estate): (i) the Officer’s earned but unpaid compensation (including, without limitation, all items which constitute wages under section 190.1 of the New York Labor Law and the payment of which is not otherwise provided for under this section 8(b)) as of the date of the termination of the Officer’s employment with the Bank, such payment to be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than thirty (30) days after termination of employment; (ii) the benefits, if any, to which the Officer is entitled as a former employee under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the Bank’s officers and employees; (iii) continued group life, health (including hospitalization, medical and major medical), accident and long term disability insurance benefits, in addition to that provided pursuant to section 8(b)(ii) and after taking into account the coverage provided by any subsequent employer, if and to the extent necessary to provide for the Officer, for the remaining unexpired Assurance Period, coverage equivalent to the coverage to which the Officer would have been entitled under such plans (as in effect on the date of his termination of employment, or, if his termination of employment occurs after a Change of Control, on the date of such Change of Control, whichever benefits are greater) if the Officer had continued working for the Bank during the remaining unexpired Assurance Period at the highest annual rate of compensation achieved during the Officer’s period of actual employment with the Bank;   (iv) within thirty (30) days following the Officer’s termination of employment with the Bank, a lump sum payment, in an amount equal to the pre-sent value of the salary that the Officer would have earned if the Officer had continued working for the Bank during the remaining unexpired Assurance Period at the highest annual rate of salary achieved during the Officer’s period of actual employment with the Bank, where such present value is to be determined using a discount rate equal to the applicable short-term federal rate prescribed under section 1274(d) of the Internal Revenue Code of 1986 (“Code”) (“Applicable Short-Term Rate”), compounded using the compounding periods corresponding to the Bank’s regular payroll periods for its officers, such lump sum to be paid in lieu of all other payments of salary provided for under this Agreement in respect of the period following any such termination; (v) within thirty (30) days following the Officer’s termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the aggregate benefits to which the Officer would be entitled under any and all qualified and non-qualified defined benefit pension plans maintained by, or covering employees of, the Bank if the Officer were 100% vested thereunder and had continued working for the Bank during the remaining unexpired Assurance Period, such benefits to be determined as of the date of termination of employment by adding to the service actually recognized under such plans an additional period equal to the remaining unexpired Assurance Period and by adding to the     6 --------------------------------------------------------------------------------     compensation recognized under such plans for the year in which termination of employment occurs all amounts payable under sections 8(b)(I), (iv) and (vii); (B) the present value of the benefits to which the Officer is actually entitled under such defined benefit pension plans as of the date of his termination; where such present values are to be determined using the mortality tables prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate, compounded monthly, equal to the applicable long-term federal rate prescribed under section 1274(d) of the Code for the month in which his employment terminates; . (vi) within thirty (30) days following the Officer’s termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the additional employer contributions (or if greater in the case of a leveraged employee stock ownership plan or similar arrangement, the additional assets allocable to him through debt service, based on the fair market value of such assets at termination of employment) to which he would have been entitled under any and all qualified and non-qualified defined contribution plans maintained by, or covering employees of, the Bank, if he were 100% vested thereunder and had continued working for the Bank during the remaining unexpired Assurance Period at the highest annual rate of compensation achieved during the Officer’s period of actual employment with the Bank, and making the maximum amount of employee contributions, if any, required under such plan or plans, such present value to be determined on the basis of the discount rate, compounded using the compounding period that corresponds to the frequency with which employer contributions are made to the relevant plan, equal to the Applicable Short-Term Rate; (vii) the payments that would have been made to the Officer under any cash bonus or long-term or short-term cash incentive compensation plan maintained by, or covering employees of, the Bank, if he had continued working for the Bank during the remaining unexpired Assurance Period and had earned the maximum bonus or incentive award in each calendar year that ends during the remaining unexpired Assurance Period, such payments to be equal to the product of: (A) the maximum percentage rate at which an award was ever available to the Officer under such incentive compensation plan; multiplied by (B) the salary that would have been paid to the Officer during each such calendar year at the highest annual rate of salary achieved during the remaining unexpired Assurance Period, such payments to be made (without discounting for early payment) within thirty (30) days following the Officer’s termination of employment. The Bank and the Officer hereby stipulate that the damages which may be incurred by the Officer following any such termination of employment are not capable of accurate measurement as of the date first above written and that the payments and benefits contemplated by this section 8(b) constitute a reasonable estimate under the circumstances of all damages sustained as a consequence of any such termination of employment, other than damages arising under or out of any stock option, restricted stock or other non-qualified stock acquisition or investment plan or program, it being understood and agreed that this Agreement shall not determine the measurement of damages under any such plan or program in respect of any termination of employment. Such damages shall be payable without any requirement of proof of actual damage and without regard to the Officer’s efforts, if any, to     7 --------------------------------------------------------------------------------     mitigate damages. The Bank and the Officer further agree that the Bank may condition the payments and benefits (if any) due under sections 8(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the Officer’s resignation from any and all positions which he holds as an officer, director or committee member with respect to the Bank, the Company or any subsidiary or affiliate of either of them. Section 9. Termination without Severance Benefits. In the event that the Officer’s employment with the Bank shall terminate during the Assurance Period on account of: (a) the discharge of the Officer for “cause,” which, for purposes of this Agreement shall mean personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement, in each case as measured against standards generally prevailing at the relevant time in the savings and community banking industry; provided, however, that the Officer shall not be deemed to have been discharged for cause unless and until he shall have received a written notice of termination from the Board, accompanied by a resolution duly adopted by affirmative vote of a majority of the entire Board at a meeting called and held for such purpose (after reasonable notice to the Officer and a reasonable opportunity for the Officer to make oral and written presentations to the members of the Board, on his own behalf, or through a representative, who may be his legal counsel, to refute the grounds for the proposed determination) finding that in the good faith opinion of the Board grounds exist for discharging the Officer for cause; or (b) the Officer’s voluntary resignation from employment with the Bank for reasons other than those specified in section 8(a)(I); or (c) the Officer’s death; or (d) a determination that the Officer is eligible for long-term disability benefits under the Bank’s long-term disability insurance program or, if there is no such program, under the federal Social Security Act; then the Bank shall have no further obligations under this Agreement, other than the payment to the Officer (or, in the event of his death, to his estate) of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such other benefits, if any, to which the Officer is entitled as a former employee under the employee benefit plans and pro-grams and compensation plans and programs maintained by, or covering employees of, the Bank. Section 10. Change of Control. (a) A Change of Control of the Bank (“Change of Control”) shall be deemed to have occurred upon the happening of any of the following events: (i) approval by the stockholders of the Bank of a transaction that would result in the reorganization, merger or consolidation of the Bank, respectively, with one or more other persons, other than a transaction following which: (A) at least 51% of the equity ownership interests of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated     8 --------------------------------------------------------------------------------     under the Exchange Act) at least 51% of the outstanding equity ownership interests in the Bank; and (B) at least 51% of the securities entitled to vote generally in the election of directors of the entity resulting from such transaction are beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the same relative proportions by persons who, immediately prior to such transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities entitled to vote generally in the election of directors of the Bank; (ii) the acquisition of substantially all of the assets of the Bank or beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding securities of the Bank entitled to vote generally in the election of directors by any person or by any persons acting in concert, or approval by the stockholders of the Bank of any transaction which would result in an acquisition; (iii) a complete liquidation or dissolution of the Bank, or approval by the stockholders of the Bank of a plan for such liquidation or dissolution; (iv) the occurrence of any event if, immediately following such event, at least fifty percent (50%) of the members of the Board do not belong to any of the following groups: (A) individuals who were members of the Board on the date of this Agreement; or (B) individuals who first became members of the Board after the date of this Agreement either: (1) upon election to serve as a member of the Board by affirmative vote of three-quarters (3/4) of the members of such Board, or a nominating committee thereof, in office at the time of such first election; or (2) upon election by the stockholders of the Board to serve as a member of the Board, but only if nominated for election by affirmative vote of three quarters(3/4) of the members of the Board, or of a nominating committee thereof, in office at the time of such first nomination; provided, however, that such individual’s election or nomination did not result from an actual or threatened election contest (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents (within the meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on behalf of the Board of the Bank; or (v) any event which would be described in section 10(a)(i), (ii), (iii) or (iv) if the term “Holding Company” were substituted for the term “Bank” therein. (b) In no event, however, shall a Change of Control be deemed to have occurred as a result of any acquisition of securities or assets of the Holding Company, the Bank or any subsidiary of either of them, by the Holding Company, the Bank or any subsidiary of either of them, or by any employee benefit plan maintained by any of them.   Section 11. Excise Tax Indemnification.     9 --------------------------------------------------------------------------------             (a) This section 11 shall apply if the Officer’s employment is terminated in circumstances giving rise to liability for excise taxes under section 4999 of the Code. If this Section 11 applies, then, if for any taxable year, the Officer shall be liable for the payment of an excise tax under section 4999 of the Code with respect to any payment in the nature of compensation made by the Company or any direct or indirect subsidiary or affiliate of the Holding Company to (or for the benefit of) the Officer, the Holding Company shall pay to the Officer an amount equal to X deter-mined under the following formula: X = E x P     1 - [(FI x (1 - SLI)) + SLI + E + M] where   E = the rate at which the excise tax is assessed under section 4999 of the Code;   P = the amount with respect to which such excise tax is assessed, determined without regard to this section 11;   FI = the highest marginal rate of income tax applicable to the Officer under the Code for the taxable year in question;     SLI = the sum of the highest marginal rates of income tax applicable to the Officer under all appli-cable state and local laws for the taxable year in ques-tion; and   M = the highest marginal rate of Medicare tax applicable to the Officer under the Code for the taxable year in question. With respect to any payment in the nature of compensation that is made to (or for the benefit of) the Officer under the terms of this Agree-ment, or otherwise, and on which an excise tax under sec-tion 4999 of the Code will be assessed, the payment determined under this section 11(a) shall be made to the Officer on the earlier of (i) the date the Holding Company or any direct or indirect subsidiary or affiliate of the Holding Company is required to withhold such tax, or (ii) the date the tax is required to be paid by the Officer. (b) Notwithstanding anything in this section 11 to the contrary, in the event that the Officer’s liability for the excise tax under section 4999 of the Code for a taxable year is subse-quently determined to be different than the amount deter-mined by the formula (X + P) x E, where X, P and E have the meanings provided in section 11(a), the Officer or the Holding Company, as the case may be, shall pay to the other party at the time that the amount of such ex-cise tax is final-ly determined, an appropriate amount, plus interest, such that the payment made under section 11(a), when increased by the amount of the payment made to the Officer under this section 11(b) by the Holding Company, or when reduced by the amount of the payment made to the Company under this section 11(b) by the Officer, equals the amount that should have properly been paid to the Officer under section 11(a). The interest paid under this section 11(b) shall be determined at the rate provided under section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid to the Officer under this section 11, the Officer shall furnish to the Holding Company a copy of each tax return which reflects a liability for an excise tax payment made by the Holding Company, at least 20 days before the date on which such return is required to be filed with the Internal Revenue Service.     10 --------------------------------------------------------------------------------   (c) The provisions of this section 11 are designed to reflect the provisions of applicable federal, state and local tax laws in effect on the date of this Agreement. If, after the date hereof, there shall be any change in any such laws, this section 11 shall be modified in such manner as the Officer and the Holding Company may mutually agree upon if and to the extent necessary to assure that the Officer is fully indemnified against the economic effects of the tax imposed under section 4999 of the Code or any similar federal, state or local tax. Section 12 . No Effect on Employee Benefit Plans or Programs. The termination of the Officer’s employment during the Assurance Period or thereafter, whether by the Bank or by the Officer, shall have no effect on the rights and obligations of the parties hereto under the Bank’s qualified and non-qualified defined benefit or defined contribution retirement plans, group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans or such other employee benefit plans or programs, or compensation plans or programs (whether or not employee benefit plans or programs) and any defined contribution plan, employee stock ownership plan, stock option and appreciation rights plan, and restricted stock plan, as may be maintained by, or cover employees of, the Bank from time to time; provided, however, that nothing in this Agreement shall be deemed to duplicate any compensation or benefits provided under any agreement, plan or program covering the Officer to which the Bank or the Holding Company is a party and any duplicative amount payable under any such agreement, plan or program shall be applied as an offset to reduce the amounts otherwise payable hereunder. Section 13. Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Officer, his legal representatives and testate or intestate distributes, and the Bank and the Holding Company, their respective successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the respective assets and business of the Bank or the Holding Company may be sold or otherwise transferred. Section 14. Notices. Any communication required or permitted to be given under this Agreement, including any notice, direction, designation, consent, instruction, objection or waiver, shall be in writing and shall be deemed to have been given at such time as it is delivered personally, or five (5) days after mailing if mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to such party at the address listed below or at such other address as one such party may by written notice specify to the other party: If to the Officer: Mr. Christopher D. Maher 2 Helene Drive Randolph, New Jersey 07869 If to the Bank:   The Dime Savings Bank of Williamsburgh 209 Havemeyer Street     Brooklyn, New York 11211     11 --------------------------------------------------------------------------------   Attention: Corporate Secretary If to the Holding Company: Dime Community Bancshares, Inc. 209 Havemeyer Street Brooklyn, New York 11211 Attention: Corporate Secretary  Section 15. Indemnification and Attorneys’ Fees.      The Bank shall indemnify, hold harmless and defend the Officer against rea-sonable costs, including legal fees, incurred by the Officer in connection with or arising out of any action, suit or proceeding in which the Officer may be involved, as a result of the Officer’s efforts, in good faith, to defend or enforce the terms of this Agreement; provided, however, that the Officer shall have substantially prevailed on the merits pursuant to a judgment, decree or order of a court of competent jurisdiction or of an arbitrator in an arbitration proceeding, or in a settlement; provided, further, that this section 15 shall not obligate the Bank to pay costs and legal fees on behalf of the Officer under this Agreement in excess of $20,000. For purposes of this Agreement, any settlement agreement which provides for payment of any amounts in settlement of the Bank’s obligations hereunder shall be conclusive evidence of the Officer’s entitlement to indemnification hereunder, and any such indemnification payments shall be in addition to amounts payable pursuant to such settlement agreement, unless such settlement agreement expressly provides otherwise. Section 16. Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof. Section 17. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant, or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment of any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.   12 --------------------------------------------------------------------------------   Section 18. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement. Section 19. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the federal laws of the United States, and in the absence of controlling federal law, the laws of the State of New York, without reference to conflicts of law principles. Section 20. Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section. Any reference to a section number shall refer to a section of this Agreement, unless otherwise stated. Section 21. Entire Agreement; Modifications. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or rep-resentations relating to the subject matter hereof. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto. Section 22. Required Regulatory Provisions. The following provisions are included for the purposes of complying with various laws, rules and regulations applicable to the Bank: (a) Notwithstanding anything herein contained to the contrary, in no event shall the aggregate amount of compensation payable to the Officer by the Bank under section 8(b) hereof (exclusive of amounts described in section 8(b) (i)) exceed the three times the Officer’s average annual total compensation for the last five consecutive calendar years to end prior to his termination of employment with the Bank (or for his entire period of employment with the Bank if less than five calendar years). This section 22(a) shall not affect or limit payments made by the Holding Company hereunder pursuant to sections 8(b), 11 or otherwise. The Holding Company agrees that, if this section 22(a) would limit payments by the Bank to the Officer pursuant to section 8(b) or otherwise, the Holding Company shall make such payments to the Officer. (b) Notwithstanding anything herein contained to the contrary, any payments to the Officer by the Bank, whether pursuant to this agreement or otherwise, are subject to and conditioned upon their compliance with section 18(k) of the Federal Deposit Insurance Act (“FDI Act”), 12 U.S.C. Sec. 1828(k), and any regulations promulgated thereunder. (c) Notwithstanding anything herein contained to the contrary, if the Officer is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Bank pursuant to a notice served under section 8 (e) (3) or 8 (g) (1) of the FDI Act, 12 U.S.C. Sec. 1818 (e) (3) or 1818 (g) (1), the Bank’s obligations under this Agreement shall be suspended as of the date of Service of such notice, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Bank, in its discretion, may (i)     13 --------------------------------------------------------------------------------     pay to the Officer all or part of the compensation withheld while the Bank’s obligations hereunder were suspended and (ii) reinstate, in whole or in part, any of the obligations which were suspended. (d) Notwithstanding anything herein contained to the contrary, if the Officer is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under section 8 (e) (4) or 8 (g) (1) of the FDI Act, 12 U.S.C. sec. 1818 (e) (4) or (g) (1), all prospective obligations of the order, but vested rights and obligations of the Bank and the Officer shall not be effected. (e) Notwithstanding anything herein contained to the contrary, if the Bank is in default (within the meaning of section 3(x)(1) of the FDI Act, 12 U.S.C. Sec. 1813 (x) (1), all prospective obligations of the Bank under this Agreement shall terminate as of the date of default, but vested rights and obligations of the Bank and the Officer shall not be effected. (f) Notwithstanding anything herein contained to the contrary, all prospective obligations of the Bank hereunder shall be terminated, except to the extent that a continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision (“OTS”) or his designee or the Federal Deposit Insurance Corporation (“FDIC”), at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in section 13(c) of the FDI Act, 12 U.S.C. sec. 1823(c); (ii) by the Director of the OTS or his designee at the time such Director or designee approves a supervisory merger to resolve problems related to the operation of the Bank or when the Bank is determined by such Director to be in an unsafe or unsound condition. The vested rights and obligations of the parties shall not be affected. If and to the extent any of the foregoing provisions shall cease to be required by applicable law, rule or regulation, the same shall become inoperative as though eliminated by formal amendment of this Agreement. Section 23. Guaranty. The Holding Company hereby irrevocably and unconditionally guarantees to the Officer the payment of all amounts, and the performance of all other obligations, due from the Bank in accordance with the terms of this Agreement as and when due without any requirement of presentment, demand of payment, protest or notice of dishonor or nonpayment. For purposes of this section 23, the application of sections 21(a), (c), (d), (e) or (f) to the Bank shall have no effect on the Holding Company’s obligations hereunder.     14 --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the Bank and the Holding Company have caused this Agreement to be executed and the Officer has hereunto set his hand, all as of the day and year first above written.                                                /s/ CHRISTOPHER D. MAHER                                                                                                 Christopher D. Maher ATTEST:              THE DIME SAVINGS of WILLIAMSBURGH By:  /s/ LANCE BENNETT Secretary [Seal]       By:  /s/ VINCENT F. PALAGIANO                                     Name : Vincent F. Palagiano                         Title : Chairman of the Board & CEO ATTEST:             DIME COMMUNITY BANCSHARES, INC. By: /s/ LANCE BENNETT       Secretary          By:  /s/ VINCENT F. PALAGIANO [Seal]                    Name : Vincent F. Palagiano                         Title : Chairman of the Board & CEO       15 --------------------------------------------------------------------------------    

  EXHIBIT 10(a) CAMPBELL SOUP COMPANY SEVERANCE PAY PLAN FOR SALARIED EMPLOYEES (as amended and restated effective January 1, 2006)      Campbell Soup Company established the Campbell Soup Company Severance Pay Plan for Salaried Employees (the “Plan”) primarily to assist former U.S. Salaried Employees while seeking other employment. The Plan is intended to be and will be administered as an employee welfare benefit plan as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended. I.   PURPOSE   1.1   The purpose of the Campbell Soup Company Severance Pay Plan for Salaried Employees (the “Plan”) is: (a) to set forth the terms and circumstances under which U.S. Salaried Employees of the Company whose employment is terminated may be eligible for severance benefits; and (b) to set forth the terms under which eligible Salaried Employees will be provided with severance benefits.         This Plan, along with the Campbell Soup Company Supplemental Severance Pay Policy for Exempt Salaried Employees, as amended and restated effective January 1, 2006, supersedes and replaces all prior policies or plans for Salaried Employees regarding severance benefits, except for severance policies, plans or agreements that are effective in the event of a change in control of the Company. II.   DEFINITIONS   2.1   “Company” means Campbell Soup Company and all wholly-owned U.S. subsidiaries and affiliates, unless the Chief Executive Officer of Campbell Soup Company has excluded such subsidiary or affiliate from participating in the Plan.     2.2   “Compensation Limit” means the indexed compensation limit set forth in section 401(a)(17) of the Internal Revenue Code, which for calendar year 2006 is $220,000.     2.3   “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.     2.4   “Plan” means the Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated, effective January 1, 2006.     2.5   “Plan Administrator” means the chief Human Resources executive of Campbell Soup Company.   --------------------------------------------------------------------------------     2.6   “Salaried Employee” means an individual (a) who is employed by the Company, (b) in a regular salaried full-time or part-time position regularly scheduled to work 20 hours or more per week, and (c) who receives a regular and stated compensation other than a pension, retainer or fees for consulting services rendered.         Salaried Employee shall not include an employee who is classified as a temporary employee, or who is paid on an hourly basis, or who is a member of a bargaining unit, or whose employment by the Company is covered by a written employment contract. In addition, Salaried Employee shall not include individuals who are contract employees or who have represented themselves to be independent contractors, or persons who the Company does not consider to be employees or other similarly situated individuals regardless of whether the individual is a common law employee of the Company. Notwithstanding anything herein to the contrary, the term “Salaried Employee” shall not include any person who is not so recorded on the payroll records of the Company, including any such person who is subsequently reclassified by a court of law or a regulatory body as a common law employee of such Company.     2.7   “Supplemental Severance Plan” means the Campbell Soup Company Supplemental Severance Pay Policy for Exempt Salaried Employees, as amended and restated, effective January 1, 2006.     2.8   “Weekly Salary Rate” means the Salaried Employee’s annual base salary at the time of termination, excluding overtime pay, bonus or incentive payments, or other allowances, divided by 52 weeks.     2.9   “Years of Service” means the total number of years of continuous employment rendered as a regular employee of the Company and all its wholly-owned subsidiaries and affiliates since the employee’s most recent date of hire. Years of Service shall be full years; in the final year of employment, service of six full months or more will be counted as one year.         In addition to service with the Company, continuous years of employment with an enterprise, the assets or stock of which is acquired by the Company, shall be counted as years of service with the Company, unless Campbell Soup Company excludes such prior service with the acquired enterprise. III.   ELIGIBILITY FOR SEVERANCE PAY   3.1   Eligible Terminations.   (a)   General. A Salaried Employee whose separation from employment by the Company due to one of the following events shall be eligible for severance pay: (1) economic or organizational changes resulting in job elimination or consolidation or (2) reduction in work force; provided such Salaried 2 --------------------------------------------------------------------------------         Employee executes a release of claims as set forth in Article VI herein.     (b)   Specific Events. If any part, unit or function of the Company is divested, outsourced, closed, or relocated to a different geographical area, the determination of which shall be within the Company’s sole discretion, Salaried Employees working in such part, unit or function of the Company who are terminated by the Company as a direct result of the divestiture, outsourcing, closing or relocation shall be eligible for severance pay; provided such Salaried Employee executes a release of claims as set forth in Article VI herein. Eligibility for severance pay will be forfeited if a Salaried Employee resigns voluntarily prior to the termination date selected by the Company.     (c)   Exceptions. Notwithstanding anything in the Plan to the contrary, a Salaried Employee who experiences an otherwise eligible termination will not be provided with severance pay if such Salaried Employee: (1) continues employment with or is hired by the buyer, the Company or the third party outsourcing firm in accordance with the terms of the applicable purchase and sales agreement, in the case of a buyer, or the terms of the applicable outsourcing contract, in the case of a third party outsourcing firm; or (2) is offered, but elects not to accept, a position of employment with the buyer, the Company or the third party outsourcing firm, in the same geographical area at the same or equivalent grade level (the determination of which shall be in the Company’s sole discretion), except as the Company may determine otherwise.         In addition, a Salaried Employee whose resignation is requested, or who is terminated by the Company for unsatisfactory job performance as determined by the Company, shall not be eligible for severance pay under the Plan, except as the Company in its sole discretion may determine otherwise.         Notwithstanding anything herein to the contrary, a Salaried Employee who is terminated from his/her position through Company-initiated action shall not be eligible to receive severance pay under the Plan if the Salaried Employee refuses to accept another position of employment with the Company in the same geographical area at or above such Salaried Employee’s current grade level (as determined by the Company in its sole discretion), except as the Company may determine otherwise.   3.2   IneligibleTerminations. Salaried Employees whose separation from employment is due to one of the following events shall not be eligible for severance pay under the Plan: (a) resignation; (b) retirement; (c) termination for cause, as determined by the Company in its sole discretion; (d) violation of a Company policy which provides that violation may result in disciplinary action including termination; (e) death; (f) disability; (g) failure to return at the end of 3 --------------------------------------------------------------------------------         an approved leave of absence (including medical leave of absence); (h) job abandonment; (i) termination as a result of causes beyond the control of the Company; or (j) a change in ownership of an entity, facility, or business unit of the Company or a change in control of the Company. IV.   NOTICE OF TERMINATION/NOTICE PAY   4.1   Eligible non-exempt Salaried Employees shall receive two weeks’ notice prior to termination. Eligible exempt Salaried Employees basis shall receive four weeks’ notice prior to termination. In either case, eligible Salaried Employees may, at the Company’s option, receive payment in lieu of notice. Severance payments shall be in addition to such notice or payments made in lieu of notice. V.   SEVERANCE FORMULA   5.1   Calculation of Payments. All severance payments shall be calculated based upon the Salaried Employee’s Weekly Salary Rate.   (a)   Non-Exempt Salaried Employee. Severance payments for a non-exempt Salaried Employee shall be calculated as follows: severance pay of two weeks’ pay, plus one week of pay for each Year of Service through fifteen Years of Service, and two weeks of pay for each Year of Service in excess of fifteen Years of Service; provided, however, that no non-exempt Salaried Employee shall receive more than 52 weeks of severance pay regardless of the number of his or her Years of Service.   (b)   Exempt Salaried Employee. Subject to Section 5.2 below, severance payments for an exempt Salaried Employee shall be determined on the basis of the Salaried Employee’s grade level on the date of employment termination as set forth below. In addition, exempt Salaried Employees may be eligible for additional severance benefits under the Supplemental Severance Plan based upon their Years of Service.             Grade Level   Severance Formula     10-28   Base Severance: 4 weeks of pay     30-34   Base Severance: 8 weeks of pay     36-40   Base Severance: 16 weeks of pay     42-44   Base Severance: 52 weeks of pay     46 and above   Base Severance: 26 weeks of pay     5.2   Maximum Severance Payment. The above payment schedule notwithstanding, the maximum severance payment to any Salaried Employee under the Plan is limited to the Compensation Limit. 4 --------------------------------------------------------------------------------   VI.   RELEASE OF CLAIMS   6.1   In order to receive severance pay or other benefits under the Plan, Salaried Employees who experience an eligible termination and become eligible for severance pay must execute a Severance Agreement and General Release satisfactory to the Company. VII.   TIMING OF SEVERANCE PAY AND OTHER BENEFITS   7.1   Timing of Severance Payments. Severance pay shall be paid in installments according to the Salaried Employee’s regular payroll schedule.     7.2   Other Benefits.   (a)   Ongoing Benefits.   (1)   Pension Plan. Eligibility for pension benefits when a Salaried Employee begins to receive severance payments shall not preclude eligibility for severance payments nor may one be offset against the other.     (2)   Savings and Thrift Plans. To the extent that a Salaried Employee is otherwise eligible, vesting in any Company contributions in the Campbell Soup Company Savings Plus Plan for Salaried Employees (the “Savings Plan”) or any similar Company-sponsored qualified savings plan will continue for the period of the severance payments. Former Salaried Employees shall not be able to make contributions to the Savings Plan or any similar Company-sponsored qualified savings plan nor be eligible for matching contributions after their termination date.     (3)   Medical and Life Insurance. Participation in the Campbell Soup Company group life insurance and medical plans will continue until the end of the severance payment period or until the recipient is eligible for benefit coverage from another employer, whichever occurs first. Deductions for continuing Company benefits will be made from the severance payments. The recipient shall be deemed to be an employee solely for the limited purpose of participation in the above-named benefit plans.   (b)   Terminated Benefits. A Salaried Employee’s eligibility for and participation in Campbell Soup Company’s short-term and long-term disability plans, salary continuation plan, business travel and accident insurance, supplemental accident insurance, and all other benefit programs cease according to the terms of the respective plans. The coordination of severance payments with benefits provided by an 5 --------------------------------------------------------------------------------         applicable short-term or long-term disability plan will be in accordance with the terms of such plans. Participation in future Campbell Soup Company stock option awards, restricted stock grants and Campbell Soup Company-sponsored long term incentive programs shall cease upon termination of employment. The vesting of any awards granted prior to a Salaried Employee’s termination shall be subject to the terms and conditions of the applicable the long term incentive program under which such award was issued.         Subject to applicable state wage laws, vacation pay due at the time of termination shall be paid in installment payments, which shall be paid prior to installment severance payments. VIII.   REHIRING   8.1   Rehire During Severance Pay Period. If a terminated Salaried Employee is rehired by the Company during the period in which severance payments are being made, severance payments shall cease.     8.2   Rehire After Severance Pay Period. If a terminated Salaried Employee is rehired by the Company after the receipt of all severance payments due under the Plan, no repayment of previously paid severance shall be required.     8.3   Effect of Rehire Upon Future Severance Payments. Years of Service shall not be counted twice in the career of any Salaried Employee for Plan purposes if a terminated Salaried Employee is rehired by the Company after the receipt of all severance payments due under the Plan and the Supplemental Severance Plan, if applicable. Thus, if a Salaried Employee is rehired after receiving all severance payments due under the Plan or a predecessor plan or policy and the Supplemental Severance Plan, if applicable, Years of Service shall be counted from such Salaried Employee’s most recent date of rehire for the purposes of calculating severance pay in the event of a subsequent eligible termination of such Salaried Employee. If, however, a Salaried Employee is rehired during his or her severance pay period prior to the payment of all severance payments due under the Plan and the Supplemental Severance Plan, if applicable, all of his or her Years of Service shall be restored to such rehired Salaried Employee for the purposes of calculating future severance pay, if otherwise eligible under the terms of the Plan. IX.   ADMINISTRATION   9.1   Plan Administrator. The Plan Administrator has full and exclusive authority to construe, interpret, and administer, in his or her sole discretion, any and all provisions of the Plan. The Plan Administrator has full and exclusive authority to consider and decide, in his or her sole discretion, all questions (of fact or otherwise) in connection with the administration of the Plan and any claim arising 6 --------------------------------------------------------------------------------         under the Plan. Decisions or actions of the Plan Administrator with regard to the Plan are conclusive and binding. The Plan Administrator may maintain such procedures and records as he or she deems necessary or appropriate. The Plan Administrator may delegate his or her powers.   9.2   Claims Procedure.   (a)   Generally, Salaried Employees need not file a claim to receive benefits under the Plan. If, however, severance benefits are denied, a person making the claim for severance benefits (the “Claimant”) may appeal by filing a written notice of appeal with the Plan Administrator or his or her delegate within sixty (60) days after the denial of the severance benefit. To the extent the Plan Administrator has delegated review authority, the delegate shall possess the authority necessary to construe, interpret, and administer the Plan, including the authority to consider and decide all questions (of fact or otherwise) in connection with claims arising under the Plan. The Plan Administrator or his or her delegate will conduct a full and fair review, which will provide for the Claimant’s right:   (1)   to be represented by an individual whom the Company determines has been properly authorized to act on Claimant’s behalf;     (2)   to present written comments, documents, records, and any other information relating to the Claimant’s claim for benefits under the Plan;     (3)   to receive, upon 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; and     (4)   to have all comments, documents, records, and other information submitted by the Claimant relating to the claim reviewed.   (b)   The Plan Administrator or the delegate’s decision will be rendered no more than sixty (60) days after the request for review, except that such period may be extended for an additional sixty (60) days if the Plan Administrator determines that circumstances require such extension.     (c)   The Plan Administrator, or the delegate, will promptly provide a Claimant with a written decision in a manner calculated to be understood by the Claimant setting forth:   (1)   findings of fact;     (2)   the specific reason or reasons for the denial; 7 --------------------------------------------------------------------------------     (3)   specific reference to pertinent Plan provisions on which the denial is based;     (4)   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 the Claimant’s claim for benefits; and     (5)   a statement of the Claimant’s right to bring an action under ERISA.   9.3   Exhaustion of Remedies; Limitation Period. A Claimant must follow the claims and appeal procedures described in Section 9.2 of the Plan before taking action in any other forum regarding a claim for benefits under the Plan. Any suit or legal action initiated by a Claimant under the Plan must be brought no later than one year following a final decision on the claim by the Plan Administrator. This one-year limitation period on suits for benefits applies in any forum where a Claimant initiates such suit or legal action. X.   AMENDMENT AND TERMINATION   10.1   The Chief Executive Officer of Campbell Soup Company reserves the right to amend, modify, suspend, or terminate the Plan in any respect, at any time, and without notice. Such amendment may include, without limitation, discontinuing payments to Salaried Employees. The Chief Executive Officer of Campbell Soup Company may delegate his authority to make certain amendments to the Plan to the chief Human Resources executive of Campbell Soup Company; however, such amendment authority shall be limited to amendments that do not increase the benefits available under the Plan, unless otherwise required by law, or substantially change the form of benefits provided under the Plan.         Notwithstanding the foregoing, no amendment shall have the effect of modifying or reducing severance payments that have commenced to former Salaried Employees who have been terminated before the adoption of such amendment. XI.   GENERAL PROVISIONS   11.1   Participant’s Rights Unsecured and Unfunded. The Plan at all times will be entirely unfunded. No assets of the Company will be segregated or earmarked to represent the liability for benefits under the Plan. The right of a Salaried Employee to receive a payment under the Plan will be an unsecured claim against the general assets of the Company. All payments under the Plan will be made from the general assets of the Company. Notwithstanding anything in this Plan, no Salaried Employee, or any other person, may acquire by reason of the Plan any right in or title to any assets, funds, or property of the Company. 8 --------------------------------------------------------------------------------     11.2   No Enlargement of Employee Rights. Neither the establishment of the Plan nor any action of the Company or any other person or entity may be held or construed to confer upon any person any legal right to continue employment with the Company. In this regard, the Company expressly reserves the right to discharge any Salaried Employee, at any time, for any reason, in its sole discretion and judgment.     11.3   Non-Alienation. Except as set forth in Section 7.2(a)(3) of the Plan, no interest of any person or entity in, or right to receive a benefit or distribution under, the Plan may be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind. Nor may such interest to receive a distribution be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.         Notwithstanding the foregoing, the Company shall have the unrestricted right and power to set off against, or recover out of any severance payments, any amounts owed or which become owed, to the Company by the Salaried Employee to the extent permitted by law.     11.4   Applicable Law. The Plan will be construed and administered in accordance with the provisions of ERISA. To the extent ERISA does not apply, the Plan will be construed and administered in accordance with New Jersey law without regard to conflict of laws.     11.5   Taxes. The Company will withhold from any payments made pursuant to the Plan such amounts as may be required by federal, state, or local law, as applicable.     11.6   Drafting Errors. If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined solely by Campbell Soup Company, the provision will be considered ambiguous and will be interpreted by Campbell Soup Company in a fashion consistent with its intent, as determined solely by Campbell Soup Company. The Chief Executive Officer of Campbell Soup Company or his delegate may amend the Plan retroactively to cure any such ambiguity.     11.7   Excess Payments. If the Weekly Salary Rate, Years of Service, or any other relevant fact relating to the determination of the Plan benefit is found to have been misstated or mistaken for any reason (fact or law), the Plan benefit payable will be the Plan benefit that would have been provided on the basis of the correct information. Any excess payments due to such misstatement or mistake will be refunded to the Company or withheld by the Company from any further amounts otherwise payable under the Plan. 9 --------------------------------------------------------------------------------     11.8   Impact on Other Benefits. Amounts paid under the Plan will not be included in a Salaried Employee’s compensation for purposes of calculating benefits under any other plan, program, or arrangement sponsored by the Company, unless such plan, program, or arrangement expressly provides that amounts paid under the Plan will be included.     11.9   Usage of Terms and Headings. Words in the masculine gender include the feminine, and vice versa, unless qualified by the context. Words used in the singular include the plural, and vice versa, unless qualified by the context. Any headings are included for ease of reference only, and are not to be construed to alter the terms of the Plan.     11.10   Effective Date. The Plan is effective on January 1, 2006. 10

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  Exhibit 10.7 INTEL CORPORATION NONQUALIFIED STOCK OPTION AGREEMENT UNDER THE 2004 EQUITY INCENTIVE PLAN 1.   TERMS OF OPTION       This Nonqualified Stock Option Agreement (this “Agreement”), the Notice of Grant of Stock Options delivered herewith (the “Notice of Grant”) and the Intel Corporation 2004 Equity Incentive Plan (the “2004 Plan”), as such may be amended from time to time, set forth the terms of your option identified in the Notice of Grant. As used herein, the “Corporation” shall mean Intel Corporation and its Subsidiaries.   2.   SIGNATURE       This option cannot be exercised until you sign this Agreement and return it to Intel Benefit Services. If you fail to sign this Agreement and return it to Intel Benefit Services within 180 days of the Grant Date, the option will be cancelled, except as determined by the Corporation in its sole discretion. Signing this agreement does not obligate you to exercise the option or purchase any shares.   3.   NONQUALIFIED STOCK OPTION       This option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted accordingly.   4.   OPTION PRICE       The exercise price of this option (the “option price”) is 100% of the market value of the common stock of Intel Corporation (“Intel”), $.001 par value (the “Common Stock”), on the date of grant, as specified in the Notice of Grant. “Market value” means the average of the highest and lowest sales prices of the Common Stock as reported by NASDAQ.   5.   TERM OF OPTION AND EXERCISE OF OPTION       To the extent the option has become exercisable (vested) during the periods indicated in the Notice of Grant and has not been previously exercised, and subject to termination or acceleration as provided in this Agreement and the requirements of this Agreement, the Notice of Grant and the 2004 Plan, you may 1. --------------------------------------------------------------------------------       exercise the option to purchase up to the number of shares of the Common Stock set forth in the Notice of Grant. Notwithstanding anything to the contrary in Section 6 or Sections 8 through 11 hereof, no part of the option may be exercised after seven (7) years from the date of grant.       The process for exercising the option (or any part thereof) is governed by this Agreement, the Notice of Grant and the 2004 Plan and by your agreements with Intel’s stock plan administrator. Exercises of stock options will be processed as soon as practicable. The option price may be paid (a) in cash, (b) by arrangement with Intel’s stock plan administrator which is acceptable to Intel where payment of the option price is made pursuant to an irrevocable direction to the broker to deliver all or part of the proceeds from the sale of the shares of the Common Stock issuable under the option to Intel, (c) by delivery of any other lawful consideration approved in advance by the Committee of the Board of Directors of Intel established pursuant to the 2004 Plan (the “Committee”) or its delegate, or (d) in any combination of the foregoing. Fractional shares may not be exercised. Shares of the Common Stock will be issued as soon as practicable. You will have the rights of a stockholder only after the shares of the Common Stock have been issued. For administrative or other reasons, Intel may from time to time suspend the ability of employees to exercise options for limited periods of time.       Notwithstanding the above, Intel shall not be obligated to deliver any shares of the Common Stock if such delivery is prohibited by the laws of the U.S. or your country of residence or employment. If such delivery is prohibited at the time that all or part of the option is exercised, then such exercise may be made only in accordance with Intel’s “cashless exercise” procedure, to the extent permitted under the laws of the United States and your country of residence or employment.       Notwithstanding anything to the contrary in this Agreement or the applicable Notice of Grant, Intel may reduce your unvested options if you change classification from a full-time employee to a part-time employee.   6.   LEAVES OF ABSENCE       (a) Except as expressly provided otherwise in this Agreement, if you take a personal leave of absence (“PLOA”), the option will be exercisable only to the extent and during the times specified in this Section 6:   (1)   If the duration of the PLOA is 365 days or less, you may exercise any part of the option that vested prior to the commencement of the PLOA at any time during the PLOA. If the duration of the PLOA is greater than 365 days, any part of the option that had vested prior to the commencement of the PLOA and that has not been exercised will terminate on the 365th day of the PLOA. 2. --------------------------------------------------------------------------------     (2)   If the duration of the PLOA is less than thirty (30) days:   a.   The exercisability of any part of the option that would have vested during the PLOA shall be deferred until the first day that you return to work (i.e., the date that the PLOA is terminated); and     b.   Any part of the option that had not vested at the commencement of the PLOA and would not have vested during the PLOA will vest in accordance with the normal schedule indicated in the Notice of Grant and shall not be affected by the PLOA.   (3)   If the duration of the PLOA equals or exceeds thirty (30) days, the exercisability of each part of the option scheduled to vest after commencement of the PLOA shall be deferred for a period of time equal to the duration of the PLOA. If you terminate employment after returning from the PLOA but prior to the end of such deferral period, you shall have no right to exercise any unvested portion of the option, except to the extent provided otherwise in Sections 9 through 11 hereof, and such option shall terminate as of the date that your employment terminates.     (4)   If you terminate employment with the Corporation during a PLOA:   a.   Any portions of the option that had vested prior to the commencement of the PLOA shall be exercisable in accordance with Sections 8 through 11 hereof, as applicable; and     b.   Any portions of the option that had not vested prior to the commencement of the PLOA shall terminate, except to the extent provided otherwise in Sections 9 through 11 hereof.   (b)   If you take an approved Leave of Absence (“LOA”) other than a PLOA under Intel Leave Guidelines, the vesting of your options shall be unaffected by such absence and will vest in accordance with the schedule set forth in the Notice of Grant. 7.   SUSPENSION OR TERMINATION OF OPTION FOR MISCONDUCT       If you have allegedly committed an act of misconduct as defined in the 2004 Plan, including, but not limited to, embezzlement, fraud, dishonesty, unauthorized disclosure of trade secrets or confidential information, breach of fiduciary duty or nonpayment of an obligation owed to the Corporation, an Authorized Officer, as defined in the 2004 Plan, may suspend your right to exercise the option, pending a decision by the Committee (or Board of Directors, 3. --------------------------------------------------------------------------------       as the case may be) or an Authorized Officer to terminate the option. The option cannot be exercised during such suspension or after such termination.   8.   TERMINATION OF EMPLOYMENT       Except as expressly provided otherwise in this Agreement, if your employment by the Corporation terminates for any reason, whether voluntarily or involuntarily, other than death, Disablement (defined below), Retirement (defined below) or discharge for misconduct, you may exercise any portion of the option that had vested on or prior to the date of termination at any time prior to ninety (90) days after the date of such termination. The option shall terminate on the 90th day to the extent that it is unexercised. All unvested stock options shall be cancelled on the date of employment termination, regardless of whether such employment termination is voluntary or involuntary.       For purposes of this Section 8, your employment is not deemed terminated if, prior to sixty (60) days after the date of termination from the Corporation, you are rehired by Intel or a Subsidiary on a basis that would make you eligible for future Intel stock option grants, nor would your transfer from Intel to any Subsidiary or from any one Subsidiary to another, or from a Subsidiary to Intel be deemed a termination of employment. Further, your employment with any partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which Intel or a Subsidiary is a party shall be considered employment for purposes of this provision if either (a) the entity is designated by the Committee as a Subsidiary for purposes of this provision or (b) you are designated as an employee of a Subsidiary for purposes of this provision.   9.   DEATH       Except as expressly provided otherwise in this Agreement, if you die while employed by the Corporation, the executor of your will, administrator of your estate or any successor trustee of a grantor trust may exercise the option, to the extent not previously exercised and whether or not vested on the date of death, at any time prior to 365 days from the date of death.       Except as expressly provided otherwise in this Agreement, if you die prior to ninety (90) days after termination of your employment with the Corporation, the executor of your will or administrator of your estate may exercise the option, to the extent not previously exercised and to the extent the option had vested on or prior to the date of your employment termination, at any time prior to 365 days from the date of your employment termination.       The option shall terminate on the applicable expiration date described in this Section 9, to the extent that it is unexercised. 4. --------------------------------------------------------------------------------   10.   DISABILITY       Except as expressly provided otherwise in this Agreement, following your termination of employment due to Disablement, you may exercise the option, to the extent not previously exercised and whether or not the option had vested on or prior to the date of employment termination, at any time prior to 365 days from the date of determination of your Disablement as described in this Section 10; provided, however, that while the claim of Disablement is pending, options that were unvested at termination of employment may not be exercised and options that were vested at termination of employment may be exercised only during the period set forth in Section 8 hereof. The option shall terminate on the 365th day from the date of determination of Disablement, to the extent that it is unexercised. For purposes of this Agreement, “Disablement” shall be determined in accordance with the standards and procedures of the then-current Long Term Disability Plan maintained by the Corporation or the Subsidiary that employs you, and in the event you are not a participant in a then-current Long Term Disability Plan maintained by the Corporation or the Subsidiary that employs you, “Disablement” shall have the same meaning as disablement is defined in the Intel Long Term Disability Plan, which is generally a physical condition arising from an illness or injury, which renders an individual incapable of performing work in any occupation, as determined by the Corporation.   11.   RETIREMENT       For purposes of this Agreement, “Retirement” shall mean either Standard Retirement (as defined below) or the Rule of 75 (as defined below). Following your Retirement, the vesting of the option, to the extent that it had not vested on or prior to the date of your Retirement, shall be accelerated as follows:   (a)   If you retire at or after age 60 (“Standard Retirement”), you will receive one year of additional vesting from your date of Retirement for every five (5) years that you have been employed by the Corporation (measured in complete, whole years). No vesting acceleration shall occur for any periods of employment of less than five (5) years; or     (b)   If, when you terminate employment with the Corporation, your age plus years of service (in each case measured in complete, whole years) equals or exceeds 75 (“Rule of 75”), you will receive accelerated vesting of any portion of the option that would have vested prior to 365 days from the date of your Retirement.     You will receive vesting acceleration pursuant to either Standard Retirement or the Rule of 75, but not both. Except as expressly provided otherwise in this Agreement, following your Retirement from the Corporation, you may exercise the option at any time prior to 365 days from the date of your Retirement, to the extent that it had vested as of the date of your Retirement or to the extent that vesting of the option is accelerated pursuant to this Section 11. The option shall 5. --------------------------------------------------------------------------------       terminate on the 365th day from your date of Retirement, to the extent that it is unexercised.   12.   INCOME TAXES WITHHOLDING       You will be subject to taxation in accordance with the tax laws of the country where you are resident or employed. If you are an U.S. citizen or expatriate, you may also be subject to U.S. tax laws. To the extent required by applicable federal, state, local or foreign law, you shall make arrangements satisfactory to Intel or the Subsidiary that employs you for the satisfaction of any withholding tax obligations that arise by reason of an option exercise or any sale of shares of the Common Stock. Intel shall not be required to issue shares of the Common Stock or to recognize any purported transfer of shares of the Common Stock until such obligations are satisfied. The Committee may permit these obligations to be satisfied by having Intel withhold a portion of the shares of the Common Stock that otherwise would be issued to you upon exercise of the option, or to the extent permitted by the Committee, by tendering shares of the Common Stock previously acquired.   13.   NON-TRANSFERABILITY OF OPTION       You may not assign or transfer this option to anyone except pursuant to your will or upon your death to your beneficiaries. The transferability of options is subject to any applicable laws of your country of residence or employment.   14.   DISPUTES       The Committee or its delegate shall finally and conclusively determine any disagreement concerning your option.   15.   AMENDMENTS       The 2004 Plan and the option may be amended or altered by the Committee or the Board of Directors of Intel to the extent provided in the 2004 Plan.   16.   DATA PRIVACY       You explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by the Corporation for the exclusive purpose of implementing, administering and managing your participation in the 2004 Plan.       You hereby understand that the Corporation holds certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or 6. --------------------------------------------------------------------------------   other identification number, salary, nationality, job title, any shares of stock or directorships held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the 2004 Plan (“Data”). You hereby understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the 2004 Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You hereby understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the 2004 Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom you may elect to deposit any shares of Common Stock acquired under your options. You hereby understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the 2004 Plan. You hereby understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You hereby understand, however, that refusing or withdrawing your consent may affect your ability to participate in the 2004 Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you hereby understand that you may contact the human resources representative responsible for your country at the local or regional level. 17.   THE 2004 PLAN AND OTHER AGREEMENTS; OTHER MATTERS   (a)   The provisions of this Agreement and the 2004 Plan are incorporated into the Notice of Grant by reference. You hereby acknowledge that a copy of the 2004 Plan has been made available to you. Certain capitalized terms used in this Agreement are defined in the 2004 Plan.         This Agreement, the Notice of Grant and the 2004 Plan constitute the entire understanding between you and the Corporation regarding the option. Any prior agreements, commitments or negotiations concerning the option are superseded.         The grant of an option to an employee in any one year, or at any time, does not obligate Intel or any Subsidiary to make a grant in any future year or in any given amount and should not create an expectation that 7. --------------------------------------------------------------------------------         Intel or any Subsidiary might make a grant in any future year or in any given amount.     (b)   Options are not part of your employment contract (if any) with the Corporation, your salary, your normal or expected compensation, or other remuneration for any purposes, including for purposes of computing severance pay or other termination compensation or indemnity.     (c)   Notwithstanding any other provision of this Agreement, if any changes in the financial or tax accounting rules applicable to the options covered by this Agreement shall occur which, in the sole judgment of the Committee, may have an adverse effect on the reported earnings, assets or liabilities of the Corporation, the Committee may, in its sole discretion, modify this Agreement or cancel and cause a forfeiture with respect to any unvested options at the time of such determination.     (d)   Nothing contained in this Agreement creates or implies an employment contract or term of employment upon which you may rely.     (e)   To the extent that the option refers to the Common Stock of Intel, and as required by the laws of your country of residence or employment, only authorized but unissued shares thereof shall be utilized for delivery upon exercise by the holder in accord with the terms hereof.     (f)   Because this Agreement relates to terms and conditions under which you may purchase Common Stock of Intel, a Delaware corporation, an essential term of this Agreement is that it shall be governed by the laws of the State of Delaware, without regard to choice of law principles of Delaware or other jurisdictions. Any action, suit, or proceeding relating to this Agreement or the option granted hereunder shall be brought in the state or federal courts of competent jurisdiction in the State of California. By your signature below, you and Intel Corporation agree that the options identified in your Notice of Grant are governed by the terms of this Agreement, the Notice of Grant, and the 2004 Plan. You further acknowledge that you have read and understand the terms of the options set forth in this Agreement. FAILURE TO SIGN AND RETURN WITHIN 180 DAYS OF THE GRANT DATE WILL RESULT IN CANCELLATION OF THE OPTIONS (SEE SECTION 2 OF THIS AGREEMENT). INTEL CORPORATION and                     Signature   Employee Name   Date 8. --------------------------------------------------------------------------------                       WWID   Grant Number     9.

AMENDMENT NO. 3 TO FINLAY RETIREMENT INCOME PLAN as amended and restated June 25, 2003 The Finlay Retirement Income Plan, as amended and restated on June 23, 2003, and subsequently amended on December 23, 2005 and September 25, 2006, is hereby further amended by deleting Paragraph 3 of Amendment No. 2 effective November 1, 2006, and substituting therefor a new Article XVII reading as set forth in Exhibit A hereto. IN WITNESS WHEREOF, Finlay Enterprises, Inc. has caused this instrument to be executed upon its own behalf and on behalf of all subsidiaries participating in the Plan by its duly authorized officers this 31st day of October, 2006. FINLAY ENTERPRISES, INC. By /s/ Arthur E. Reiner -------------------------------- Arthur E. Reiner, Chairman and CEO ATTEST: /s/ Bonni G. Davis -------------------------------- Bonni G. Davis, Vice President and Secretary Exhibit A ARTICLE XVII Autoenrollment 17.1 "Eligible Associate." For purposes of this Article XVII, the term "Eligible Associate" means an Eligible Employee who is classified by the Employer as a full-time employee ("AF") or day part-time employee ("AP") and has completed a twelve-month period of not less than 1,000 Eligibility Hours as of an applicable Entry Date determined under Sections 17.3 - 17.7 below. 17.2 Autoenrollment. An Eligible Associate who - (a) has no outstanding inconsistent election on file on such applicable Entry Date, and (b) does not make such an inconsistent election by such "opt-out" date as the Committee shall establish consistent with the 30-day advance notice requirement of Section 17.8 (including November 7, 2006 for the November 1, 2006 Entry Date), shall be deemed to have elected to contribute two percent (2%) of his/her Compensation eligible for deferral under the Plan, effective as of the first pay date for the Eligible Associate ending on or after such applicable Entry Date (November 7, 2006 for the November 1, 2006 Entry Date). Such deemed election shall be treated as a Contribution Agreement for all purposes of the Plan and shall remain effective so long as he/she remains an Eligible Employee (and whether or not he/she remains an Eligible Associate) until such time (if any) as (i) the Eligible Employee suspends his/her deferrals or elects another amount or percentage of deferral in accordance with the Plan's provisions and procedures for making such changes, or (ii) such deferrals are suspended by reason of any other provision of the Plan. An inconsistent election for purposes of this Section 17.2 shall include (i) an election to contribute other than two percent (2%) of -2- Compensation, (ii) an unrevoked cancellation of a prior election to make Elective Contributions in any amount, or (iii) an election to contribute two percent (2%) of Compensation and to have that contribution invested in an Investment Fund other than the default Investment Fund selected by the Committee pursuant to Section 4.3.2. If a former Eligible Employee is rehired as an Eligible Associate (or transfers to service as an Eligible Associate after rehire), the term "inconsistent election" shall include any such election in effect during the individual's prior employment. 17.3 November 1, 2006. An AF or AP shall be an Eligible Associate on November 1, 2006 if his/her date of employment in the records of the Employer is on or before October 1, 2005, (ii) he/she completed not less than 1,000 Eligibility Hours (as defined in Sections 2.1.1 or Section 2.1.2) during the twelve-month period ending on October 31, 2006, and (iii) he/she is at least age 21 on November 1, 2006. 17.4 Entry Dates after November 1, 2006. An AF or AP whose Date of Hire is after October 1, 2005 shall qualify as an Eligible Associate on the first Entry Date that is at least 13 months after his/her Date of Hire and on which he/she is at least age 21, provided that he/she completes not less than 1,000 Eligibility Hours during the twelve-month period commencing on such Date of Hire. If an AF or AP does not qualify as an Eligible Associate on such first Entry Date, he/she shall qualify as an Eligible Associate as of the February 1 Entry Date next following completion of a calendar year of not less than 1,000 Eligibility Hours, and on which he/she is at least age 21. 17.5 Rehires. If an Eligible Employee who has not previously qualified as an Eligible Associate, has a Severance Period of more than six months, the first paid working day with an Employer after rehire as an AF or AP shall be treated as a new Date of Hire, and he/she shall qualify as an Eligible Associate on the Entry Date on which he/she first meets the requirements of Section 17.4 either (i) on that basis or (ii) on the basis of any calendar year taken into account for purposes of qualifying for eligibility for matching contributions under the provisions of Section 2.1 applicable upon rehire. If an -3- Eligible Employee is treated as new employee upon rehire pursuant to Sections 2.1 and 6.3, he shall be so treated for purposes of this Article XVII. 17.6 Transfer from Non-Participating Affiliate. If an employee transfers to employment with an Employer as an AF or AP from employment with a Controlled Group Affiliate that is not an Employer (such as, without limitation, Carlyle & Co. Jewelers), such employee's Date of Hire and Eligibility Hours shall be determined for purposes of autoenrollment as if such Affiliate were an Employer, but such employee shall not become an Eligible Associate subject to autoenrollment prior to such Entry Date (if any) as the Committee shall approve. 17.7 Transfer from Non-AF or AP Status. If an individual employed by an Employer other than as an AF or AP, such as an AS (evening part-time), DC (day on call) or NC (night on call), transfers to employment as an AF or AP, his/her Date of Hire and Eligibility Hours shall be determined for purposes of autoenrollment in the same manner as for an AF or AP, but such employee shall not become an Eligible Associate subject to autoenrollment prior to such Entry Date (if any) as the Committee shall approve. 17.8 30-day Notice and Correlation with Entry Dates. Each AF or AP shall be notified of the rules for autoenrollment under the Plan at least 30 days in advance of the Entry Date on which he/she becomes or is expected to become an Eligible Associate or as soon as practicable thereafter. In the event that a former Eligible Associate ceased to be such because of termination of employment or transfer out of AF or AP status and is then rehired as an AF or AP or retransfers to such status, such AF or AP shall resume status as an Eligible Associate on the second Entry Date next following such event and shall be provided such notice at least 30 days in advance of such Entry Date or as soon as practicable thereafter. The opt-out date established by the Committee under Section 17.2 shall in no event be earlier than the 30th day after the giving of such notice. Such notice shall include an explanation of the Eligible Employee's right to -4- designate how contributions and earnings under the Plan will be invested, and how they will be invested in the absence of any investment election by the Eligible Employee. 17.9 Annual Notice. Notice shall be given to each Eligible Employee at least 30 days prior to each Plan Year (or within such other time as may be required by regulations issued under Section 404(c) of ERISA, as amended by Section 624 of the Pension Protection Act of 2006) explaining (i) the automatic enrollment rules described in this Article XVII and (ii) the right of each Eligible Employee or other Participant to designate how contributions and earnings under the Plan will be invested, and how they will be invested in the absence of any investment election by the Eligible Employee or other Participant. 17.10 Notice Procedures. Notice shall be treated as duly given or provided for purposes of this Article XVII if it has been mailed by first class mail to the last known address of the Eligible Associate on the records of the Employer and the mailing has not been returned to the Employer, or is furnished by any other form of delivery, including electronic, in conformity with applicable regulations. -5-

Exhibit 10.5 AMENDMENT TO MANAGEMENT AGREEMENT This Amendment is made on June 13, 2005 to that certain Management Agreement made as of December 13, 2004 by and between Franklin Electronic Publishers, Inc., a Pennsylvania corporation, with principal place of business at One Franklin Plaza, Burlington, New Jersey 08016-4907 (“Franklin” or “the Company”) and Centaurus Limited, a Hong Kong company, with principal place of business at 3005 Universal Trade Centre, 3 Arbuthnot Rd. Central, Hong Kong SAR (“Centaurus”) (the “Agreement”). The parties wish to extend the Term of the Agreement on the terms and conditions set forth in this Amendment and therefore agree as follows: 1. Extension of the Term and Management Work: The Term of the Agreement is hereby extended to run from June 14, 2005 through December 12, 2005 subject to Franklin’s decision to enter into an employment relationship with Baile on terms acceptable to Franklin and Baile. The Management Work to be performed by Baile during the extension of the Term shall be as directed by Barry Lipsky, President of Franklin. 2. Increase in Payments: Paragraph 2 of the Agreement is modified as follows: During the extension of the Term as set forth above, Franklin agrees to pay to Centaurus the sum of US$18,000 per month, which represents an increase of US$3000 per month over the previous agreed upon sum of US$15,000 per month, for its acceptable performance of Management Work. 3. General: This Amendment is the entire agreement relating to the matters set forth herein. Capitalized terms as used herein shall have the same meanings as used in the Agreement. All provisions of the Agreement not modified or abrogated hereby shall remain in full force and effect. IN WITNESS WHEREOF, INTENDING TO BE LEGALLY BOUND HEREBY, the parties hereto have executed this Amendment as of the date set forth below.   FRANKLIN ELECTRONIC PUBLISHERS, INC. By:   /s/ Barry Lipsky   Barry J. Lipsky, President Date:   June 13, 2005 CENTAURUS LIMITED By:   /s/ Matthew Baile Its:   Matthew Baile, Managing Director Date:   June 13, 2005

Exhibit 10.1   EMPLOYMENT AGREEMENT   This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of April 2006, by and between FIRST HORIZON PHARMACEUTICAL CORPORATION, a Delaware corporation (the “Company”), and LARRY M. DILLAHA (“Executive”).   WITNESSETH:   NOW, THEREFORE, in consideration of Executive’s continued employment, the covenants and mutual agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:   1.               Employment.    Throughout the Term (as defined in Section 2 below), the Company shall employ Executive as provided herein, and Executive hereby accepts such employment. In accepting such employment, Executive states that, to the best of his knowledge, he is not now, and by accepting such employment, will not be, under any restrictions in the performance of the duties contemplated under this Agreement as a result of the provisions of any prior employment agreement or non-compete or similar agreement to which Executive is or was a party.   2.               Term of Employment.    The term of Executive’s employment by the Company hereunder shall continue thereafter unless sooner terminated as a result of Executive’s death or in accordance with the provisions of Section 7 below (the “Term”).   3.               Duties.    Throughout the Term, and except as otherwise expressly provided herein, Executive shall be employed by the Company as the Executive Vice President and Chief Medical Officer of the Company. Executive shall devote his full time to the performance of his duties as Executive Vice President and Chief Medical Officer of the Company in accordance with the Company’s By-laws, this Agreement and the directions of the Company’s Board of Directors and any executive officer of the Company who is senior to Executive. Without limiting the generality of the foregoing, throughout the Term Executive shall faithfully perform his duties as Executive Vice President and Chief Medical Officer at all times so as to promote the best interests of the Company.   4.               Compensation.   (a)                                                          Salary.    For any and all services performed by Executive under this Agreement during the Term, in whatever capacity, the Company shall pay to Executive an annual salary of Two Hundred Thousand Dollars ($200,000.00) per year (the “Salary”) less any and all applicable federal, state and local payroll and withholding taxes. The Salary shall be paid in the same increments as the Company’s normal payroll, but no less frequent than bi-monthly and prorated, however, for any period of less than a full month. The Salary will be reviewed annually by the Compensation Committee of the Board of Directors and a determination shall be made at that time as to the appropriateness of an increase, if any, thereto.   (b)                                                         Bonus.    In addition to the Salary, Executive shall be eligible to receive from the Company an incentive compensation bonus (the “Bonus”) of up   --------------------------------------------------------------------------------   to fifty percent (50%) of Executive’s Base Salary. The Bonus, if any, shall be determined based on such criteria as shall be determined from time to time by the Compensation Committee of the Board of Directors. The nature of the criteria and the determination as to whether the criteria have been satisfied shall be determined by the Compensation Committee of the Board of Directors in its sole discretion. Accordingly, there is no assurance that a Bonus will be paid to Executive with respect to all or any particular year during the Term.   5.               Restricted Stock Award. Subject to approval by the Board of Directors (or an appropriate Committee appointed by the Board of Directors) and your execution of a formal restricted stock award agreement, First Horizon Pharmaceutical will grant you 4,000 shares of restricted Company stock on the commencement date of your employment. Stock price shall be the average stock trading price on the date Executive’s employment commences. Such restricted stock award shall vest ratably over a four (4) year period commencing from the date of the restricted stock award. The first vesting period shall occur one (1) year from the date of the restricted stock award. Both stock price and vesting schedule shall be specifically set forth in the restricted stock option agreement to be executed by Executive and the Company.   6.               Benefits and Other Rights.    In consideration for Executive’s performance under this Agreement, the Company shall provide to Executive the following benefits:   (a)                                                          The Company will provide Executive with cash advances for or reimbursement of all reasonable out-of-pocket business expenses incurred by Executive in connection with his employment hereunder. Such reimbursement, however, is conditioned upon Executive adhering to any and all reasonable policies established by Company from time to time with respect to such reimbursements or advances including, but not limited to, a requirement that Executive submit supporting evidence of any such expenses to the Company.   (b)                                                         The Company will provide Executive and his family with the opportunity to receive group medical coverage under the terms of the Company’s health insurance plan, but subject to completion of normal waiting periods. During any such waiting period, the Company will pay, or reimburse Executive for, the cost of COBRA coverage for Executive and his family under his prior health plan.   (c)                                                          During the Term the Executive shall be entitled to twenty (20) days paid vacation, it being understood and agreed that unused vacation shall not be carried over from one year to the next. In addition, Executive shall be entitled to eight (8) paid holidays and four (4) paid personal days off.   7.              Termination of the Term.   (a)                                                          The Company shall have the right to terminate the Term under the following circumstances:   (i)                                     Executive shall die;   (ii)                                  With or without Cause, effective upon written notice to Executive by the Company; or   (iii)                               Upon or within one (1) year following a Change of Control.   --------------------------------------------------------------------------------   (b)                                                         Executive shall have the right to terminate the Term under the following circumstances:   (i)                                     At any time upon sixty (60) days prior written notice to the Company; or   (ii)                                  For Good Reason upon or within one (1) year following a Change of Control.   (c)                                                          For purposes of this Agreement, “Cause” shall mean:   (i)                                     Executive shall be convicted of the commission of a felony or a crime involving dishonesty, fraud or moral turpitude;   (ii)                                  Executive has engaged in acts of fraud, embezzlement, theft or other dishonest acts against the Company;   (iii)                               Executive commits an act which negatively impacts the Company or its employees including, but not limited to, engaging in competition with the Company, disclosing confidential information or engaging in sexual harassment, discrimination or other human rights-type violations;   (iv)                              Executive’s gross neglect or willful misconduct in the discharge of his duties and responsibilities; or   (v)                                 Executive’s repeated refusal to follow the lawful direction of the Board of Directors or supervising officers.   (d)                                                         For purposes of this Agreement, “Change of Control” shall mean the occurrence of any of the following:   (i)                                     The acquisition (other than by a direct purchase of shares from the Company) by any “person,” including a “syndication” or “group”, as those terms are used in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (other than any such person currently owning in excess of the following amount), of securities representing 20% or more of the combined voting power of the Company’s then outstanding voting securities, which is any security that ordinarily possesses the power to vote in the election of the Board of Directors of a corporation without the happening of any precondition or contingency;   (ii)                                  The Company is merged or consolidated with another corporation and immediately after giving effect to the merger or consolidation less than 80% of the outstanding voting securities of the surviving or resulting entity are then beneficially owned in the aggregate by (x) the stockholders of the Company immediately prior to such merger or consolidation, or (y) if a record date has been set to determine the stockholders of the Company entitled to vote on such merger or consolidation, the stockholders of the Company as of such record date;   --------------------------------------------------------------------------------   (iii)                               If at any time during a calendar year a majority of the directors of the Company are not persons who were directors at the beginning of the calendar year;   (iv)                              The Company transfers substantially all of its assets to another corporation which is a less than 80% owned subsidiary of the Company; or   (v)                                 The Company approves a plan or proposal for dissolution on liquidation of the Company.   (e)                                                          For purposes of this Agreement, “Good Reason” shall mean the occurrence of any one or more of the following events which continues uncured for a period of not less thirty (30) days following written notice given by Executive to the Company within fifteen (15) days following the occurrence of such event, unless the Executive specifically agrees in writing that such event shall not be Good Reason:   (i)                                     Any material breach of this Agreement by the Company;   (ii)                                  Any failure to continue the Executive as an executive officer of the Company;   (iii)                               The requirement by the Company that Executive perform his services hereunder primarily at a location outside of the metropolitan Atlanta, Georgia area; or   (iv)                              The reduction of the Employee’s salary below the amount set forth in Section 4(a) above without the written consent of Executive.   8.              Effect of Expiration or Termination of the Term.    Promptly following the termination of the Term, and except as otherwise expressly agreed to by the Company in writing, Executive shall:   (a)                                                          Immediately resign from any and all other positions or committees which Executive holds or is a member of with the Company or any subsidiary of the Company including, but not limited to, as an officer and director of the Company or any subsidiary of the Company.   (b)                                                         Provide the Company with all reasonable assistance necessary to permit the Company to continue its business operations without interruption and in a manner consistent with reasonable business practices; provided, however, that such transition period shall not exceed thirty (30) days after termination nor require more than twenty (20) hours of Executive’s time per week and Executive shall be promptly reimbursed for all out-of-pocket expenses.   (c)                                                          Deliver to the Company possession of any and all property owned or leased by the Company which may then be in Executive’s possession or under his control, including, without limitation, any and all such keys, credit cards, automobiles, equipment, supplies, books, records, files, computer equipment, computer software and other such tangible and intangible property of any description whatsoever. If, following the expiration or termination of the Term, Executive shall receive any mail addressed to the Company, then Executive shall immediately deliver   --------------------------------------------------------------------------------   such mail, unopened and in its original envelope or package, to the Company.   (d)                                                         Other than as provided in this Section 8, upon a termination of employment all other benefits and/or entitlements to participate in programs or benefits, if any, will cease as of the effective date except medical insurance coverage that may be continued at Executive’s own expense as provided by applicable law or written Company policy.   (e)                                                          Upon termination of Executive pursuant to § 7(a)(i) or § 7(a)(ii) without Cause following the six (6) month anniversary of the Effective Date, the Company shall: (i) provide Executive with Salary continuance, subject to § 8(h) for six (6) months (a “Salary Continuance”) at the rate in effect immediately prior to termination, plus (ii) a lump sum payment equal to Fifty Percent (50%) of the Bonus, if any, paid to Executive for the calendar year immediately preceding termination, plus (iii) provide six (6) months of COBRA coverage for Executive which shall be substantially equivalent to that provided by the Company prior to termination, plus (iv) the Executive’s then unvested options and stock awards previously issued pursuant to the Company’s stock option and other equity incentive plans shall immediately vest and be exercisable as provided for in the First Horizon Pharmaceutical Corporation Accelerated Vesting Plan, dated January 24, 2006. In the event of termination of Executive’s employment prior to the six (6) month anniversary of the Effective Date, Executive shall not be entitled to any severance from the Company.   (f)                                                            Upon termination of Executive pursuant to § 7(a)(ii) with Cause or § 7(b)(i), the Company shall pay Executive or Executive’s estate all Salary accrued but unpaid as of the date of such termination.   (g)                                                         Upon termination of Executive pursuant to § 7(a)(iii) or § 7(b)(ii), the Company shall: (i) provide Executive with Salary continuance for twelve (12) months at the rate in effect immediately prior to termination, plus (ii) a lump sum payment equal to One Hundred Percent (100%) of the Bonus, if any, paid to Executive for the calendar year immediately preceding termination, plus (iii) provide COBRA coverage for Executive which shall be substantially equivalent to that provided by the Company prior to termination until the earlier of (A) twelve (12) months after the date of termination, (B) the availability of replacement coverage to Executive from a third party employer after Executive has accepted another full-time position and (C) the expiration of COBRA benefits by reason or lapse of the statutory or regulatory benefit period established by governmental authority. Further, upon a Change in Control, regardless of whether the Executive is terminated, all of Executive’s then unvested options and stock awards previously issued pursuant to the Company’s stock option and other equity incentive plans shall immediately vest and be exercisable as herein provided.   (h)                                                         In the event that Executive shall be entitled to receive a Salary Continuance and COBRA benefit pursuant to § 8(e), such Salary Continuance and COBRA benefit shall continue only until such time as Executive shall have accepted another full time position. In addition, in the event that Executive shall perform consulting or other services for which he shall receive compensation, all compensation shall be reported to the Company and shall be offset against any remaining Salary   --------------------------------------------------------------------------------   Continuance payments. Failure of Executive to promptly report the receipt of any compensation from a third party or the acceptance of a new position shall entitle the Company to terminate all remaining Salary Continuance and COBRA benefits and to seek restitution for any payments made to Executive subsequent to such job acceptance or compensation receipt.   (i)                                                             Any dollar amounts which are to be paid at the time of termination under this Section 8, other than Salary Continuance, payments under Section 8(g)(i) and COBRA payments, shall be paid within thirty (30) days after the date of termination. Any Salary Continuance, payments under Section 8(g)(i) or COBRA payments shall be made in accordance with the usual payroll practices which were applicable prior to termination. Except as otherwise specifically set forth herein, any and all payments made pursuant to this Agreement shall be net of any and all applicable federal, state and local payroll and withholding taxes.   (j)                                                             If the Company or the Company’s accountants determine that the payments called for under Section 8(g) of this Agreement either alone or in conjunction with any other payments or benefits made available to the Employee by the Company will result in the Employee being subject to an excise tax (“Excise Tax”) under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or if an Excise Tax is assessed against Executive as a result of such payments or other benefits, the Company shall make a Gross-Up Payment (as defined below) to or on behalf of Executive as and when such determination(s) and assessments(s), as appropriate, are made, subject to the conditions of this subsection (i). A “Gross-Up Payment” shall mean a payment to or on behalf of Executive that shall be sufficient to pay (i) any Excise Tax in full, (ii) any federal, state and local income tax and Social Security or other employment tax on the payment made to pay such Excise Tax as well as any additional Excise Tax on the Gross-Up Payment, and (iii) any interest or penalties assessed by the Internal Revenue Service on Executive if such interest or penalties are attributable to the Company’s failure to comply with its obligations under this subsection (i) or applicable law. Any determination under this subsection (i) by the Company or the Company’s accountants shall be made in accordance with Section 280G of the Code, any applicable related regulations (whether proposed, temporary or final), any related Internal Revenue Service rulings and any related case law, and shall assume that Executive shall pay Federal income taxes at the highest marginal rate in effect for the year in which the Gross-Up Payment is made and state and local income taxes at the highest marginal rate in effect in the state of Executive’s residence for such year. Executive shall take such action (other than waiving Employee’s right to any payments or benefits) as the Company reasonably requests under the circumstances to mitigate or challenge such tax. If the Company reasonably requests that Executive take action to mitigate or challenge, or to mitigate and challenge, any such tax or assessment and Executive complies with such request, the Company shall provide Executive with such information and such expert advice and assistance from the Company’s accountants, lawyers and other advisors as Executive may reasonably request and shall pay for all expenses incurred in effecting such compliance and any related fines, penalties, interest and other assessments. Subject to the provisions of this subsection (i), all determinations required to be made under this subsection (i), including whether and when a Gross-Up Payment is   --------------------------------------------------------------------------------   required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change of Control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within thirty (30) business days of the receipt of notice from the Company or Executive that there has been a payment that could trigger a Gross-Up Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this subsection (i) with respect to any payments shall be made no later than sixty (60) days following such payments. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”) or Gross-up Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to be made hereunder. In the event that Executive thereafter is required to make payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse Executive for his Excise Tax as herein set forth, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Executive to or for the benefit of the Company. Executive shall cooperate to the extent Executive’s expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax.   9.              Restrictive Covenants for Executive.     Executive hereby covenants and agrees with the Company that for so long as Executive is employed by the Company and for a period (the “Restricted Period”) of twelve (12) months after termination of such employment for any reason, Executive shall not, without the prior written consent of the Company, which consent shall be within the sole and exclusive discretion of the Company, either directly or indirectly on his own account or on behalf of any other person or entity:   --------------------------------------------------------------------------------   (a)                                                          Perform services for a Competing Business that are substantially similar in whole or in part to those that he performed for the Company in his role as Executive Vice President and Chief Medical Officer, including specifically, but not limited to, the sale or marketing of drug products or the management of individuals involved in the sale or marketing of drug products. For purposes of this covenant, the term “Competing Business” shall mean any company engaged in the development, marketing or sale of prescription drug products, including generic and nongeneric drug products, which are competitive with: (1) those products being marketed by the Company at the time of Executive’s termination; or (2) those products that Executive was aware were under development by the Company and expected to be marketed within two (2) years of Executive’s termination. This covenant shall apply only within the “Territory” which is defined as the fifty states of the United States. Executive recognizes and agrees that in capacity of Executive Vice President and Chief Medical Officer, his duties extend throughout the entire service area of the Company which includes, at a minimum, the fifty states of the United States and that, because of the executive nature of Executive’s position with the Company, in order to afford the Company protection from unfair competition by the Executive following his termination of employment, this covenant must extend throughout the stated Territory. Executive further acknowledges that this covenant does not prohibit him from engaging in his entire trade or business but only a very limited segment of the pharmaceuticals industry   (b)                                 Solicit any current supplier, customer or client of the Company with whom Executive dealt, or with whom anyone in Executive’s direct chain of command dealt, on behalf of the Company within the year preceding Executive’s termination of employment, for the purpose of purchasing drug products (or ingredients of drug products) or selling or marketing drug products, including generic and nongeneric drug products, which are competitive with: (1) those products being marketed by the Company at the time of Executive’s termination; or (2) those products that Executive was aware were under development by the Company and expected to be marketed within two (2) years of Executive’s termination. Notwithstanding this subsection (b), Executive may solicit suppliers that have excess capacity as reasonably determined by the Company.   10.       Confidentiality.    Attached to this Agreement as Exhibit A is the form of the Employee/Independent Contractor Confidentiality and Non-Solicitation Agreement (the “Confidentiality Agreement”) which the Company requires all employees, including, but not limited to, the Executive, to execute and which is a part of each employee’s terms of employment. By signing this Agreement, Executive acknowledges having received, read, executed and delivered to the Company a copy of the Confidentiality Agreement and agrees that the terms of the Confidentiality Agreement shall be incorporated by reference into this Agreement and shall be considered as part of the terms and conditions of Executive’s continued employment with the Company.   11.       Remedies.   (a)                                                          The covenants of Executive set forth in Section 9 and Section 10 are separate and independent covenants for which valuable consideration has been paid, the receipt, adequacy and sufficiency of which are acknowledged by Executive, and have also been made by Executive to induce the Company to enter into this Agreement and continue   --------------------------------------------------------------------------------   Executive’s employment with the Company. Each of the aforesaid covenants may be availed of, or relied upon, by the Company in any court of competent jurisdiction, and shall form the basis of injunctive relief and damages including expenses of litigation (including, but not limited to, reasonable attorney’s fees upon trial and appeal) suffered by the Company arising out of any breach of the aforesaid covenants by Executive. The covenants of Executive set forth in this Section 9 are cumulative to each other and to all other covenants of Executive in favor of the Company contained in this Agreement and shall survive the termination of this Agreement for the purposes intended.   (b)                                                         Each of the covenants contained in Section 9 and Section 10 above shall be construed as agreements which are independent of any other provision of this Agreement, and the existence of any claim or cause of action by any party hereto against any other party hereto, of whatever nature, shall not constitute a defense to the enforcement of such covenants. If any of such covenants shall be deemed unenforceable by virtue of its scope in terms of geographical area, length of time or otherwise, but may be made enforceable by the imposition of limitations thereon, Executive agrees that the same shall be enforceable to the fullest extent permissible under the laws and public policies of the jurisdiction in which enforcement is sought. The parties hereto hereby authorize any court of competent jurisdiction to modify or reduce the scope of such covenants to the extent necessary to make such covenants enforceable.   (c)                                                          In the event that Executive believes that the Company is in violation of a material obligation owed to Executive under this Agreement, and the Executive has given notice of such violation to the Company requesting that the Company cure such violation, and within twenty (20) business days the Company has not undertaken steps to cure such violation or to provide information to Executive demonstrating that the Company is not in violation of the Agreement, and as a result of such failure to cure or dispute such violation, the Executive terminates the Agreement in accordance with Section 7(b), Executive shall not be barred from seeking employment with a competitor notwithstanding the restriction of Section 9(a); provided, however, that all other restrictions contained in this Agreement, including, but not limited to the covenants in Section 9(b) and in Section 10, shall remain in full force and effect.   12.       Enforcement Costs.    If any legal action or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorney’s fees, court costs and all expenses even if not taxable as court costs (including, without limitation, all such fees, costs and expenses incident to appeal and other post judgment proceedings), incurred in that action or proceeding, in addition to any other relief to which such party or parties may be entitled. Attorney’s fees shall include, without limitation, paralegal fees, investigative fees, administrative costs, sales and use taxes and all other charges billed by the attorney to the prevailing party.   13.       Notices.    Any and all notices necessary or desirable to be served hereunder shall be in writing and shall be:   (a)                                                          Personally delivered, or   --------------------------------------------------------------------------------   (b)                                                         Sent by certified mail, postage prepaid, return receipt requested, or guaranteed overnight delivery by a nationally recognized express delivery company, in each case addressed to the intended recipient at the address set forth below.   (c)                                                          For notices sent to the Company:   First Horizon Pharmaceutical Corporation 6195 Shiloh Road Alpharetta, Georgia 30005 Telephone No.: (770) 442-9707 Facsimile No.: (770) 442-9594   (d)                                                         For notices sent to Executive:   Mr. Larry M. Dillaha 403 N. Cameron Court Nashville, TN 37076   Either party hereto may amend the addresses for notices to such party hereunder by delivery of a written notice thereof served upon the other party hereto as provided herein. Any notice sent by certified mail as provided above shall be deemed delivered on the third (3rd) business day next following the postmark date which it bears.   14.       Entire Agreement.    This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof, and specifically supersedes any other agreement or understanding among the parties hereto related to the subject matter hereof, including, without limitation, the Original Agreement. This Agreement may not be modified or revised except pursuant to a written instrument signed by the party against whom enforcement is sought.   15.       Severability.    The invalidity or unenforceability of any provision hereof shall not affect the enforceability of any other provision hereof, and except as otherwise provided in Section 10 above, any such invalid or unenforceable provision shall be severed from this Agreement.   16.       Waiver.    Failure to insist upon strict compliance with any of the terms or conditions hereof shall not be deemed a waiver of such term or condition, and the waiver or relinquishment of any right or remedy hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or remedy at any other time or times.   17.       Arbitration.    Any claims, disputes or controversies arising out of or relating to this Agreement between the parties (other than those arising under Section 10) shall be submitted to arbitration by the parties. The arbitration shall be conducted in Atlanta, Georgia in accordance with the rules of the American Arbitration Association then in existence and the following provisions: Either party may serve upon the other party by guaranteed overnight delivery by a nationally recognized express delivery service, written demand that the dispute, specifying in detail its nature, be submitted to arbitration. Within seven (7) business days after the service of such demand, each of the parties shall appoint an arbitrator and serve written notice by guaranteed overnight delivery by a nationally recognized express delivery service, of such appointment upon the other party. The two arbitrators appointed shall appoint a third   --------------------------------------------------------------------------------   arbitrator. The decision of two arbitrators in writing under oath shall be final and binding upon the parties. The arbitrators shall decide who is to pay the expenses of the arbitration. If the two arbitrators appointed fail to agree upon a third arbitrator within ten days after their appointment, then an application may be made by either party, upon notice to the other party, to any court of competent jurisdiction for the appointment of a third arbitrator, and any such appointment shall be binding upon both parties.   18.       Governing Law.    This Agreement and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the law of the State of Georgia, without regard to its conflicts of laws provisions. Subject to Section 16, each party hereto hereby (a) agrees that the state and federal courts of the Northern District of Georgia shall have exclusive jurisdiction and venue of any litigation which may be initiated with respect to this Agreement or to enforce rights granted hereunder and (b) consents to the personal jurisdiction and venue of such courts for such purposes.   19.       Benefit and Assignability.    This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The rights and obligations of Executive hereunder are personal to him, and are not subject to voluntary or involuntary alienation, transfer, delegation or assignment.   IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year first above written.       EXECUTIVE:           /s/ LARRY M. DILLAHA       Name: Larry M. Dillaha           FIRST HORIZON PHARMACEUTICAL CORPORATION           By: /s/ PATRICK FOURTEAU       Name: Patrick Fourteau, Chief Executive Officer   --------------------------------------------------------------------------------   EXHIBIT A   First Horizon Pharmaceutical Corporation   Employee / Independent Contractor Confidentiality, Non-Solicitation and Non-Competition Agreement   Employee or Independent Contractor Name:   The growth and success of First Horizon Pharmaceutical Corporation (“FHPC”) are largely dependent on two key assets, our proprietary information and our highly competent employees and independent contractors. Our employees are obtained by recruiting the best people available and giving them opportunities to advance and share in the success of FHPC.   Our proprietary information (confidential items and information not generally known outside of FHPC) is obtained by research and product development, business development conducted by FHPC, product improvements, marketing and sales methods, and service to customers. Many FHPC employees make major contributions, and independent contractors may do so as well. These result in a pool of information and expertise, which enables FHPC to conduct its business with unusual success, and thus with unusual potential for its employees and independent contractors. However, this potential exists only as long as this information and expertise are retained within FHPC. Once generally known, this information gives no advantages to FHPC, its employees, its independent contractors, or its stockholders.   In effect, all FHPC employees and independent contractors have a common interest and responsibility in seeing that no one employee or independent contractor accidentally or intentionally discloses or distributes this pool of information and expertise in an unauthorized manner. To help protect you, other employees or independent contractors, and FHPC against such disclosure, this Agreement has been prepared so that we have a common understanding concerning your responsibilities in this connection. Please read this Agreement carefully so that you may understand its importance.   IN CONSIDERATION OF the premises above and my employment or continued employment as an employee or independent contractor of FHPC, I hereby agree with FHPC as follows:   1.                                       Defined Terms: The following definitions will have the meanings indicated when used in this document:   (a)                                  Confidential Information means any proprietary information, materials, or trade secrets or know-how, (whether or not patentable), or any similar items owned by or in the possession of FHPC. Confidential Information includes records, files, memoranda, notes, computer software, computer files, computer programs, computer databases, reports, price lists, customer lists, drawings, plans, reprints experimental data, reports, sources of materials or supply, patent strategies, consultations and plans or strategies concerning business not limited to sales, business development marketing and clinical development, and employment and compensation policies, including any negative developments, which are communicated to, acquired by or learned of by FHPC, financial data that is not public information, business development projects including information concerning the existence, scope or activities of any FHPC development project. All copies and reproductions of FHPC confidential items, whether on paper, in a computer readable medium, or in any other form, are also Confidential Items.   --------------------------------------------------------------------------------   (b)                                 Invention means any invention, original work of authorship, development, concept, trade secret, discovery, innovation or improvement (whether or not patentable, or registratable under copyright or similar laws) made, initiated, conceived, or first actually or constructively reduced to practice by me, closely or jointly with others:   (i)                                     which results from any work for FHPC, any use of FHPC’s premises or property, or any use of FHPC’s Confidential Information, confidential items or other resources;   (ii)                                  which relates to any method, process, laboratory practice or know-how useful to or being developed by FHPC in connection with any existing or planned business of FHPC or any actual or anticipated research or development of FHPC; or   (iii)                               which relates to any product, article or manufacture, or composition of matter being developed, made, sold, or used in connection with FHPC’s business or FHPC’s development.   However, where and to the extent required by applicable state statute, this Agreement shall not require assignment to FHPC of the rights in an invention if no equipment, supplies, facilities, trade secrets, confidential information or confidential items of FHPC were used, and the invention was developed entirely on my own time unless:   (i)                                     the invention relates directly to FHPC business or to FHPC’s actual or demonstrably anticipated research or development; or   (ii)                                  the invention results from any work performed by me for FHPC.   This definition of invention includes each and every invention and/or improvement that I may make or conceive, either solely or jointly with others, within one year after termination of employment for any reason with FHPC if and to the extent the invention and/or improvement results from any work for FHPC, any use of FHPC’s premises or property or any use of FHPC’s confidential items or confidential information.   (c)                                  “Employment” means the period during which (i) I am employed by FHPC as an employee, whether on a full-time or part-time basis and whether to fill a permanent or temporary position, or (ii) I am engaged by FHPC as an independent contractor, whether on a project or continuing basis.   2.                                       Protection of Confidential Information   (a)                                  During my employment and for three (3) years after the termination of my employment for any reason, I will hold in strictest confidence and will not disclose, communicate or divulge to, or use for my own benefit or the benefit of another, any Confidential Information or Inventions. Notwithstanding the previous sentence, for such Confidential Information constituting trade secrets under the Georgia Trade Secrets Act of 1990, as may be amended from time to time (the “Act”), I will maintain the confidentiality of such Confidential Information for as long as is permitted under the Act.   (b)                                 Section 2 will not apply to any information which:   (i)                                     is or becomes publicly known under circumstances involving no breach by me of the terms of this Section 2, however, Confidential Information   --------------------------------------------------------------------------------   shall not be publicly known by reason of such information’s or item’s being available in isolated segments in two or more readily available public documents,   (ii)                                  is generally disclosed to third parties by FHPC without restriction on such third parties, or   (iii)                               is approved for release by written authorization of the Board of Directors of the Company:   except that a breach by me of my obligations under this Section 2 shall not be absolved by the subsequent occurrence of any of the exceptions above.   (c)                                  All Confidential Information remains the property of FHPC at all times, before, during and after my employment. I will, upon termination of my employment at FHPC or at any other time upon request by FHPC, promptly deliver to FHPC all Confidential Information I may have in my possession, including but not limited to all Confidential Information relating to the business of FHPC. I understand that I must obtain FHPC’s express, written permission with regard to any Confidential Information, if I wish to keep any copies of any Confidential Information after the termination of my employment. I agree to, upon FHPC’s request, certify to FHPC under oath that I have complied with the provisions of this section 2(c).   (d)                                 I acknowledge that my agreement to protect Confidential Information among other things prohibits me from communicating Confidential Information to former employees of FHPC, both while I am employed by FHPC and after termination of my employment for the duration of my agreement which is set forth in Section 2(a).   (e)                                  I shall submit to FHPC any proposed publication which contains any discussion relating to FHPC, any Confidential Information, or Invention of FHPC, or any work performed by me during the course of my employment with FHPC. Unless I am notified by FHPC that such publication contains Confidential Information within ninety (90) days of FHPC’s written acknowledgement of receipt of such publication, I may proceed with such publication. This provision extends to publications that are written and/or published after the termination of my employment.   (f)                                    My employment with FHPC and performance of my duties and responsibilities as an employee do not and will not breach any agreement, which obligated me to keep in confidence any trade secrets or confidential information of any other party or to refrain from competing, directly or indirectly, with the business of any other party, and I shall not disclose to FHPC any trade secrets, Confidential Information of any other party.   (g)                                 I acknowledge and agree that although I may disclose and discuss Confidential Information with other current employees of FHPC, I will do so only on a need-to-know basis and for the sole purpose of advancing the best interests and the business objectives of FHPC.   3.                                       Inventions and Patents   (a)                                  I have attached hereto as Exhibit A is a list describing all inventions, original works of authorship, developments, improvements and trade secrets which were made by me prior to my employment with FHPC (collectively, “Prior Inventions”), which belong to me, which relate to FHPC’s proposed business, products or   --------------------------------------------------------------------------------   research and development, and which are not assigned to FHPC hereunder, or, if no such list is attached, I represent that there are no such Prior Inventions. If in the course of my Employment Term I incorporate into a FHPC product, process or machine a Prior Invention owned by me or in which I have an interest, FHPC is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.   (b)                                 Inventions shall be the property of FHPC. I hereby assign to FHPC or its designee all right, title and interest in and to any and all Inventions and any and all related patents, copyrights, trademarks, and trade names, and applications therefore, in the United States and elsewhere.   (c)                                  I will disclose to FHPC promptly all Inventions.   (d)                                 If I am employed in a technical capacity, I will maintain a laboratory notebook or equivalent record that is kept in accordance with standard scientific practices. This notebook will contain daily records of all business protocols, procedures, studies, experiments, data, etc. and will document the conception and/or reduction to practice of any Invention. I will follow any guidelines and policies that FHPC presently has or implements in the future regarding the content, protection, counter-signing or notarizing of notebooks. I understand that all notebooks and copies thereof are FHPC’s property and I may not have a copy of any notebook upon the termination of my employment without the express written permission of FHPC, regardless of the circumstances of termination.   (e)                                  I shall, at FHPC’s expense, execute declarations, further assignments, documents and other instruments as necessary or desirable to fully and completely assign all Inventions to FHPC or its designee and to assist FHPC or its designee in applying for, prosecuting and enforcing patents, copyrights or other intellectual property rights in the United States and in any foreign country with respect to any Invention. I understand that this obligation shall continue to exist after the termination of my employment, regardless of the reasons for and circumstances of termination. If FHPC is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions assigned to FHPC as above, then I hereby irrevocably designate and appoint FHPC and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me.   4.                                       Copyrightable Material   WITHOUT LIMITING THE ABOVE, I SPECIFICALLY AGREE THAT ALL COPYRIGHTABLE MATERIALS GENERATED OR DEVELOPED BY ME IN CONNECTION WITH MY DUTIES AND RESPONSIBILITIES WITH FHPC AND UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ADVERTISING MATERIALS, PRODUCT NAME AND IDENTITIES, PRODUCT INSTRUCTIONS, LABORATORY NOTEBOOKS, PROTOCOLS, SCIENTIFIC PUBLICATIONS, ARTISTIC AND PRODUCT DESIGNS, SKETCHES, TECHNICAL BULLETINS, COMPUTER PROGRAMS, COMPUTER FILES, COMPUTER SOFTWARE, AND COMPUTER DATABASES, SHALL BE CONSIDERED WORKS MADE FOR HIRE UNDER THE COPYRIGHT LAWS OF THE UNITED STATES AND THAT THEY SHALL, UPON CREATION, BE OWNED EXCLUSIVELY BY FHPC. TO THE EXTENT THAT ANY SUCH MATERIALS, UNDER APPLICABLE LAW, MAY NOT BE CONSIDERED WORKS MADE FOR HIRE, I HEREBY ASSIGN TO FHPC THE OWNERSHIP OF ALL COPYRIGHTS IN SUCH MATERIALS, WITHOUT THE NECESSITY OF   --------------------------------------------------------------------------------   ANY FURTHER CONSIDERATION, AND FHPC SHALL BE ENTITLED TO REGISTER AND HOLD IN ITS OWN NAME ALL COPYRIGHTS IN RESPECT OF SUCH MATERIALS.   5.                                       Non-Solicitation.   I agree that during my employment by FHPC and for three (3) years from the termination of such employment for any reason, I will not, either directly or indirectly, on my own behalf or in the service of or on behalf of others, solicit, divert or recruit, or attempt to solicit, divert or recruit, any employee of FHPC, with whom I had contact during my employment with FHPC, to leave such employment, whether or not such employment is pursuant to a written contract with the Company or at will.   6.                                       No Competition   While employed at FHPC, I will not provide services to any other pharmaceutical or related company (excluding Northhampton Medical, Inc.) which is the same or similar to the services I have provided to First Horizon. I understand that the preceding sentence does not apply to me to the extent I am an independent contractor of FHPC.   7.                                       Expenses   I agree to repay any advances that FHPC may make to me for business expenses, charges by me on any company credit card, and loans from FHPC to me unless such expenses, charges or loans are reimbursable business expenses in accordance with FHPC policies as established from time-to-time. Subject to applicable law, I hereby expressly authorize FHPC to offset any amounts that I owe to FHPC from compensation payable to me.   8.                                       No Assurance or Obligation of Employment   I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause or notice.   9.                                       Costs   Should FHPC successfully enforce its rights against me under this Agreement, FHPC shall be entitled to its costs of such enforcement, including reasonable attorneys’ fees. Should I prevail in said action, FHPC shall pay my reasonable costs associated with such enforcement, including my reasonable attorneys’ fees.   10.                                 Miscellaneous   (a)                                                          The terms of this agreement shall survive termination of my employment.   (b)                                                         If any provision of the Agreement shall, for any reason be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceable provision had not been included herein.   (c)                                                          The validity, construction, enforcement and interpretation of this Agreement shall be governed by the internal laws (and not the laws of conflicts) of the State of Georgia. I agree that the state and federal courts of the Northern District of Georgia shall have exclusive jurisdiction and venue of any litigation arising out of or relating to this Agreement and my employment or the termination of my employment with FHPC and I hereby expressly consent to the personal   --------------------------------------------------------------------------------   jurisdiction and venue of the state and federal courts of the Northern District of Georgia for any such litigation.   (d)                                                         This Agreement shall be binding upon and inure to the benefit of me and FHPC and our respective heirs, executors, administrators, legal representatives, successors and assigns.   (e)                                                          This Agreement embodies the entire agreement between FHPC and me in regard to the matters discussed herein and hereby supersede any previous Agreements between FHPC and me in regard to the matters discussed herein. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by both parties.     Employee or Independent Contractor:             Printed Name   Date                   Signature                       Agreed to and Accepted:               First Horizon Pharmaceutical Corporation                               By   Date                   Title         --------------------------------------------------------------------------------

Exhibit 10.34   AMENDED AND RESTATED TRUST 3000 SERVICE AGREEMENT   SEI Investments Company (formerly SEI Corporation) (“SEIIC”), a Pennsylvania corporation, currently having its principal place of business at One Freedom Valley Drive, Oaks, Pennsylvania 19456 and Investors Bank & Trust Company (“Customer”), a Massachusetts corporation having its principal place of business at 200 Clarendon Street, Boston, Massachusetts 02110, entered into a certain Trust 3000 Service Agreement, dated the 1ST day of July, 1991 (as amended to date, most recently on November 21, 2003, the “Original Agreement”), pursuant to which, among other things, SEIIC agreed to provide certain trust processing and reporting services for Customer and its customers through the TRUST 3000 System.   SEIIC previously assigned to SEI Global Services, Inc. (“SEI”) all of SEIIC’s rights and obligations under the Original Agreement (such assignment did not relieve SEIIC from any of such obligations).   SEI and Customer (collectively the “Parties”, individually, a “Party”) now desire to amend and restate the Original Agreement in its entirety effective as of July 1, 2004 (the “Designated Date”).  However, notwithstanding such amendment and restatement, the provisions of the Original Agreement shall continue to govern the respective rights and obligations of the SEIIC and Customer that arose or accrued prior to the Designated Date; and the provisions of this Agreement shall govern the respective rights and obligations of the Parties that arise and accrue from and after the Designated Date.     NOW THEREFORE, in consideration of the premises, and the covenants, representations and warranties contained herein, and intending to be legally bound hereby, SEI and Customer agree as follows:   SECTION 1.  SERVICES PROVIDED AND EQUIPMENT SPECIFICATION   1.01. TRUST 3000 Service. Subject to the terms and conditions of this Agreement, SEI agrees to provide Customer and Customer agrees to purchase the use of the TRUST 3000 Service for its trust department and custody department accounts existing on the date hereof and for future trust department and custody department accounts to the extent permitted by Section 4.01. As used herein, TRUST 3000 Service shall mean the products and services offered by SEI and purchased by Customer hereunder, for managing and processing trust accounts of financial institutions, as specified in Exhibit A attached hereto and as described in the User Manuals for the functions specified on such Exhibit, some of which products and services are currently provided through the operation of SEI’s TRUST 3000 System.  The SEI Trust 3000 System means the proprietary computer systems and components utilized by SEI from time to time to provide certain of the SEI Trust 3000 Service hereunder.  SEI shall provide the TRUST 3000 Service in accordance with the Performance Standards set forth   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   in Exhibit B except as otherwise provided in this Agreement.   If Customer requires applications or processing outside of the levels specified, SEI shall make reasonable efforts to provide such processing service upon agreement by SEI and Customer of the additional fees due for such increased levels, such fees not to exceed SEI’s prevailing rates  for such services, which shall not exceed the fees generally charged by SEI to similarly situated customers, determined by relative size (based on number of accounts on the Trust 3000 System) and usage of the Trust3000 Service.   It is understood and agreed that SEI shall have the right to engage other persons or entities to provide any portion of the Trust3000 Service.  Customer understands and agrees that SEI has sole responsibility and liability, subject to the limitations of liability set forth in this Agreement, for furnishing the Trust 3000 Service, and agrees that Customer shall look solely to SEI for the provision of the Trust 3000 Service; and that persons or entities providing any of the Trust 3000 Service, whether as supplier agent or subcontractor, shall have no liability to Customer for Trust3000 Service.   1.02. Equipment. Customer shall be responsible for obtaining and maintaining network-compatible terminal, print and telecommunication equipment for use in conjunction with the TRUST 3000 Service.   1.03 License Grant to the Trust 3000 System. SEI hereby grants to Customer during the Term of this Agreement a non-exclusive, personal and limited license to use the Trust 3000 System solely in connection with the accounts as contemplated by this Agreement.  Customer shall not sublicense, assign, lease, distribute, or otherwise transfer the Trust 3000 System or Customer’s right to use the Trust 3000 System to any other person or entity.   SECTION 2. TERM OF AGREEMENT    2.01. Basic Term.  The Basic Term of this Agreement shall begin as of the Designated Date and shall conclude on December 31, 2009.  Thereafter, the Agreement shall automatically renew as provided in Section 2.02 of the Agreement.  As of the Designated Date, this Agreement amends and restates the Original Agreement in its entirety and supersedes the Original Agreement, in all respects, notwithstanding any provisions to the contrary.   2.02. Renewal Term. This Agreement shall automatically remain in full force and effect for a three (3) year Renewal Term, and for three (3) year Renewal Terms thereafter, unless terminated as provided in Section 2.03 of the Agreement.   2.03. Termination. Customer or SEI may elect to terminate this Agreement on the last day of the Basic Term or any Renewal Term by notifying the other Party hereto in writing, not less than one hundred and eighty (180) calendar days prior to the expiration date.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   2.04. Early Termination.   (A) Early Termination During the Basic Term/Renewal Term – Notice and Buyout Amount to be Paid.  In the event Customer desires to terminate this Agreement at any time during the Basic Term or any Renewal Term, Customer may terminate this Agreement provided:  (1) Customer is not in material breach of this Agreement at the time such notice of termination is given; (2) Customer gives SEI no less than [/*/ CONFIDENTIAL TREATMENT REQUESTED] calendar days prior written notice of such termination (such notice may be referred to as the “Termination Notice”); and (3) Customer pays the Buyout Amount defined below, at the time such Termination Notice is given.  In addition, Customer agrees to pay all other amounts set forth in Section 9.01.2. The “Buyout Amount” means the dollar amount achieved through the calculations set forth in (1) through (5) below:   (1)          the Minimum Monthly TRUST 3000 Core Fee in effect at the time the Termination Notice is given, plus   (2) all other monthly Subsystem fees in effect at the time the Termination Notice is given; the sum of (1) and (2) shall be multiplied by   (3) the number of months remaining on the Basic Term or the Renewal Term, as applicable; the product of such multiplication shall be present value discounted (“PVD”) by the amount set forth in (4) below;   (4) the PVD shall equal the time value of money for the period of time commencing when Customer pays the Buyout Amount, continuing until the end of the Basic Term or Renewal Term, as applicable, (without taking into consideration any additional Renewal Terms of this Agreement), at an interest rate equal to the short term Fed Funds rate in effect, in the Wall Street Journal, on the date such Termination Notice is given.   (5) Finally, the amount determined under paragraph (4) shall be multiplied by the applicable percentage (“Applicable Percentage”) as follows:   If the date of the Termination Notice is prior to December 31, 2006, the Applicable Percentage shall be [/*/ CONFIDENTIAL TREATMENT REQUESTED];   If the date of the Termination Notice is between January 1, 2007  and December 31, 2008, the Applicable Percentage shall be [/*/ CONFIDENTIAL TREATMENT REQUESTED]; and   If the date of the Termination Notice is after December 31, 2008 (including during any Renewal Term), the Applicable Percentage shall be [/*/ CONFIDENTIAL TREATMENT REQUESTED].   An example of the calculation of the Buyout Amount is provided below:   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   Notwithstanding anything in this Agreement to the contrary, Customer may terminate certain Subsystems (as specifically identified in Exhibit A) without terminating the Agreement and without payment of any early termination fee or Buyout Amount.   Payment of the Buyout Amount, and the other amounts specified in Section 9.01.2, shall be SEI’s sole and exclusive remuneration in connection with Customer’s exercise of Customer’s termination of the Agreement under this Section 2.04.  The foregoing is not intended to limit any rights or remedies that SEI may have for enforcement of Customer’s obligations hereunder.   (B) Payment of Buyout Amount if Customer Continues TRUST 3000 System Retrieval. Notwithstanding anything contained to the contrary in Section (A) above, in the event Customer terminates this Agreement as provided in Section (A) above, but Customer desires to continue to use the TRUST 3000 System for retrieval purposes for a period of time which is equal to, or less than, [/*/ CONFIDENTIAL TREATMENT REQUESTED] from the effective date of termination, Customer may pay the Buyout Amount as calculated in Section (A) above, in monthly installments.  The monthly installments will commence on the effective date of termination, and continue for each month Customer uses the TRUST 3000 System for retrieval purposes. Each installment shall equal the Buyout Amount divided by the number of months which Customer desires to continue to use the TRUST 3000 System for retrieval. In no event shall the Buyout Amount be prorated for a period of time greater than [/*/ CONFIDENTIAL TREATMENT REQUESTED] from the effective date of termination.   2.05. Other Grounds for Termination. In addition to termination rights specified above, the Parties shall have the right to terminate this Agreement as specified below:   (A) Termination for Insolvency. A Party may terminate this Agreement if the other Party (a) files a voluntary petition in bankruptcy (b) becomes, the subject of any involuntary petition in bankruptcy or proceedings related to its liquidation, insolvency, or the appointment of a receiver or similar officer for it, which proceedings, if involuntary, are not dismissed within ninety (90) calendar days.   (B) Termination for Cause.   1)              In the event SEI fails to achieve the Performance Standards set forth in Exhibit B for [/*/ CONFIDENTIAL TREATMENT REQUESTED] consecutive months or [/*/ CONFIDENTIAL TREATMENT REQUESTED] months (non-consecutive) in any [/*/ CONFIDENTIAL TREATMENT REQUESTED] month period, Customer shall have the right to terminate the Agreement provided that Customer shall have given notice to SEI of its failure   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   to comply with the Performance Standards within thirty (30) calendar days after any month for which the Performance Standards are not achieved.   2)              Customer shall have the right to terminate the Agreement in the event that the SEI data center is inoperative and SEI is unable to provide the Trust 3000 Service for [/*/ CONFIDENTIAL TREATMENT REQUESTED] consecutive hours during any consecutive business days other than due to an event or circumstance subject to Section 10.05 of this Agreement; provided, however, that SEI will be deemed to be providing the Trust 3000 Service for purposes hereof if  it has implemented its then current SEI Disaster Recovery Plan (the current version (as of the Designated Date) is attached as Exhibit D) in accordance with its terms.  The foregoing shall not be intended to limit or otherwise affect SEI’s obligation to provide normal recovery procedures or any other disaster recovery services as described SEI’s Disaster Recovery Plan.   3)              Either SEI or Customer may terminate this Agreement if a Default of the other Party is not cured during the applicable cure period set forth below in this Section 2.05 (B)(3). “Default” shall mean a breach by a Party (the “Breaching Party”) which results in the other Party experiencing a substantial deprivation of the benefit of this Agreement, provided that such breach, if curable, is: (i) not cured by the Breaching Party within thirty (30) calendar days after the Breaching Party has received written notice of such material breach; or (ii) if the material breach is one that could not reasonably be cured within thirty (30) calendar days; (y) the failure by the Breaching Party to adopt, within thirty (30) calendar days after receiving notice of such breach, a plan to cure such breach within a time period not longer than sixty (60) calendar days after receipt of such notice of the breach, or (z) the failure by the Breaching Party to cure such breach within such sixty (60) calendar day period. The provisions of this Section 2.05 (B)(3)are not intended to limit Customer’s right to dispute any Fees in accordance with Section 3.03 of this Agreement.   4)              Exercise of Section 2.05 Termination. In order to exercise its right of termination under this Section 2.05 (hereinafter a “Section 2.05 Termination”), the terminating Party must, within 60 calendar days after the date that such Party first became aware or reasonably should have become aware of its right of termination under this Section 2.05, provide the other Party with written notice (a “Section 2.05 Notice”) specifying the scheduled date on which the termination of this Agreement is to occur, which date shall not be less than one hundred eighty (180) calendar days after the date of the Section 2.05 Notice nor more than one (1) year after the date of the Section 2.05 Notice; and the terminating Party must not be in material breach of this Agreement at the time it provides such Section 2.05 Notice.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   If Customer terminates this Agreement under Section 2.05(B) Customer shall have no obligation to pay SEI the Buyout Amount, but Customer shall be obligated to pay the other amounts specified in Section 9.01.2.  If SEI terminates this Agreement under Section 2.05(B) Customer shall have to pay SEI the Buyout Amount and the other amounts specified in Section 9.01.2.   SECTION 3.  PAYMENT OF FEES AND OTHER EXPENSES   3.01. Fees. Customer agrees to pay to SEI the fees specified in Exhibit A, as such fees may be adjusted from time to time hereunder pursuant to this Agreement (collectively, the “Fees”). Upon Customer’s request, SEI will provide Customer with reasonable back-up support for the invoices.   3.02. Terms. Customer agrees to pay SEI the Fees in advance for each month commencing on the first day of the Basic Term (except that activity based fees will be billed in arrears), each such payment to be due thirty (30) calendar days after the date of Customer’s receipt of the invoice.  Customer agrees to pay interest on all amounts past due at the rate of one percent (1%) per month, if such rate is permitted by law, or otherwise at the highest rate permitted by law, provided, however, that no interest will be due on amounts disputed by Customer in good faith and on reasonable grounds.   3.03. Disputed Amounts. In the event Customer in good faith disputes all or any portion of any SEI invoice, Customer shall promptly notify SEI thereof and shall include in such written notice the amount that Customer so disputes and its reason for such dispute. Customer shall also pay that portion of any such invoice that it does not dispute and shall do so within thirty (30) calendar days after receipt of invoice.  Upon receipt of Customer’s dispute notice, SEI and Customer will work together in good faith to resolve such dispute in a prompt and mutually acceptable manner.  Customer will pay any disputed amounts no later than thirty (30) calendar days after the dispute relative to such amounts have been resolved.   3.04. Taxes.  Customer agrees to pay all state and local sales, use, property or other taxes (except for any personal property taxes on property SEI’s owns or leases, for franchise and privilege taxes on SEI’s business, gross receipts taxes to which SEI is subject, and for income taxes based on SEI’s income), which may be accessed against SEI or Customer or Customer’s customers with respect specifically to this Agreement, the Trust 3000 Service or any equipment provided by SEI hereunder.  At its option, SEI may include such taxes in its invoices in which event Customer shall pay to SEI the taxes so invoiced.   3.05. Adjustment of Fees. At any time after December 31, 2004, SEI may increase the Fees set forth in Exhibit A hereto, provided that SEI provides Customer no less than sixty (60) calendar days advance written notice of such increase (“Fee Increase Notification”), in an amount not to exceed the lesser of: (i) [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   REQUESTED]%); or (ii) the percentage increase in the CPI since the Designated Date, with respect to the first increase, and since the date of the last increase, with respect to the second and any subsequent increases (the “CPI Percentage Increase”); provided, however, in the event the CPI Percentage Increase is greater than [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%), the amount of the excess of the CPI Percentage Increase over [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%) may be applied to increase the fees payable hereunder in any subsequent year to the extent the CPI Percentage Increase in such year is less than [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%).  In no event shall there be more than one increase in any [/*/ CONFIDENTIAL TREATMENT REQUESTED] period.  As used herein, the term “CPI” means the Unadjusted Consumer Price Index, as published in the Summary Data from the Consumer Price Index News Release by the Bureau of Labor Statistics, U.S. Department of Labor, For All Urban Consumers (CPI-U).  In the event the Bureau of Labor Statistics stops publishing the CPI or substantially changes its content and format, Customer and SEI will substitute another comparable index published at least annually by a mutually agreeable source.   Notwithstanding the foregoing, SEI will not increase the Fees, as set forth above, during the period from [/*/ CONFIDENTIAL TREATMENT REQUESTED] through [/*/ CONFIDENTIAL TREATMENT REQUESTED].  However, during this period, SEI may send out a Fee Increase Notification that may provide for an increase in the Fees which will take effect after [/*/ CONFIDENTIAL TREATMENT REQUESTED].  Further, with respect to the first adjustment effective after [/*/ CONFIDENTIAL TREATMENT REQUESTED], such adjustment shall not exceed the lesser of: (i) [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%); or (ii) the percentage increase in the CPI since [/*/ CONFIDENTIAL TREATMENT REQUESTED].   Notwithstanding the above, SEI may at any time upon no less than sixty (60) calendar days written notice increase the Fees applicable to telecommunication services and other Third Party Services indicated on Exhibit A attached hereto provided, however, that (1) such increases shall not exceed the corresponding percentage fee increase to SEI from the applicable Third Party Vendors; and (2) Customer will be permitted to terminate a Third Party Service, without payment of any early termination fees related to such terminated Third Party Service(s) , if the increase for such Third Party Service exceeds [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%) in any calendar year.  In order to so terminate a Third Party Service, Customer must provide written notice to SEI of its intent to terminate the applicable Third Party Service within ninety (90) calendar days after receiving notice of the Third Party Service price increase from SEI that caused the increase to exceed such [/*/ CONFIDENTIAL TREATMENT REQUESTED]% threshold.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   3.06. Renegotiation of Fees upon Significant Loss of Trust Accounts. In the event during the term of this Agreement, Customer’s trust accounts shall decline in an amount equal to or greater than [/*/ CONFIDENTIAL TREATMENT REQUESTED] percent ([/*/ CONFIDENTIAL TREATMENT REQUESTED]%) less than those trust accounts levels existing as of the Designated Date, and providing such decline in accounts is not due to a sale or other transfer of accounts, then in such event, upon written request of Customer, SEI agrees to discuss in good faith with Customer an adjustment of the Fees payable pursuant to Exhibit A attached hereto.  It is understood that such discussion shall not be intended as an obligation for SEI to reduce the Fees (and that any such reduction in accounts could actually result in the increase in certain Fees and the decrease of other Fees), but rather an obligation to engage in good faith discussions.  In no event shall SEI have any to engage in any such negotiations more than one (1) time during the term of this Agreement.  The foregoing shall not be construed to permit Customer to circumvent or reduce Customer’s obligations with respect to a Termination for Convenience.   SECTION 4.  COVENANTS OF CUSTOMER   4.01 Limitations on Use of TRUST 3000 Service.   4.01.01            Customer agrees that it shall not permit the Trust 3000 Service to be used by or for any person or entity, or for the accounts of any person or entity, except for Customer, its Affiliates (domiciled in the United States or Canada only) or custody clients of Customer (domiciled in the United States or Canada) (collectively, the Affiliates and custody clients of Customer may be referred to as “Customer Customers”).  In connection with its receipt of Services, each of the Customer Customers shall observe and comply with, and Customer shall be responsible for such observance and compliance, all of the applicable provisions of this Agreement to be observed and performed by Customer in connection with the receipt of services hereunder (other than the obligation to pay Fees and indemnification obligations, which shall remain the obligations of Customer), and each of Customer Customers shall be deemed to have accepted this obligation by its receipt of services hereunder.   4.01.02            In the event that Customer or any Customer Customers acquire additional accounts, as a result of a merger, stock acquisition, purchase or other transaction, Customer may use the Trust 3000 Service for such acquired accounts, further provided such acquired accounts have substantially similar processing characteristics as the accounts being processed under this Agreement at the time of such acquisition and that such acquired accounts will be processed on the same database as Customer’s   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   other Accounts, it being understood that to the extent that conversion services are required to be performed by SEI, Customer shall pay SEI for such services. If such acquired accounts do not have substantially similar processing characteristics as the accounts being processed under this Agreement at the time of such acquisition, Customer and/or Customer Customers may use the Trust 3000 Service in connection with such accounts; provided, however, appropriate adjustments are made to the provisions of this Agreement, to reflect, among other things, the conversion of such acquired accounts to the TRUST 3000 System, the conversion fee associated with the conversion of such accounts, and any significant differences between the processing characteristics of such acquired accounts and the previously existing Accounts.  “Affiliate” is any company which controls, is controlled by, or under common control with, a Party, and “control” is defined as owning 50% or more of such entity.  The parties agree to discuss in good faith and make mutually agreed upon modifications to the Performance Standards to reflect any adverse impact to the Performance Standards caused, or anticipated to be caused, by the addition of such acquired accounts.   4.02. Customer represents and warrants to SEIIC and SEI that after reasonable inquiry, it (i) is not aware of any default by either SEIIC or Customer of any the terms, conditions or provisions of the Original Agreement and (ii) has no claim against SEIIC and SEI under the Original Agreement.   4.03. INTENTIONALLY OMITTED   4.04. INTENTIONALLY OMITTED   4.05. Limitation of Use of Materials. Customer shall not copy or reproduce or furnish to others, in any manner, any manuals, user documentation or other materials provided by SEI to Customer under this Agreement except for copies made by Customer solely for its internal use and the use by Customer’s Customers to the extent permitted by Section 4.01.   4.06. Customer Data.  Customer shall be solely responsible for the accuracy and completeness of any data or other information provided by or on behalf of Customer to SEI pursuant to this Agreement, and for the correctness of the format in which the data or other information is presented.   4.07. Copyright Notices.  Customer agrees to preserve any copyright and trade secret notices of SEI on materials where such notices appear.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   4.08. Proprietary Rights. Customer agrees and acknowledges that:  the TRUST 3000 System, the TRUST 3000 Service and related documentation, together with all other data and materials, all software codes, trade secrets, design concepts, discoveries, ideas, enhancements, improvements and inventions related thereto (“Proprietary Information”) supplied by SEI to Customer pursuant to this Agreement:  (i) are the exclusive property of SEI and shall remain so; (ii) are confidential and proprietary trade secrets of SEI, protected by law, and of substantial value to SEI, and may not  be used or disclosed without the written consent of SEI, except as contemplated by the terms of this Agreement.   SECTION 5.  COVENANTS OF SEI   5.01 Confidentiality of Customer Data.   SEI shall have access to Customer Data solely to the extent SEI requires such access to such data to provide the Trust 3000 Service. “Customer Data” shall mean, in or on any media or form of any kind: (i) all data and summarized data related to Customer and Customer’s Customers that is entered into software or equipment on behalf of Customer and Customer’s Customers and all data derived from such data (regardless of whether or not owned by Customer, generated or compiled by Customer, and including any such data on any deconversion tapes provided to Customer), and (ii) all other Customer-owned records, data, data files, input materials, reports, forms, and other such items that may be received, computed, processed, or stored by SEI, or by any of its subcontractors, in the performance of the Trust 3000 Service under this Agreement.  SEI may only access and process Customer Data in connection herewith or as directed by Customer in writing and may not otherwise modify Customer Data, merge it with other data, commercially exploit it, or otherwise use such data, other than as specified herein or as directed by Customer in writing.  SEI understands and agrees that nothing contained in this Agreement shall affect any ownership right, title, or interest in Customer Data and Customer owns all copyright, trademark, trade secrets, and other proprietary rights in the Customer Data.   SEI agrees that all copyrightable aspects of such Customer Data shall be considered “work made for hire” within the meaning of the Copyright Act of 1976, as amended.  SEI hereby assigns to Customer exclusively all right, title, and interest in and to the Customer Data and to all copyright or other proprietary rights therein that it may obtain, without further consideration, free from any claim, lien for balance due, or rights of retention thereto on the part of SEI.  SEI also acknowledges that the Parties do not intend SEI to be a joint author of the Customer Data within the meaning of the Copyright Act of 1976, as amended, and that in no event shall SEI be deemed a joint author thereof.   SEI agrees to keep the Customer Data free and clear of all liens and encumbrances.  SEI shall notify Customer promptly of the unauthorized possession, use or knowledge of Customer’s Data, or any other Confidential Information of Customer.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   5.02. Security Precautions.   5.02.1 SEI agrees to provide and take security precautions so that access to the data stored in the TRUST 3000 System by Customer is available only to persons utilizing the user numbers and passwords assigned to Customer.   5.02.2 SEI further agrees to follow file, safekeeping, and backup procedures that may be required of SEI by law or rule or regulation of the Federal Deposit Insurance Corporation or the Comptroller of the Currency, or that are standard in the data processing industry for services similar to those provided by SEI.   5.03. Access by Customer.  SEI agrees to grant the internal auditors of Customer and other personnel authorized by Customer reasonable access to SEI’s facilities, and to books and records related to the provision of services contemplated by this Agreement.  SEI agrees to grant federal and other governmental and banking agencies, when required by law or authorized by Customer, access to records of Customer held by SEI.   5.04. SEI’s Right to Make Changes. In order to improve the quality of service to Customer, SEI reserves the right to make changes at any time in rules of operation, Customer identification procedures, and type of terminal equipment used or to be used in the TRUST 3000 System, provided that no such changes shall reduce the functionality of the system or shall conflict with or make inconsistent any of the terms or provisions of this Agreement.  SEI will give Customer reasonable advance notice of any such change.   5.05. Save of Customer Data. SEI will prepare and preserve magnetic tapes containing Customer’s complete data base (the “Save Tapes”) to protect Customer from the loss of data in event of fire or other event which destroys data kept at SEI’s data center.  The Save Tapes will include daily tapes, end of month tapes and end of year tapes, as set forth on Exhibit C. SEI shall deliver the Save Tapes to a location other than SEI’s data center.  SEI will have no responsibility for furnishing Customer Save Tapes in addition to those so made.  SEI shall have no obligation to retain any Save Tape whose data has been incorporated into a later Save Tape.   In addition, SEI shall perform back-ups of Customer’s complete data bases at least daily to facilitate efficient recovery of Customer’s data should processing problems occur at SEI’s Data Center.  These daily backups shall be stored in a manner as SEI determines is appropriate to provide timely recovery of data lost at the data center.   5.06. Legislative Enhancements. Modifications required to be made to the TRUST 3000 Service in order to comply with changes in federal banking laws or regulations will be made available to Customer.  Each such change shall be made and implemented as soon as practicable, and in any event by such time as the change may be necessary as required by law.  The development of new software modules or major changes to existing software modules required to comply with federal laws or regulations will be made available to Customer at a price equal to the total time and materials   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   required to implement such additions prorated on an equitable basis among all affected TRUST 3000 customers.  SEI shall charge Customer a pro-rata portion of the costs incurred by SEI for the development and implementation of such additions based on the number of accounts subject to this Agreement, relative to the total number of accounts processed by SEI for other customers of SEI that are affected by such additions.  To the extent modifications are required to comply with Securities and Exchange Commission Regulations that do not apply to SEI’s Customer base in general, SEI will use reasonable efforts in good faith to make such modifications by such time as they may be required by law or regulation provided Customer shall have given SEI prompt notification of the need for such modification and provided Customer shall have agreed to pay the cost thereof.   5.07. Third Party Services. SEI agrees to provide to Customer services from external third party sources (“Third Party Services”).  Such Third Party Services, if any, are referenced in Exhibit A. SEI warrants and represents that it has obtained from such third party vendors (“Third Party Vendors”) the rights to provide such Third Party Services to Customer.  To the extent that any such Third Party Services are provided to Customer hereunder, Customer agrees that such Third Party Services are proprietary to the Third Party Vendors; such Third Party Services are provided by the Third Party Vendors on an “AS IS WITH ALL FAULTS” basis for Customer’s internal use and as normally required on statements, reports, screens and other documents necessary to support Customer’s Customers and shall not be redistributed to other third parties; the Third Party Vendors MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS, OR ANY OTHER MATTER with respect to such Third Party Services; and the Third Party Vendors shall not be liable for any damages suffered by Customer in the use of such Third Party Services, including liability for any incidental, consequential or similar damages.  Notwithstanding the foregoing, if any Third Party Vendor fails to provide the Third Party Services to be provided by such Third Party Vendor, SEI shall (1) assert any claims that it may have against such Third Party Vendor under SEI’s agreement with such Third Party Vendor with respect to such failure (and any recovery related to such claim shall inure to Customer), and (2) use commercially reasonable efforts to cause such Third Party Vendor to perform the applicable Third Party Services.   SEI shall indemnify, defend, and hold the Customer harmless from and against any and all claims, losses and liabilities that are related to any claim by any Third Party Vendor that is based upon an alleged breach by SEI of any agreement with that Third Party Vendor, except to the extent such breach arises out of Customer’s breach of this Agreement.  Customer shall indemnify, defend, and hold SEI harmless from and against any and all claims, losses and liabilities that are related to any such claim to the extent such breach arises out of Customer’s breach of this Agreement.  Each of the Parties shall comply with the indemnification procedures set forth in Section 10.13 of this Agreement.   It is further understood and agreed that access to any Third Party Service may be withdrawn by SEI upon termination of SEI’s right to redistribute specific product   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   offerings by such Third Party Vendors.  SEI shall promptly notify Customer of any product offerings to be withdrawn or any significant change in any product once such withdrawal or change is known by SEI, and SEI shall make an appropriate adjustment to the Fees to reflect any such withdrawal of any Third Party Service by SEI.   5.08. Insurance. SEI shall carry an employee fidelity bond and EDP errors and omissions insurance and miscellaneous professional liability insurance at levels not less than [/*/ CONFIDENTIAL TREATMENT REQUESTED] per incident with reasonable deductibles. SEI shall procure the commercial general liability insurance that provides limits of not less than [/*/ CONFIDENTIAL TREATMENT REQUESTED] ($[/*/ CONFIDENTIAL TREATMENT REQUESTED]).  The commercial general liability policy shall include the following coverage: (i) premises and operations; (ii) products/completed operations; (iii) contractual liability; (iv) personal injury and advertising injury liability; and (v) severability of interest clause.   SEI shall maintain a policy of workers’ compensation coverage for no less than the minimum statutory amount required for the State or States in which SEI employees are performing Trust 3000 Service on Customer’s behalf, and employers’ liability coverage for not less than [/*/ CONFIDENTIAL TREATMENT REQUESTED] Dollars ($[/*/ CONFIDENTIAL TREATMENT REQUESTED]) per occurrence for all employees of SEI engaged in the performance of Services under this Agreement.   5.09. Disaster Recovery. SEI agrees to provide disaster recover service to enable Customer to resume processing capabilities in the event of a disaster at SEI’s data processing facility.  The timeframe for recovery, the processing levels and the other disaster recovery services provided by SEI will be in accordance with the then current SEI Disaster Recovery Plan.  A copy of the current version of the Client’s Copy of the SEI Disaster Recovery Plan is attached as Exhibit D. SEI shall provide Customer with an updated copy of the Client’s Copy of the SEI Disaster Recovery Plan promptly after any material changes to the Disaster Recovery Plan or upon Customer’s request.  SEI shall not modify the Disaster Recovery Plan so as to reduce in any significant way, the benefits and protections provided to Customer under such Disaster Recovery Plan as of the Designated Date.   SEI shall provide such disaster recovery services at all times without regard to any Force Majeure Event (except to the extent and only to the extent that a Force Majeure Event also impacts the disaster recovery plan).   5.10 Client’s Customers. In addition to SEI’s obligations with respect to the treatment of Customer’s Confidential Information contained in Section 6 of this Agreement, SEI agrees that it shall not use any of Customer Data or any Confidential Information of Customer to solicit as direct customers of SEI any of Customer’s customers.   SECTION 6.  CONFIDENTIALITY/PROPRIETARY INFORMATION   6.01 Confidential Information. “Confidential Information” means (i) with respect to   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   Customer, all Customer Data; (ii) with respect to SEI, the Proprietary Information and the provisions of this Agreement; and (iii) with respect to each Party, any of the Disclosing Party’s proprietary or confidential information including, without limitation, technical data; trade secrets; know-how; business processes; product plans; product designs; service plans; services; customer lists and customers; markets; software; developments; inventions; processes; formulas; technology; designs; drawings; and marketing, distribution or sales methods and SEI Systems; sales and profit figures or other financial information that is disclosed, directly or indirectly, to a Party (in such capacity the “Recipient”) by or on behalf of the other Party (in such capacity, the “Disclosing Party”), whether in writing, orally or by other means and whether or not such information is marked as confidential.  However, “Confidential Information” does not include any of the information that: (i) prior to disclosure hereunder by the Disclosing Party, was generally known to the public; (ii) after disclosure hereunder by the Disclosing Party, becomes known to the public through no act or omission of the Recipient or any of its representatives (iii) the Recipient can demonstrate by written records was previously known by it or was independently developed by or for it without use of the Confidential Information; or (iv) is, or becomes available to the Recipient on a non-confidential basis from another Person that, to the Recipient’s knowledge, is not prohibited from disclosing such information to the Recipient by a legal, contractual or fiduciary obligation to the Disclosing Party.   6.02 Non-Disclosure Obligations. All Confidential Information of a Disclosing Party shall be held in confidence by the Recipient, to the same extent, and in at least the same manner, as the Recipient protects its own confidential and proprietary information of a similar nature, which shall in no event be less than a commercially reasonable standard of care.  Except as specifically permitted by this Agreement the Recipient shall not disclose, publish, release, transfer, or otherwise make available, any Confidential Information of the Disclosing Party, in any form to, or for the use or benefit of, any Person, without the Disclosing Party’s consent.   6.03 Permitted Use and Disclosure. Notwithstanding the foregoing, the Recipient shall be permitted to use and to disclose the Disclosing Party’s Confidential Information to its officers, agents, subcontractors and employees (collectively, the “Permitted Employees and Consultants” who have agreed in writing to maintain the confidentiality of the Confidential Information, to the extent that such use and disclosure is necessary or appropriate for the performance of the Recipient’s obligations under this Agreement and/or as needed to conduct Recipient’s business.  The obligations contained in this Section 6 shall not restrict any disclosure by any Recipient as required by any applicable law, or by order of any court or government agency; provided that to the extent reasonably possible (and so long as not prohibited by law) such Recipient gives prompt notice to the Disclosing Party of such order, such that the Disclosing Party may (i) interpose an objection to such disclosure, (ii) take action to assure confidential handling of the Confidential Information, or (iii) take such other action as it deems appropriate to protect the Confidential Information.   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   6.04 Additional Obligations of Customer.   Customer shall not use any of SEI’s Confidential Information to create or attempt to create, nor permit others to create or attempt to create, in whole or in part, the Trust 3000 System. In addition, Customer agrees to preserve any copyright and trade secret notices of SEI on materials where such notices appear.  Customer shall immediately notify SEI of the unauthorized possession, use or knowledge of any item supplied to Customer pursuant to this Agreement.   Customer shall not copy or reproduce in any manner any manuals, user documentation or other materials provided by SEI to Customer under this Agreement except for copies made by Customer solely for its internal use by Permitted Employees and Consultants.   6.05 Compliance with Gramm-Leach-Bliley Act. In connection with the activities contemplated by this Agreement, each Party shall comply with all applicable provisions of the Gramm-Leach-Bliley Act (as such Act may be amended from time to time), including, without limitation, applicable provisions regarding the sharing or disclosure of Nonpublic Personal Information (as such term is defined in the Gramm-Leach-Bliley Act).   6.06 Unauthorized Acts.  In the event of any unauthorized use or disclosure by the Recipient of any Confidential Information of the Disclosing Party, the Recipient shall promptly (i) notify the Disclosing Party of the unauthorized use or disclosure; (ii) take all reasonable actions to limit the adverse effect on the Disclosing Party of such unauthorized use or disclosure; and (iii) take all reasonable action to protect against a recurrence of the unauthorized use or disclosure.   6.07 Return of Confidential Information. Upon the written request of the Disclosing Party after the termination of this Agreement, the Recipient shall, at the option of the Recipient, return or destroy all Confidential Information of the Disclosing Party that is then in the possession or control of the Disclosing Party, provided, however, the Recipient may retain such Confidential Information of the Disclosing Party as may be necessary or appropriate for the Recipient to comply with reasonable legal, accounting, regulatory and archival concerns.  Notwithstanding the foregoing, SEI shall have no obligation to return or destroy Confidential Information of   Customer that resides on the Trust3000 System or in save tapes of SEI.  Upon the Disclosing Party’s written request, the Recipient shall promptly certify in writing its compliance with this Section 6.07.   6.08 Equitable Relief. Each Party acknowledges that the unauthorized disclosure of the Disclosing Party’s Confidential Information may cause irreparable injury to the Disclosing Party and that, in the event of a violation or threatened violation of any   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   obligations of the Recipient regarding such Confidential Information, the Disclosing Party may have no adequate remedy at law. In such event, the Disclosing Party shall be entitled to seek enforcement of each such obligation by temporary or permanent injunctive, or mandatory relief obtained in any court of competent jurisdiction, without the necessity of the posting of any bond or other security, and without prejudice to any other rights and remedies which may be available to the Disclosing Party at law or in equity.   SECTION 7.  WARRANTY   7.01. Warranty. SEI hereby warrants that it owns the TRUST 3000 System and has all the necessary authority to enter into this Agreement and provide the Trust 3000 Service described herein.  SEI also warrants that the TRUST 3000 System will perform substantially as described in the Users Manuals for the functions specified on Exhibit A.   Except as expressly stated herein, SEI MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRUST 3000 SYSTEM OR THE TRUST 3000 SERVICE OR ANY SERVICE PROVIDED HEREUNDER, ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.   7.02 Remedy for Breach. SEI hereby indemnifies and agrees to hold harmless and defend Customer from any claims brought against Customer based upon a defect in SEI’s title to, or power to grant Customer the use of, the Trust 3000 Service or any trademark, copyright, or patent infringement with respect to the Trust 3000 Service except to the extent such breach arises out of Customer’s breach of this Agreement.  Customer shall indemnify, defend, and hold SEI harmless from and against any and all claims, losses and liabilities that are related to any such claim to the extent such breach arises out of Customer’s breach of this Agreement.  Each of the Parties shall comply with the indemnification procedures set forth in Section 10.13 of this Agreement.   7.03 Custom Enhancements or Modifications to the Trust 3000 Service.   7.03.1                  Subject to the limitations set forth below and the notice, control, cooperation and limitations contained in Section 10.13, SEI will indemnify and hold harmless Customer and defend at SEI’s sole expense, and, at its option, may contest and/or settle, any claim, suit, or proceeding brought against Customer to the extent that it is based on an assertion that any custom enhancements or modifications to the TRUST 3000 Service performed by SEI (or SEI’s delegate) on behalf of Customer (collectively such enhancements and modifications may be referred to as “Custom Enhancement/Work”) infringes any United States patent, or copyright, or infringes on any trade secret or proprietary right, of any third party.  Should any Custom Enhancement/Work become the subject of any such claim, suit, or proceeding, SEI shall have   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   the right, at SEI’s option and expense (i) promptly procure for Customer the right to continue using the Custom Enhancement/Work; or (ii) promptly replace or modify the Custom Enhancement/Work with a non-infringing version of Custom Enhancement/Work with substantially equivalent function and performance. If neither such option is available to SEI on commercially reasonable terms, then SEI may terminate the services that are the subject of such claim, suit, or proceeding and make an appropriate reduction in Fees payable hereunder. The remedies set forth in this Section 7.03.1, together with SEI’s indemnification obligations under this Section 7.03.1, shall be Customer’s sole and exclusive remedies with respect to any claims that any Custom Enhancement/Work, infringes or misappropriates any third-party intellectual property right.   7.03.2                  Notwithstanding the provisions of Section 7.03.1, and subject to the notice, control, cooperation and limitations contained in Section 10.13, Customer will indemnify and hold harmless SEI, and defend at Customer’s sole expense, and, at its option, may contest and/or settle, any claim, suit, or proceeding brought against SEI or Customer (and SEI will not be obligated to defend or settle and will not be liable for any related expenses or costs) to the extent any suit or proceeding results from: (i) SEI’s compliance with Customer’s design, content, specifications or instructions; (ii) modification of the Custom Enhancement/Work by a party other than SEI who is not working at or under SEI’s direction; or (iii) the use of the Custom Enhancement/Work or any part thereof furnished hereunder in combination with any other software or product, other than the Trust3000 Service, where the infringement would not have occurred but for such combination.   7.03.3                  Each of the Parties shall comply with the indemnification procedures set forth in Section 10.13 of this Agreement.   7.03.4                  All references to the “Trust 3000 Services Agreement” in any Work Authorization(s) executed after the date of this Agreement, shall mean this Agreement, as this Agreement may be amended from time to time.   7.03.5                  With respect to suspension or termination of any project covered by a Work Authorization, notwithstanding anything contained in any Work Authorization to the contrary, it is understood that SEI shall have the right to re-estimate the costs associated with the project covered by such Work Authorization, if work on such project is   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   resumed after 60 days from the date Customer made the election to suspend the work (unless a shorter period of time is indicated in the applicable Work Authorization).  In addition, it is understood that if work is terminated under any Work Authorization, SEI will only bill Customer for work that has actually been performed through the date that work was terminated, plus any applicable travel and living expenses (if applicable).   7.03.6                  In the event that Customer terminates work on a project covered by a Work Authorization due solely to SEI’s uncured material breach of this Agreement or the applicable Work Authorization, Customer reserves the right to dispute payment of SEI’s fees due under such Work Authorization.   SECTION 8.  LIMITATION OF LIABILITY   8.01         Except as otherwise provided below in this Section 8, the cumulative liability of each Party hereunder for all claims relating to this Agreement, shall be limited to (a) monetary damages not to exceed the amount of [/*/ CONFIDENTIAL TREATMENT REQUESTED] payable hereunder, and, in addition, with respect to SEI, the correction, re-creation, or restoration of any incorrect, missing, incomplete, or unreadable reports.   8.02         SEI shall have no liability for errors, omissions or malfunctions in SOUCE 3000, the transmission of SOURCE 3000 and any user manuals and documentation associated with SOURCE 3000 other than its obligation, upon receipt of notice from Customer, to endeavor to correct any such errors, omissions or malfunctions.  SEI shall have no liability for temporary delays, breakdowns or interruptions in SOURCE 3000, howsoever caused.  Customer’s exclusive remedy, and SEI’s entire liability, for direct damages incurred by Customer for any and all causes relating to Source 3000, whether for breach of this Agreement, negligence, or otherwise, shall in the aggregate not exceed [/*/ CONFIDENTIAL TREATMENT REQUESTED] average billing to Customer over the [/*/ CONFIDENTIAL TREATMENT REQUESTED] months preceding the month in which the damage or injury is alleged to have occurred, but if Customer has not utilized SOURCE 3000 for [/*/ CONFIDENTIAL TREATMENT REQUESTED] months preceding such date, then over such fewer number of preceding months that Customer has utilized SOURCE 3000.   8.03         THE FOREGOING LIMITATIONS SHALL NOT APPLY TO: (A) LOSSES SUBJECT TO INDEMNIFICATION UNDER THIS AGREEMENT, (B) LIABILITY ARISING AS A RESULT OF A FAILURE TO COMPLY WITH THE CONFIDENTIALITY OBLIGATIONS CONTAINED IN THIS AGREEMENT, (C) CUSTOMER’S FAILURE TO PAY ANY AMOUNTS DUE OR OWING UNDER   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   THIS AGREEMENT, (D) ANY DAMAGES FOR BODILY INJURY (INCLUDING DEATH) AND DAMAGES TO REAL PROPERTY FOR WHICH A PARTY IS LEGALLY LIABLE, (E) LOSSES ARISING FROM A PARTY’S WILLFUL MISCONDUCT.   8.04 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR SIMILAR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF BUSINESS OR INTERRUPTION OF BUSINESS, WHETHER SUCH LIABILITY IS PREDICATED ON CONTRACT, STRICT LIABILITY OR ANY OTHER THEORY.   Notwithstanding anything in this Agreement to the contrary, the following shall be considered direct damages and neither Party shall assert that they are indirect, incidental, special, or consequential damages or lost profits: [/*/ CONFIDENTIAL TREATMENT REQUESTED].  The intention of the foregoing is to avoid any doubt on how those types of damages should be classified under this Agreement.  However, the foregoing is not intended to be exclusive or exhaustive.   SECTION 9.  TERMINATION   9.01 Obligations Upon Expiration or Termination of Agreement.   9.01.1 Deconversion Services.   Upon Customer’s request in connection with the expiration or termination of this Agreement under Section 2, SEI will provide Customer with the deconversion services described on Exhibit E and Customer will pay to SEI the fees for such services as set forth on Exhibit E. All such amounts to be due thirty (30) calendar days after the date of Customer’s receipt of the invoice.  Customer agrees to pay interest on all amounts past due at the rate of one percent (1%) per month, if such rate is permitted by law, or otherwise at the highest rate permitted by law, provided, however, that no interest will be due on amounts disputed by Customer in good faith and on reasonable grounds.   9.01.2 Payment of Fees.   In addition to any Buyout Amount that may be payable to SEI under this Agreement, Customer shall pay SEI (A) the Fees for products and services provided prior to the effective date of expiration or termination; (B) any termination fees imposed on SEI by third parties to the extent directly relating to such termination (except in the event of a termination under Section 2.03 or a termination by Customer under 2.05, in which case   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   Customer shall not have to pay for any termination fees imposed on SEI by Third Party Vendors to the extent directly relating to such termination); and (C) any fees for deconversion or other post-termination services which Customer may request and SEI may provide including those specified in Section 2.04 B (post termination TRUST 3000 System Retrieval), this Section 9, and Exhibit E. All such amounts to be due thirty (30) calendar days after the date of Customer’s receipt of the invoice.   Customer agrees to pay interest on all amounts past due at the rate of one percent (1%) per month, if such rate is permitted by law, or otherwise at the highest rate permitted by law, provided, however, that no interest will be due on amounts disputed by Customer in good faith and on reasonable grounds.   In addition, Customer will be obligated to reimburse SEI for any charges for telecommunication services and other third-party provided services as referenced in Exhibit A incurred by SEI on Customer’s behalf with respect to services provided prior to the termination of this Agreement.   Customer acknowledges that there is a time lag between the time that certain services are provided until the time that SEI bills for such services, and that SEI invoices certain of such services up to ninety (90) calendar days after the date services are provided.   9.01.3 Return of Confidential Information.   The Parties shall comply with the provisions of Section 6.07 of this Agreement in connection with the return of Confidential Information of the other Party.   SECTION 10.  GENERAL PROVISIONS   10.01 Notice. Except as expressly otherwise stated herein, all notices, requests, consents, approvals, or other communications provided for, or given under, this Agreement, shall be in writing and shall be deemed to have been duly given and received (a) when delivered personally, or (b) if delivered by a reputable commercial overnight carrier (e.g., Federal Express), one business day after delivery to such carrier, or (c) if delivered by certified or registered U.S. mail, postage prepaid and return receipt requested, seven business days after mailing; in each case sent to the Party to be notified at the address for such Party set forth below, or at such other address of which such Party has provided notice in accordance with the provisions of this Section:   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   Notices to Customer shall be addressed as follows:   Investors Bank & Trust Company 200 Clarendon Street Boston, MA 02117 Attention: Senior Director, Institutional Custody   with a copy to the attention of Customer’s General Counsel addressed as follows:   Investors Bank & Trust Company 200 Clarendon Street Boston, MA 02117 Attention: General Counsel   Notices to SEI shall be addressed as follows:   SEI Global Services, Inc. One Freedom Valley Drive Oaks, PA 19456 Attention: Vice President, National Bank Marketing   with a copy to the attention of Customer’s General Counsel addressed as follows:   SEI Global Services, Inc. One Freedom Valley Drive Oaks, PA 19456 Attention: General Counsel   10.02. Counterparts. This Agreement may be executed in any number of counterparts and any Party hereto may execute any such counterpart, each of which when 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.  This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties.  It shall not be necessary in making proof of this Agreement or any other counterparts hereof to product or account for any of the other counterparts.   10.03. Agreement for Sole Benefit of SEI and Customer. This Agreement is for the sole and exclusive benefit of SEI and Customer and shall not be deemed to be for the direct or indirect benefit of the clients or customers of Customer.  The clients or customers of Customer shall not be deemed to be third party beneficiaries of this Agreement or have any other contractual relationship with SEI by reason of this   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   Agreement, and each Party hereto agrees to indemnify and hold harmless the other Party from any claims of its customers against the other Party including any attendant expenses and reasonable attorneys’ fees, based on this Agreement or the services provided hereunder.   10.04. Assignment. Customer shall have the right to assign or delegate all or part of its rights, responsibilities or duties hereunder to any wholly-owned direct or indirect subsidiary of Investors Financial Services Corp. upon the provision of notice to SEI, but no such assignment shall relieve Customer of its obligations under this Agreement.  Such assignment shall be valid only so long as the assignee or delegatee remains a wholly-owned subsidiary of Investors Financial Services Corp.  In addition to its rights under Sections 1.01 and 5.07, SEI shall have the right to assign or delegate all or part of its rights, responsibilities, or duties hereunder to SEI Investments Company or any wholly-owned direct or indirect subsidiary of SEI Investments Company, upon the provision of prior written notice to Customer, but no such assignment shall relieve SEI of its obligations under this Agreement.  Such assignment or delegation will be valid only so long as the assignee or delegatee remains a wholly-owned direct or indirect subsidiary of SEI Investments Company.  Any other assignment or delegation (including, without limitation, any assignment, transfer, or delegation by operation of law in connection with a merger or otherwise) by either Party hereto shall require the prior written approval of the other Party hereto (which shall not be unreasonably withheld or delayed), other than an assignment by SEI of the contract rights to receive payments for collateral security.   10.05. Force Majeure. If a Force Majeure Event is the material contributing cause of a Party’s failure to perform any of its obligations hereunder (other than the obligation to pay for any amounts owed), such obligations, after notification by such Party to the other Party, shall be deemed suspended to the extent such obligations are directly affected by such Force Majeure Event, until the Force Majeure Event has ended and a reasonable period of time for overcoming the effects thereof has passed; provided, however, that if a Force Majeure Event results in SEI being unable to perform during any extended period any or all of the Trust 3000 Service in accordance with the terms hereof Customer shall be entitled to a share of SEI’s resources devoted to returning SEI to full performance of all Trust 3000 Service hereunder, that is equal to or greater than that of SEI’s similarly-situated customers.  Both Parties shall use commercially reasonable efforts to minimize delays that occur due to a Force Majeure Event.  Other than as set forth above, neither Party shall be excused from those obligations not affected by a Force Majeure Event (including disaster recovery services unless also affected by such Force Majeure Event), and if the Force Majeure Event is predominantly caused by either Party’s failure to comply with any of its obligations under this Agreement or by either Party’s negligence or omission, there shall be no relief from any of that Party’s obligations under this Agreement.   “Force Majeure Event shall mean a catastrophic act of God, act of governmental body or military authority, epidemic, riot or civil disturbance, war, sabotage, or accidents beyond   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   the reasonable control of the non-performing Party.  Notwithstanding the foregoing, “Force Majeure Event” expressly excludes the following: any event that non-performing Party could reasonably have prevented by testing by the non-performing Party either required to be performed pursuant to the Trust 3000 Service or necessary to provide the Trust 3000 Service, work-around, or other exercise of commercially reasonable diligence; any event resulting from any strike, walkout, or other labor shortage of the non-performing Party; and any failure of any systems, facilities, or hardware that could have been prevented by testing either required to be performed pursuant to the Trust 3000 Service or necessary to provide the Trust 3000 Service. The occurrence of a Force Majeure Event does not limit or otherwise affect SEI’s obligation to provide normal recovery procedures or any other disaster recovery services as described in SEI’s Disaster Recovery Plan.   10.06. Governing Law. This Agreement will be governed in accordance with the laws of the Commonwealth of Massachusetts without regard to its conflict of law principles or laws.   10.07. Heading.  All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning of interpretation of this Agreement.  Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the contract requires.   10.08. Contents of Agreement. This Agreement and its Exhibit(s) set forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby.  It shall not be amended or modified except by written instrument duly execute by each of the parties hereto.  Any and all previous agreements and understandings between the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement.   10.09. Waiver. Any term or provision of this Agreement may be waived at any time by the Party entitled to the benefit thereof by written instrument executed by such Party.  No failure of either Party hereto to exercise any power or right granted hereunder, or to insist upon strict compliance with any obligation hereunder, and no custom or practice of the parties with regard to the terms of performance hereof, shall constitute a waiver of the rights of such Party to demand full and exact compliance with the terms of this Agreement.   10.10. Severability. In the event that any provision of this Agreement shall be found in violation of public policy or illegal or unenforceable in law or equity, such finding shall in no event invalidate any other provision of this Agreement.   10.11. Dispute Resolution. Any dispute about a significant problem arising under this Agreement that may have a material adverse impact on a Party (a “Problem”) shall   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   be resolved using procedures described in this Section.  As soon as a Problem is recognized by the Party that may be materially and adversely affected, such Party shall provide notice of the Problem to the other Party’s Representative.  The Representatives of the Parties shall attempt to promptly resolve the Problem.  The Representatives for each Party are:   For SEI: SEI Senior Relationship Manger (as of the Designated Date, the SEI Senior Relationship Manger is [/*/ CONFIDENTIAL TREATMENT REQUESTED])   For Customer: [/*/ CONFIDENTIAL TREATMENT REQUESTED]   The Parties may change the Representatives by giving written notice of any change in Representatives.   The Issue Notification should, at a minimum, contain the following information, (i) description of the Problem, (ii) its impact on quality and schedule of any deliverables, (iii) suggested resolutions, and, (iv) time frame for issue resolution. Once a Problem has been raised, Representatives should attempt in good faith to reach a resolution within two (2) weeks.   If despite the Parties good faith efforts, a dispute cannot be resolved through the procedure provided in Section, either Party shall have the right to commence any legal proceeding as permitted by law.  Nothing in this Section shall prohibit a Party from pursuing injunctive or other relief if such relief is required to protect the interests of such Party.   10.12. Substitution of Party. As of the Designated Date, SEI Global Services, Inc. shall for all purposes with respect to this Agreement replace SEI Investments Company as a party to this Agreement and SEI Global Services, Inc. (and not SEI Investments Company) shall, from the Designated Date forward, have all of the rights and obligations of SEI Investments Company under this Agreement.  As of the Designated Date, the term “SEI” as used in this Agreement shall mean SEI Global Services, Inc.  Notwithstanding the foregoing, such substitution does not relieve SEI Investments Company from any obligations hereunder.   10.13 Indemnification Procedures.  If any claim is commenced against a Party entitled to indemnification under this Agreement (the “Indemnified Party”), notice thereof will be given to the Party that is obligated to provide indemnification (the “Indemnifying Party”) as promptly as practicable.  If, after such notice, the Indemnifying Party acknowledges that this Agreement applies with respect to such claim, then the Indemnifying Party will be entitled, if it so elects, in a notice promptly delivered to the Indemnified Party, but in no event less than ten (10) calendar days prior to the date on which a response to such claim is due, to immediately take control of the defense and   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   investigation of such claim and to employ and engage attorneys reasonably acceptable to the Indemnified Party to handle and defend the same, at the Indemnifying Party’s sole cost and expense.  The Indemnified Party will cooperate, at the cost of the Indemnifying Party, in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom. No settlement of a claim that involves a remedy other than the payment of money by the Indemnifying Party will be entered into without the consent of the Indemnified Party.  After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such claim, the Indemnifying Party will not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that claim.  If the Indemnifying Party does not assume full control over the defense of a claim subject to such defense, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party will have the right to defend the claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party.   10.14. Survival. The following shall survive the expiration or termination of this Agreement: (i) the provisions of Sections 6, 8, 9 and 10 in their entirety, and Sections 3.03, 3.04, 4.01.01, 4.02, 4.05, 4.07, 4.08, 5.01, 5.02.1, 5.07, 5.10, 7.01, 7.02, 7.03.1, 7.03.2 and 7.03.3.   SECTION 11.  EXHIBITS   11.01. Exhibits.  The following additional exhibits listed below and attached hereto are also incorporated herein by reference:   Exhibit A             Trust3000 Service/Fees Exhibit B              Performance Standards Exhibit C              Record Retention Exhibit D              Client’s Copy of the SEI Disaster Recovery Plan Exhibit E              Deconversion Services   -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------   EACH PARTY HERETO ACKNOWLEDGES THAT EACH PARTY RESPECTIVELY HAS READ THIS AGREEMENT, UNDERSTANDS ITS TERMS, AND AGREES TO BE LEGALLY BOUND HEREBY.   IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in their respective names by their duly authorized representatives as of the Designated Date.       SEI GLOBAL SERVICES, INC.       BY:         TITLE:             INVESTORS BANK & TRUST COMPANY       BY:         TITLE     -------------------------------------------------------------------------------- [/*/ CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.   --------------------------------------------------------------------------------

  Exhibit 10.3 (LOGO) [l23136al2313602.gif] Confirmation of OTC Convertible Note Hedge       Date:   November 9, 2006       To:   General Cable Corporation (“Counterparty”)       From:   WACHOVIA CAPITAL MARKETS, LLC (“Agent”)     Solely as agent of Wachovia Bank, National Association (“Wachovia”) Wachovia Reference Numbers: Dear Sir / Madam:      The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between Wachovia Bank, National Association (“Wachovia”) and General Cable Corporation (“Counterparty”, and collectively with Wachovia, the “Parties”) on the Trade Date as 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 purposes of the Equity Definitions and a “Swap Transaction” for the purposes of the Swap 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, and form part of, an agreement in the 1992 form of the ISDA Master Agreement (Multicurrency Cross Border) (the “Master Agreement” or “Agreement”) as if we had executed an agreement in such form (but without any Schedule and with elections specified in the “ISDA Master Agreement” Section of this Confirmation) on the Trade Date. 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. The parties hereby agree that the Transaction evidenced by this Confirmation shall be the only Transaction subject to and governed by the Agreement.      The terms of the particular Transaction to which this Confirmation relates are as follows:       General Terms:           Trade Date:   November 9, 2006       Effective Date:   The date of issuance of the Reference Notes.       Option Style:   Modified American, as described under “Settlement Terms” below.       Option Type:   Call 1 --------------------------------------------------------------------------------         Seller:   Wachovia       Buyer:   Counterparty       Shares:   The shares of common stock, $0.01 par value, of Counterparty (Security Symbol: “BGC”) or such other securities or property into which the Reference Notes are convertible on the date of determination.   Premium:   $66,263,400       Premium Payment Date:   The date of issuance of the Reference Notes.       Exchange:   New York Stock Exchange       Related Exchange(s):   All Exchanges       Reference Notes:   0.875% Convertible Notes of Counterparty due 2013 in the original amount of U.S.$315,000,000.       Applicable Portion of the     Reference Notes:   60.00% For the avoidance of doubt, the Calculation Agent shall, as it deems necessary, take into account the Applicable Portion of the Reference Notes in determining or calculating any delivery or payment obligations hereunder, whether upon a Conversion Date (as defined below) or otherwise.       Note Indenture:   The indenture, dated as of closing of the issuance of the Reference Notes, between Counterparty and U.S. Bank National Association, as trustee relating to the Reference Notes, as the same may be amended, modified or supplemented. Certain defined terms used herein have the meanings assigned to them in the Note Indenture.       Procedures for Exercise:           Potential Exercise Dates:   Each Conversion Date.       Conversion Date:   Each “conversion date” for any Reference Note pursuant to the terms of the Note Indenture (the principal amount of Reference Notes so converted, the “Conversion Amount” with respect to such Conversion Date) occurring before the Expiration Date.           If the Conversion Amount for any Conversion Date is less than the aggregate principal amount of Reference Notes then outstanding, then the terms of this Transaction shall continue to apply, subject to the terms and conditions set forth herein, with respect to the remaining outstanding principal amount of the Reference Notes multiplied by the Applicable Portion of the Reference Notes.       Expiration Period:   The period from and excluding the Trade Date to and including the Expiration Date.       Expiration Date:   The earliest of (i) the maturity date of the Reference Notes, (ii) the first day on which none of such Reference Notes remain outstanding, whether by virtue of conversion, issuer repurchase or otherwise and (iii) the occurrence of an Additional Termination Event and designation of an Early Termination Date hereunder in respect of the termination of the Transaction in whole but not in part. 2 --------------------------------------------------------------------------------         Exercise Notice:   Notwithstanding anything to the contrary in the Equity Definitions, in order to exercise any Options hereunder, Buyer shall provide Seller with written notice prior to 5:00 p.m. New York City time on the Exchange Business Day prior to the first Trading Day in the Conversion Reference Period (both as defined in the Note Indenture) relating to the Reference Notes converted on the relevant Conversion Date of (i) the number of Reference Notes being converted on the relevant Conversion Date, (ii) the first Trading Day in the relevant Conversion Reference Period for the Reference Notes and (iii) if any, the applicable Cash Percentage (as defined in the Note Indenture); provided that with respect to Reference Notes converted during the period beginning on October 15, 2013 and ending on the business day immediately preceding the Maturity Date (as defined in the Note Indenture) of the Reference Notes, the related Exercise Notice shall be delivered prior to 5:00 p.m. New York City time on such Maturity Date (as defined in the Note Indenture); and provided further that the delivery by Buyer of an Exercise Notice after the Conversion Reference Period has commenced but prior to the close of business on the fifth Trading Day of such Conversion Reference Period shall be effective, in which case the Settlement Method shall be Net Share Settlement but without regard to subsection (ii) of the definition of Net Share Settlement and subject to adjustments to the Net Share Settlement Amount as specified below.       Wachovia’s Agent’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:   Eric Augustyn or Head Trader     Telephone: 212-214-6225     Facsimile: 212-214-8914       Settlement Terms:           Settlement Method:   Net Share Settlement or Net Cash Settlement consistent with Buyer’s election with respect to the Reference Notes converted on the applicable Conversion Date, provided that Net Share Settlement shall apply in the event that Buyer elects to deliver any Shares in connection with the applicable Conversion Date.       Settlement Date:   Subject to the delivery of an Exercise Notice to the Seller, the third (3rd) Exchange Business Day following the final Trading Day in the applicable Conversion Reference Period in respect of the relevant Conversion Date.       Net Share Settlement:   In lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, Seller shall deliver to Buyer on the related Settlement Date (i) a number of Shares equal to the related Net Share Settlement Amount, provided that in the event that the number of Shares calculated comprises any fractional Share, the number of Shares to be delivered shall be rounded up or down to the nearest integral number of Shares and (ii) (x) an amount in cash equal to the cash amount, if any, paid by Buyer in excess of the principal amount of the applicable Reference Notes for such Conversion Date under the Note Indenture multiplied by (y) the Applicable Portion of the Reference Notes, provided that the delivery obligation set forth in clause (i) and (ii) of this paragraph shall be determined excluding any Shares or cash that Counterparty is obligated to deliver to holders of the applicable Reference Notes as a result of any adjustments to the Conversion Rate resulting from (i) an adjustment to the Conversion Rate made pursuant to Section 4.12 of the Note Indenture by Counterparty or (ii) an adjustment to the Conversion Rate as a result of a Make Whole Premium adjustment pursuant to Section 4.01(j) of the Note Indenture. The provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 and 9.12 of the Equity 3 --------------------------------------------------------------------------------             Definitions shall apply to any delivery of Shares hereunder, provided that the Representation and Agreement in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws solely as a result of the fact that Buyer is the issuer of the Shares.       Net Cash Settlement:   In lieu of the obligations set forth in Section 8.1 of the Equity Definitions, on the Settlement Date Seller shall deliver to Buyer an amount in cash equal to the related Net Cash Settlement Amount.       Net Share Settlement Amount:   For each Conversion Date, the number of Shares equal to the Shares delivered by Buyer for such Conversion Date under the Note Indenture multiplied by the Applicable Portion of the Reference Notes, provided that if an Exercise Notice with respect to such Conversion Date has not been delivered to the Seller prior to the first Trading Day of the Conversion Reference Period applicable to such Conversion Date, the Net Share Settlement Amount for such Conversion Date shall be adjusted by the Calculation Agent to account for the reduced number of Trading Days from the delivery of the Exercise Notice to the end of the applicable Conversion Reference Period with respect to such Conversion Date. No reduction of the Net Share Settlement Amount shall reduce the Net Share Settlement Amount below zero.       Net Cash Settlement Amount:   For each Conversion Date, an amount equal to the cash delivered by the Buyer in excess of the principal amount of the applicable Reference Notes for such Conversion Date under the Note Indenture multiplied by the Applicable Portion of the Reference Notes, provided that such cash amount shall be determined excluding any cash that Counterparty is obligated to deliver to holders of the applicable Reference Notes as a result of any adjustments to the Conversion Rate resulting from (i) an adjustment to the Conversion Rate made pursuant to Section 4.12 of the Note Indenture by Counterparty or (ii) an adjustment to the Conversion Rate as a result of a Make Whole Premium adjustment pursuant to Section 4.01(j) of the Note Indenture.       Adjustments:           Method of Adjustment:   Calculation Agent Adjustment; provided that the terms of this Transaction shall be adjusted in a manner consistent with adjustments of the Conversion Rate of the Reference Notes as provided in the Note Indenture; provided further (without limitation of the provisions set forth above under “Net Share Settlement” and “Net Cash Settlement Amount”) that no adjustment in respect of any Potential Adjustment Event or Extraordinary Event shall be made hereunder as a result of any adjustments to the Conversion Rate resulting from (i) an adjustment to the Conversion Rate made pursuant to Section 4.12 of the Note Indenture by Counterparty or (ii) an adjustment to the Conversion Rate as a result of a Make Whole Premium adjustment pursuant to Section 4.01(j) of the Note Indenture.       Potential Adjustment Event:   Notwithstanding Section 11.2(e) of the Equity Definitions, a “Potential Adjustment Event” means the occurrence of an event or condition that would result in an adjustment of the Conversion Rate of the Reference Notes pursuant to Section 4.06 of the Note Indenture.       Extraordinary Events:     4 --------------------------------------------------------------------------------         Merger Events:   Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in Section 4.10(a) of the Note Indenture.       Consequences for Merger Events:                Share-for-Share:   The Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.            Share-for-Other:   The Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.            Share-for-Combined:   The Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.       Tender Offer:   Applicable, subject to “Consequences of Tender Offers” below. Notwithstanding Section 12.1(d) of the Equity Definitions, a “Tender Offer” means the occurrence of any event or condition set forth in Section 4.06(a)(7) of the Note Indenture.       Consequences of Tender Offers:   The Transaction will be adjusted consistent with the Reference Notes as provided in the Note Indenture.       Nationalization, Insolvency     and Delisting:   Cancellation and Payment (Calculation Agent Determination), provided Buyer shall determine whether payment shall be settled in cash or Shares. In addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System (or their respective successors, including without limitation the NASDAQ Global Market and NASDAQ Global Select Market); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.       Additional Disruption Events:                Change in Law:   Applicable            Failure to Deliver:   Applicable. If there is inability in the market to deliver Shares due to illiquidity on a day that would have been a Settlement Date, then the Settlement Date shall be the first succeeding Exchange Business Day on which there is no such inability to deliver, but in no such event shall the Settlement Date be later than the date that is two (2) Exchange Business Days immediately following what would have been the Settlement Date but for such inability to deliver.            Insolvency Filing:   Applicable            Hedging Disruption Event:   Applicable            Increased Cost of Hedging:   Not Applicable 5 --------------------------------------------------------------------------------              Loss of Stock Borrow:   Not Applicable            Increased Cost of Stock Borrow:   Not Applicable            Hedging Party:   Seller            Determining Party:   Seller       Non-Reliance:   Applicable       Agreements and Acknowledgments     Regarding Hedging Activities:   Applicable       Additional Acknowledgments:   Applicable Additional Agreements, Representations and Covenants of Buyer, Etc.: 1.   Buyer hereby represents and warrants to Seller, on each day from the Trade Date to and including the earlier of (i) December 15, 2006 and (ii) the date by which Seller is able to initially complete a hedge of its position relating to this Transaction, that:   a.   it will effect (and cause any “affiliated purchaser” (as defined in Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) to effect) any purchases, direct or indirect (including by means of any cash-settled or other derivative instrument), of Shares or any security convertible into or exchangeable or exercisable for Shares solely through Agent in a manner that would not cause any purchases by Seller of its hedge in connection with this Transaction not to comply with applicable securities laws; provided that this clause (a) shall not apply to any transactions in Shares effected directly between Buyer and its employees pursuant to an employee share incentive or benefit plan;     b.   it will not engage in, or be engaged in, any “distribution,” as such term is defined in Regulation M promulgated under the Exchange Act, other than a distribution meeting the requirements of the exceptions set forth in sections 101(b)(10) and 102(b)(7) of Regulation M (it being understood that Buyer makes no representation pursuant to this clause in respect of any action or inaction taken by Seller or any Underwriter of the Reference Notes); and     c.   Buyer has publicly disclosed all material information necessary for Buyer 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). 2.   If Buyer would be obligated to pay cash to, or receive cash from, Seller pursuant to the terms of this Agreement for any reason without having had the right (other than pursuant to this paragraph (2)) to elect to deliver or receive Shares in satisfaction of such payment obligation, then Buyer may elect that such payment obligation shall be satisfied by the delivery of a number of Shares (or, if the Shares have been converted into other securities or property in connection with an Extraordinary Event, a number or amount of such other securities or property as a holder of Shares would be entitled to receive upon the consummation or closing of such Extraordinary Event) having a cash value equal to the amount of such payment obligation (such number or amount of Shares or other securities or property to be delivered to be determined by the Calculation Agent as the number of Shares or number or amount of such other securities or property that could be purchased or sold, as applicable, by Seller over a reasonable period of time for the cash equivalent of such payment obligation). Settlement relating to any delivery of Shares or other securities or property pursuant to this paragraph (2) shall occur within a reasonable period of time. 3.   Notwithstanding any provision in the Note Indenture, this Confirmation or the Agreement to the contrary, each of the “applicable Conversion Rate” (as such term is used in the Note Indenture), the Net Share 6 --------------------------------------------------------------------------------       Settlement Amount, the Net Cash Settlement Amount and any other amount computed hereunder by reference to the applicable Conversion Rate shall be determined without regard to any adjustments to the Conversion Rate made pursuant to Section 4.12 of the Note Indenture or as a result of a Make Whole Premium adjustment pursuant to Section 4.01(j) of the Note Indenture. 4.   Notwithstanding Section 6(e) of the Agreement or Sections 12.7 or 12.8 of the Equity Definitions, if, with respect to the Transaction contemplated hereunder, (A) an Early Termination Date with respect to any Event of Default or any Termination Event, (B) a Closing Date with respect to an event described in Section 12.6 of the Equity Definitions, or (C) a date as of which the Transaction is, or is deemed to have been, terminated or cancelled as a result of an applicable Additional Disruption Event (any such date, the “Relevant Date”) shall occur, then in lieu of any payments hereunder pursuant to Sections 6(d)(ii) and 6(e) of the Agreement or Sections 12.7 or 12.8 of the Equity Definitions, as applicable, (if a calculation under such sections would otherwise be required) the Calculation Agent shall determine the number of Shares deliverable by Wachovia to Counterparty on the following basis and the following provisions shall apply:       (i) such Relevant Date shall be the sole Exercise Date hereunder and Automatic Exercise shall be applicable;       (ii) the Settlement Method shall be Net Share Settlement and the provisions set forth above under “Net Share Settlement” shall apply (but without regard to subsection (ii) thereof, or any right of the Counterparty to elect to deliver cash in lieu of Remaining Shares pursuant to Section 4.13(b) of the Note Indenture, or any requirement of Counterparty to deliver an Exercise Notice) as if a Conversion Date had occurred, the Conversion Amount were the aggregate principal amount of the Reference Notes then outstanding, and the Remaining Shares were equal to (X) the excess, if any, of (a) the VWAP Price on the Relevant Date multiplied by the applicable Conversion Rate over (b) $1,000; divided by (Y) the VWAP Price on the Relevant Date; provided that, if the Shares have been converted into other securities or property in connection with an Extraordinary Event, Seller may deliver a number or amount of such other securities or property as a holder of the number of Shares that would otherwise be deliverable under this paragraph would be entitled to receive upon the consummation or closing of such Extraordinary Event. “VWAP Price” means, on any date, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page BGC <equity> VAP (or any successor thereto) in respect of the period from 9:45 a.m. to 3:45 p.m. (New York City time) on such date (or if such volume-weighted average price is unavailable, the market value of one Share (or, if applicable, the value per Share of the consideration paid or delivered to holders of Shares at the time of an Extraordinary Event) on such date, as determined by the Calculation Agent); and       (iii) the Settlement Date shall be the date that falls one Settlement Cycle following the Relevant Date.   5.   Counterparty is not, and after giving effect to the Transaction contemplated hereby, will not be, an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.   6.   As of the Trade Date and each date on which a payment or delivery is made by Counterparty hereunder, (i) the assets of Counterparty at their fair valuation exceed the liabilities of Counterparty, including contingent liabilities; (ii) the capital of Counterparty is adequate to conduct its business; and (iii) Counterparty has the ability to pay its debts and other obligations as such obligations mature and does not intend to, or believe that it will, incur debt or other obligations beyond its ability to pay as such obligations mature. Over-Allotment Option: If the Underwriters (as such term is defined in the Purchase Agreement by and among the Counterparty, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC dated as of November 9, 2006 (the “Purchase Agreement”) relating to the purchase of the Reference Notes) exercise the right to receive additional Reference Notes pursuant to an over-allotment option, then Seller and Buyer will, concurrently with the closing of such over-allotment option exercise, enter into a confirmation for an OTC Convertible Note Hedge with respect to such additional Reference Notes on substantially identical terms, including pricing, as this Confirmation 7 --------------------------------------------------------------------------------   or amend this Confirmation to account for such over-allotment option exercise. Such additional or amended confirmation shall provide for the payment by Counterparty to Seller of the additional Premium related thereto. Additional Termination Events:      The occurrence of any of the following shall be an Additional Termination Event for purposes of this Transaction: 1.   Amendment Event. If an Amendment Event (as defined below) occurs, Wachovia shall have the right to designate an Early Termination Date pursuant to Section 6(b) of the Agreement and, notwithstanding anything to the contrary herein, no payments shall be required under this Agreement in connection with such Amendment Event.       “Amendment Event” means that the Counterparty, without the prior consent of Seller, amends, modifies, supplements or obtains a waiver of (a) any term of the Note Indenture or the Reference Notes relating to the principal amount, coupon, maturity or repurchase obligation of the Counterparty, (b) any material term relating to conversion of the Reference Notes (including changes to the conversion price, conversion settlement dates or conversion conditions) or (c) any term that would require consent of the holders of 100% of the principal amount of the Reference Notes to amend;   2.   Repayment Event. If a Repayment Event (as defined below) occurs, Wachovia shall have the right to designate an Early Termination Date pursuant to Section 6(b) of the Agreement with respect to this Transaction to the extent of the principal amount of Reference Notes that cease to be outstanding as a result of such Repayment Event and, notwithstanding anything to the contrary herein, no payments shall be required under this Agreement in connection with such Repayment Event.       “Repayment Event” means that (a) any Reference Notes are repurchased (whether in connection with or as a result of a change of control, howsoever defined, or for any other reason other than as a result of or in connection with a conversion) by the Counterparty, (b) any Reference Notes are delivered to the Counterparty in exchange for delivery of any property or assets of the Counterparty or any of its subsidiaries (howsoever described), other than as a result of and in connection with a Conversion Date, (c) any principal of any of the Reference Notes is repaid prior to the Final Maturity Date (as defined in the Note Indenture) (whether following acceleration of the Reference Notes or otherwise), provided that no payments of cash made in respect of the conversion of a Reference Note shall be deemed a payment of principal under this clause (c), (d) any Reference Notes are exchanged by or for the benefit of the holders thereof for any other securities of the Counterparty or any of its Affiliates (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction or (e) any of the Reference Notes is surrendered by Counterparty to the trustee for cancellation, other than registration of a transfer of such Reference Notes or as a result of and in connection with a Conversion Date; or   3.   Initial Purchase Event. If an Initial Purchase Event (as defined below) occurs, this Transaction shall terminate automatically in its entirety and, notwithstanding anything to the contrary herein, only the payments specified below shall be required hereunder in connection with such Initial Purchase Event.       “Initial Purchase Event” means that the transactions contemplated by the Purchase Agreement shall fail to close for any reason or either party fails to deliver the documents specified in paragraph (b) under “Delivery Requirements” below at or prior to the closing of the Purchase Agreement.       If an Initial Purchase Event occurs for any reason other than a breach of the Purchase Agreement by the Underwriters or Wachovia’s failure to deliver the documents specified in paragraph (b) under “Delivery Requirements”, then all payments, if any, previously made hereunder shall be returned to the person making such payment, including the Premium, less an amount equal to the product of (a) the Applicable Portion of the Reference Notes, (b) 6,254,640 Shares and (c) 0.30 multiplied by an amount equal to the excess, if any, of the closing price of the Shares on the Trade Date over the closing price of the Shares on the date of the Termination Event (the “Break Expense”); provided that any negative amount shall be 8 --------------------------------------------------------------------------------       replaced by zero and in no event shall the Break Expense exceed the product of the Applicable Portion of the Reference Notes times U.S.$7,000,000; provided further that to the extent the Premium has not been paid, Buyer shall promptly pay Seller the Break Expense. Seller and Buyer agree that actual damages would be difficult to ascertain under these circumstances and that the amount of liquidated damages resulting from the determination in the preceding sentence is a good faith estimate of such damages and not a penalty.       If an Initial Purchase Event occurs due to a breach of the Purchase Agreement by the Underwriters or Wachovia’s failure to deliver the documents specified in paragraph (b) under “Delivery Requirements”, then all payments previously made hereunder, including the Premium, promptly shall be returned to the person making such payment and no payments shall be required hereunder in connection with such Initial Purchase Event. Staggered Settlement: If Seller determines reasonably and in good faith that the number of Shares required to be delivered to Buyer hereunder on any Settlement Date would exceed 8.0% of all outstanding Shares, then Seller may, by notice to Buyer on or prior to such Settlement Date (a “Nominal Settlement Date”), elect to deliver the Shares comprising the related Net Share Settlement Amount on two or more dates (each, a “Staggered Settlement Date”) or at two or more times on the Nominal Settlement Date as follows: 1.   in such notice, Seller will specify to Buyer the related Staggered Settlement Dates (the first of which will be such Nominal Settlement Date and the last of which will be no later than twenty (20) Trading Days following such Nominal Settlement Date) or delivery times and how it will allocate the Shares it is required to deliver hereunder among the Staggered Settlement Dates or delivery times;   2.   the aggregate number of Shares that Seller will deliver to Buyer hereunder on all such Staggered Settlement Dates or delivery times will equal the number of Shares that Seller would otherwise be required to deliver on such Nominal Settlement Date; and   3.   the Net Share Settlement terms will apply on each Staggered Settlement Date, except that the Shares comprising the Net Share Settlement Amount will be allocated among such Staggered Settlement Dates or delivery times as specified by Seller in the notice referred to in clause (1) above. Notwithstanding anything herein to the contrary, solely in connection with a Staggered Settlement Date, Seller shall be entitled to deliver Shares to Buyer from time to time prior to the date on which Seller would be obligated to deliver them to Buyer pursuant to Net Share Settlement terms set forth above, and Buyer agrees to credit all such early deliveries against Seller’s obligations hereunder in the direct order in which such obligations arise. No such early delivery of Shares will accelerate or otherwise affect any of Buyer’s obligations to Seller hereunder. 9 --------------------------------------------------------------------------------   Disposition of Hedge Shares: Seller shall conduct its hedging activities in connection with the Transaction in a manner that it believes, based on its reasonable judgment, will not require Counterparty to register under the Securities Act or any state securities laws the Shares (the “Hedge Shares”) acquired by Seller for the purpose of hedging its obligations pursuant to the Transaction. In addition, Counterparty hereby agrees that if, in the reasonable judgment of Seller based on advice of counsel, the Hedge Shares cannot be sold in the U.S. public market by Seller without registration under the Securities Act, Counterparty shall, at its election: (i) in order to allow Seller to sell the Hedge Shares in a registered offering, use commercially reasonable efforts to make available to Seller an effective registration statement under the Securities Act to cover the resale of such Hedge Shares and (a) enter into an agreement, in form and substance satisfactory to Seller and Counterparty, substantially in the form of an underwriting agreement for a registered offering, (b) provide accountant’s “comfort” letters in customary form for registered offerings of equity securities, (c) provide disclosure opinions of nationally recognized outside counsel to Counterparty reasonably acceptable to Seller, (d) provide other customary opinions, certificates and closing documents customary in form for registered offerings of equity securities and (e) afford Seller a reasonable opportunity to conduct a “due diligence” investigation with respect to Counterparty customary in scope for underwritten offerings of equity securities registered for resale; provided, however, that if Seller, in its sole reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) of this Section shall apply; or (ii) in order to allow Seller to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities by a publicly reporting company (if Counterparty is a publicly reporting company at such time) to institutional purchasers, in form and substance satisfactory to Seller and Counterparty, including reasonable and customary representations, covenants, blue sky and other governmental filings and/or registrations, indemnities to Seller, due diligence rights (for Seller or any designated buyer of the Hedge Shares from Seller), opinions and certificates and such other documentation as is customary for private placements agreements, all reasonably acceptable to Seller (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that it determines are necessary to reflect an appropriate discount from the public market price of the Shares due to the lack of liquidity thereof). Repurchase Notices: Counterparty shall, on any day on which Counterparty effects any repurchase of Shares, promptly give Seller a written notice of such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the Notice Percentage as determined on such day is (i) greater than 8% and (ii) greater by 0.5% than the Notice Percentage included in the immediately preceding Repurchase Notice (or, in the case of the first such Repurchase Notice, greater than the Notice Percentage as of the date hereof). In the event that Counterparty fails to provide Seller with a Repurchase Notice on the day and in the manner specified in this section, then Counterparty agrees to indemnify and hold harmless Seller, its affiliates and their respective directors, officers, employees, agents and controlling persons (Seller and each such person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities (or actions in respect thereof), joint or several, to which such Indemnified Party may become subject under applicable securities laws, including without limitation, Section 16 of the Exchange Act, relating to or arising out of such failure. If for any reason the foregoing indemnification is unavailable to any Indemnified Party or insufficient to hold harmless any Indemnified Party, then Counterparty shall contribute, to the maximum extent permitted by law, to the amount paid or payable by the Indemnified Party as a result of such loss, claim, damage or liability. In addition, Counterparty will reimburse any Indemnified Party for all reasonable and documented expenses (including reasonable counsel fees and expenses) as they are incurred (after notice to Counterparty) in connection with the investigation of, preparation for or defense or settlement of any pending or threatened claim or any action, suit or proceeding arising therefrom, whether or not such Indemnified Party is a party thereto and whether or not such claim, action, suit or proceeding is initiated or brought by or on behalf of Counterparty. This indemnity shall survive the completion of the Transaction contemplated by this Confirmation and any assignment and delegation of the Transaction made pursuant to this Confirmation or the Agreement shall inure to the benefit of any permitted assignee of Seller. Counterparty will not be liable under this Indemnity provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court to have resulted from Wachovia’s gross negligence or willful misconduct. The “Notice Percentage” as of any day is the fraction, expressed as a percentage, (i) the numerator of which is the product of the number of (a) the Applicable Portion of the Reference Notes, (b) outstanding Reference Notes and (c) the number of Shares per Reference Note equal to the 10 --------------------------------------------------------------------------------   Conversion Rate (as defined in the Note Indenture) and (ii) the denominator of which is the number of Shares outstanding on such day.       Compliance with Securities Laws:   Each party represents and agrees that, in connection with this Transaction and all related or contemporaneous sales and purchases of Shares by either party, Buyer, or in the case of Seller, the person(s) that directly influences the specific trading decisions of Seller, has complied and will comply with the applicable provisions of the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act, and the rules and regulations each thereunder, including, without limitation, Rules 10b-5, 10b-18 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.           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, Buyer represents and warrants to Seller 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.           Buyer further represents:           (a) Buyer is not entering into this Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for Shares);           (b) Buyer acknowledges that as of the date hereof and without limiting the generality of Section 13.1 of the Equity Definitions, Seller 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.           Details:   Account for payments and         deliveries to Buyer:   Please forward payment and delivery instructions to Wachovia in Charlotte, NC. Payments will not be made to Counterparty without its instructions.               Payments to Wachovia:   WBNA, Charlotte         ABA: 053-000-219         A/C: 04659360000127         Ref: Equity Derivatives           Bankruptcy Rights:   In the event of Buyer’s bankruptcy, Seller’s rights in connection with this Transaction shall not exceed those rights held by common shareholders. For the avoidance of doubt, the parties acknowledge and agree that Seller’s rights with respect to any other claim arising from this Transaction prior to Buyer’s bankruptcy shall remain in full force and effect and shall not be otherwise abridged or modified in connection herewith. 11 --------------------------------------------------------------------------------         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:   Buyer shall have the right to assign its rights and delegate its obligations hereunder with respect to any portion of this Transaction, subject to Seller’s consent, such consent not to be unreasonably withheld; provided that such assignment or transfer shall be subject to receipt by Seller of opinions and documents reasonably satisfactory to Seller and effected on terms reasonably satisfactory to the Seller with respect to any legal and regulatory requirements relevant to the Seller; provided further that Buyer shall not be released from its obligation to deliver a Exercise Notice. If, as determined in Seller’s sole discretion, (i) its “beneficial ownership” (within the meaning of Section 13 of the Exchange Act and rules promulgated thereunder) could be deemed to exceed 8% of Counterparty’s outstanding Shares or (ii) the quotient of (x) the product of (a) the Number of Options and (b) the Option Entitlement divided by (y) the number of Counterparty’s outstanding Shares (such quotient expressed as a percentage, the “Option Equity Percentage”) exceeds 9%, Seller may, without Counterparty’s consent, transfer or assign all or any part of its rights or obligations under this Transaction to reduce such “beneficial ownership” to 7.5% or such Option Equity Percentage to 8.5% to any third party with a rating for its (or, if applicable, its Credit Support Provider’s) long term, unsecured and unsubordinated indebtedness of A- or better by Standard & Poor’s Ratings Service or its successor (“S&P”), or A3 or better by Moody’s Investors Service (“Moody’s”) or, if either S&P or Moody’s ceases to rate such debt, at least an equivalent rating or better by a substitute rating agency mutually agreed by Company and Seller. If after Seller’s commercially reasonable efforts, Seller is unable to effect such a transfer or assignment on pricing terms reasonably acceptable to Seller and within a time period reasonably acceptable to Seller of a sufficient number of Options to reduce (i) Seller’s “beneficial ownership” (within the meaning of Section 13 of the Exchange Act and rules promulgated thereunder) to 7.5% of Counterparty’s outstanding Shares or less or (ii) the Option Equity Percentage to 8.5% or less, Seller may designate any Exchange Business Day as an Early Termination Date with respect to a portion (the “Terminated Portion”) of this Transaction, such that (i) its “beneficial ownership” following such partial termination will be equal to or less than 7.5% or (ii) the Option Equity Percentage following such partial termination will be equal to or less than 8.5%. In the event that Seller so designates an Early Termination Date with respect to a portion of this Transaction, the provisions set forth above under paragraph 4 of “Additional Agreements, Representations and Covenants of Buyer, Etc.” shall apply in lieu of Section 6(d)(ii) and 6(e) of the Agreement as if (i) an Early Termination Date had been designated in respect of a Transaction having terms identical to this Transaction and a Number of Options equal to the Terminated Portion and (ii) such Transaction were the only Terminated Transaction. In circumstances in which the foregoing provisions relating to Seller’s right to transfer or assign its rights or obligations under the Transaction are not applicable, Seller may transfer any of its rights or delegate its obligations under this Transaction with the prior written consent of Buyer, which consent shall not be unreasonably withheld. Terms relating to the Agent: (a)   The Agent is registered as a broker-dealer with the U.S. Securities and Exchange Commission and the National Association of Securities Dealers, is acting hereunder for and on behalf of Wachovia solely in its capacity as agent for Wachovia pursuant to instructions from Wachovia, and is not and will not be acting as the Counterparty’s agent, broker, advisor or fiduciary in any respect under or in connection with this Transaction. (b)   In addition to acting as Wachovia’s agent in executing this Transaction, the Agent is authorized from time to time to give written payment and/or delivery instructions to the Counterparty directing it to make its 12 --------------------------------------------------------------------------------       payments and/or deliveries under this Transaction to an account of the Agent for remittance to Wachovia (or its designee), and for that purpose any such payment or delivery by the Counterparty to the Agent shall be treated as a payment or delivery to Wachovia.   (c)   Except as otherwise provided herein, any and all notices, demands, or communications of any kind transmitted in writing by either Wachovia or the Counterparty under or in connection with this Transaction will be transmitted exclusively by such party to the other party through the Agent at the following address: Wachovia Capital Markets, LLC 201 South College Street, 23rd Floor Charlotte, NC 28288-0601 Facsimile No.: (704) 383-8425 Telephone No.: (704) 715-8086 Attention: Equity Derivatives (d)   The Agent shall have no responsibility or liability to Wachovia or the Counterparty for or arising from (i) any failure by either Wachovia or the Counterparty to perform any of their respective obligations under or in connection with this Transaction, (ii) the collection or enforcement of any such obligations, or (iii) the exercise of any of the rights and remedies of either Wachovia or the Counterparty under or in connection with this Transaction. Each of Wachovia and the Counterparty agrees to proceed solely against the other to collect or enforce any such obligations, and the Agent shall have no liability in respect of this Transaction except for its gross negligence or willful misconduct in performing its duties as the agent of Wachovia. (e)   Upon written request, the Agent will furnish to Wachovia and the Counterparty the date and time of the execution of this Transaction and a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with this Transaction. 13 --------------------------------------------------------------------------------   ISDA Master Agreement: With respect to the Agreement, Seller and Counterparty each agree as follows: “Specified Entity” means in relation to Seller and in relation to Counterparty for purposes of this Transaction: Not applicable. The provisions of “Default under Specified Transaction” as set forth in Section 5(a)(v) of the Agreement shall not apply to Wachovia or Counterparty. The “Cross Default” provisions of Section 5(a)(vi) of the Agreement will not apply to Seller and will not apply to Counterparty. The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement will not apply to Seller and Counterparty. The “Automatic Early Termination” provision of Section 6(a) of the Agreement will not apply to Seller or to Counterparty. Payments on Early Termination. For the purpose of Section 6(e) of the Agreement: (i) Loss shall apply; and (ii) the Second Method shall apply. “Termination Currency” means USD. Tax Representations. (a)   Payer Representations. For the purpose of Section 3(e) of the 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 Agreement) to be made by it to the other party under the 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 Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of the 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 Agreement, and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of the 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 Agreement by reason of material prejudice to its legal or commercial position. (b)   Payee Representations. It is a national banking association organized or formed under the laws of the United States and is a United States resident for United States federal income tax purposes. Delivery Requirements. For the purpose of Sections 4(a)(i) and (ii) of the Agreement, each party agrees to deliver the following documents: (a)   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 agreement; (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.   (b)   Other documents to be delivered: 14 --------------------------------------------------------------------------------                             Covered by Party Required to           Section 3(d) Deliver Document   Document Required to be Delivered   When Required   Representation Counterparty and Seller   Evidence of the authority and true signatures of each official or representative signing this Confirmation   Upon or before the closing of the Purchase Agreement   Yes               Counterparty   Certified copy of the resolution of the Board of Directors or equivalent document authorizing the execution and delivery of this Confirmation and such other certificates as Seller shall reasonably request   Upon or before closing of the Purchase Agreement   Yes Additional Notice Requirements. Counterparty hereby agrees to promptly deliver to Seller a copy of all notices and other communications required or permitted to be given to the holders of any Reference Notes pursuant to the terms of the Note Indenture on the dates so required or permitted in the Note Indenture and all other notices given and other communications made by Counterparty in respect of the Reference Notes to holders of any Reference Notes. Counterparty further covenants to Seller that it shall promptly notify Seller of each Conversion Date, Amendment Event (including in such notice a detailed description of any such amendment) and Repayment Event (identifying in such notice the nature of such Repayment Event and the principal amount at maturity of Reference Notes being paid). Addresses for Notices. For the purpose of Section 12(a) of the Agreement: Address for notices or communications to Seller for all purposes:               Address:   WACHOVIA BANK, NATIONAL ASSOCIATION         c/o Wachovia Capital Markets, LLC         375 Park Avenue         Mailcode: NY4073         New York, NY 10152         Attention: Equity Documentation Unit     Telephone No.:   (212) 214 6100     Facsimile No.:   (212) 214 5913 Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as well as any changes to Counterparty’s address, telephone number or facsimile number should be sent to:               Address:   GMI Counsel         Merrill Lynch World Headquarters         4 World Financial Center         New York, New York 10080     Attention:   Global Equity Derivatives     Facsimile No.:   (212) 449-6576     Telephone No.:   (212) 449-6309 Address for notices or communications to Counterparty for all purposes:               Address:   General Cable Corporation         4 Tesseneer Drive         Highland Heights, KY 41076-9753     Attention:   Brian J. Robinson         Senior Vice President, Controller and Treasurer 15 --------------------------------------------------------------------------------                 Telephone No.:   (859) 572-8483     Facsimile No.:   (859) 572-8441               Address:   General Cable Corporation         4 Tesseneer Drive         Highland Heights, KY 41076-9753     Attention:   Robert J. Siverd         Executive Vice President,         General Counsel and Secretary     Telephone No.:   (859) 572-8890     Facsimile No.:   (859) 572-8444           Process Agent.   Seller does not appoint a Process Agent.               Counterparty does not appoint a Process Agent. Multibranch Party. Wachovia is a Multibranch Party and may act through the following Offices: its Charlotte Head Office and its London Branch. Section 10 (a) of the Agreement shall be applicable. Calculation Agent. The Calculation Agent is Seller. Upon the request of either party, the Calculation Agent (or, in the case of a determination made by a party (including a party acting as Hedging Party or Determining Party), such party) shall, no later than the 5th Business Day following such request, provide the parties with a statement showing, in reasonable detail, the computations (including any relevant quotations) by which it has determined any amount payable or deliverable under, or any adjustment to the terms of, this Transaction. All judgments, determinations and calculations hereunder by the Calculation Agent or by a party hereto shall be performed in good faith and in a commercially reasonable manner. Credit Support Document. Seller : Not Applicable. Counterparty: Not Applicable. Credit Support Provider. With respect to Seller: 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 this 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 this 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 Agreement shall not be applicable to this Transaction. Basic Representations. Section 3(a) of the 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: 16 --------------------------------------------------------------------------------       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 this Transaction in connection with its business or a line of business (including financial intermediation), or the financing of its business. Acknowledgements: (a)   The parties acknowledge and agree that there are no other representations, agreements or other undertakings of the parties in relation to this Transaction, except as set forth in this Confirmation.   (b)   The parties hereto intend for:   (i)   this 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;     (ii)   a party’s right to liquidate this Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as defined in the Bankruptcy Code;     (iii)   all payments for, under or in connection with this Transaction, all payments for the Shares and the transfer of such Shares to constitute “settlement payments” as defined in the Bankruptcy Code. 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 Transaction.” Recording of Conversations. Each party (i) consents to the recording of telephone conversations between the trading, marketing and other relevant personnel of the parties or any of their Affiliates in connection with this Agreement or any Transaction or potential Transaction, (ii) agrees to obtain any necessary consent of, and give any necessary notice of such recording to, its relevant personnel and those of its Affiliates and (iii) agrees, to the extent permitted by applicable law, that such recordings may be submitted in evidence in any Proceedings. Disclosure. Each party hereby acknowledges and agrees that Seller has authorized Counterparty to disclose this Transaction and any related hedging transaction between the parties if and to the extent that Counterparty reasonably determines (after consultation with Seller) that such disclosure is required by law or by the rules of the New York Stock Exchange or any securities exchange. 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 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 Agreement; provided, however, that this severability provision shall not be applicable if any provision of Section 2, 5, 6 or 13 of the 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 Agreement, each party shall be deemed to be an Affected Party in connection with Illegality and any Tax Event. 17 --------------------------------------------------------------------------------   [Signatures follow on separate page] 18 --------------------------------------------------------------------------------   Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a copy of this Confirmation and returning it to us by facsimile at 212-214-5913 (Attention: Equity Division Documentation Unit, by telephone contact 212-214-6100).                       Very truly yours,                 WACHOVIA CAPITAL MARKETS, LLC,       WACHOVIA BANK, NATIONAL ASSOCIATION acting solely in its capacity as Agent       By: Wachovia Capital Markets, LLC, of Wachovia Bank, National Association       acting solely in its capacity as its Agent                       By: Name:   /s/ Cathleen Burke   Cathleen Burke       By: Name:   /s/ Cathleen Burke   Cathleen Burke     Title:   Managing Director       Title:   Managing Director     Accepted and confirmed as of the date first above written: GENERAL CABLE CORPORATION           By: Name:   /s/ Robert J. Siverd   Robert J. Siverd     Title:   Executive Vice President, General Counsel and Secretary     OTC Convertible Note Hedge

-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Exhibit 10.10 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT, dated as of October 13, 2006 (this “Agreement”), is entered into by and between VESTIN MORTGAGE, INC., a Nevada corporation (“Vestin”), VESTIN ORIGINATIONS, INC., a Nevada corporation (“Originations”), VESTIN REALTY MORTGAGE I, Inc., a Maryland corporation (“VRM I”), VESTIN REALTY MORTGAGE II, Inc., a Maryland corporation (“VRM II”) and VESTIN FUND III, LLC, a Nevada limited liability company (“VF III”) whose principal place of business and post office address is 8379 West Sunset Road, Las Vegas, Nevada. 89113, (individually, “Lead Lender, or collectively, “Lead Lenders” and OWENS FINANCIAL GROUP, INC.., a California corporation (“Owens Financial”) and OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership (“Owens Mortgage Investment Fund”) whose principal place of business and post office address is 2221 Olympic Boulevard, Walnut Creek, California 94595, (individually, a “Lender”, or collectively, “Lenders”) RECITALS: A.   VRM I is a publicly traded Mortgage REIT that provides financing secured by deeds of trust or mortgages on real property. B.   VRM II is a publicly traded Mortgage REIT that provides financing secured by deeds of trust or mortgages on real property. C.   Vestin Fund III is a SEC registered direct participation program that provides financing secured by deeds of trust or mortgages on real property. D.   VESTIN is a duly formed Nevada corporation, and is responsible for the daily operations of VRM I and VRM II and is the Manager of VF III. E.   Originations is a licensed Mortgage Broker that arranges loans for the benefit of VRM I, VRM II, VF III and other commercial real estate lenders. D.   Owens Mortgage Investment Fund is a SEC registered public partnership that provides financing and owns notes secured by deeds of trust or mortgages on real property. F.   Owens Financial is the General Partner of Owens Mortgage Investment Fund. G.   Owens Financial and Owens Mortgage Investment Fund have agreed to fund a $20,000,000.00 portion of a $31,250,000.00 loan to Cliff Shadows Properties, LLC, a Nevada limited liability company, a loan originated by Originations. H.   The Lead Lenders and Lenders enter into this Agreement to, among other things, further define their respective rights, duties, authorities and responsibilities regarding their proposed shared interests in the and to define the priority of payment for all of the proceeds from the assigned participation in the loan. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and based upon the foregoing Recitals which are an integral part of this Agreement, as well as the mutual covenants and promises contained herein, Originations, Vestin, VRM 1, VRM II, VF III, Owens Financial, and Owens Mortgage Investment Fund hereby agree as follows:     --------------------------------------------------------------------------------   SECTION 1. DEFINITIONS Section 1.1. Definitions. All capitalized terms used in this Agreement shall have the meanings assigned to them below in this Section 1 or in the provisions of this Agreement referred to below: “Agreement” shall mean this lntercreditor Agreement as amended, modified or restated in accordance with the terms hereof. “Assignment” shall mean the actual recorded assignment of a specific percentage interest in a “Loan”. “Bankruptcy Proceeding” shall mean, with respect to any Person, a general assignment by such Person for the benefit of its creditors, or the institution by or against such Person of any proceeding seeking its relief as debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of such Person or its debts, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property. “Borrowers” shall mean any person or entity that obligates itself or its property as security for a “Loan”. “Collateral” shall mean all the real and personal property collateral under the Loan Documents. “Default” shall mean any event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, pursuant, to the “Loan Documents” constitute an Event of Default. “Interest Rate” shall mean the rate of interest paid to Owens Financial or Owens Mortgage Investment Fund for their “Participation Interest” in the “Loan”. This rate shall be a fixed rate of Eleven Percent (11.0%) for the duration of the Loan. “Late Charges” shall mean the late charges and or default rate charged to Borrowers in the event of default or late payments under the “Loan Documents”. “Lead Lender and Lead Lenders” shall mean Originations, Vestin, VRM I, VRM II, VF III or any successor lead lender. “Lender and Lenders” shall mean Owens Financial or Owens Mortgage Investment Fund or their assignee. “Loan Documents” shall mean of all the various notes, deeds of trusts, guarantees, title policies, security agreements, loan agreements, assignment of rents and profits, and whatever documents are in existence to protect and secure the repayment of the Borrowers obligations under the note. “Loan” shall mean the note, and all of the documents and agreements that evidence and secure the debt of the “Borrowers”. “Priority of Payment” shall mean the order in which payments are made to the “Lead Lender” and to the “Lender”. “Participation Interest” shall signify amount in dollars of the “Assignment” owned by Owens Financial and Owens Mortgage Investment Fund in the “Loan”. 1.2 Effectiveness of this Agreement The effectiveness of this Agreement is conditioned upon (a) the execution and delivery of this Agreement by the Lead Lenders and the Lenders, (b) the execution, delivery and effectiveness of the Loan Documents by the Lead Lenders, and the payment of the Participation Interest by Lenders to the Lead Lenders.     --------------------------------------------------------------------------------   SECTION 2. RELATIONSHIP AMONG LENDERS 2.1 Restrictions on Actions. Lead Lenders agree that, so long as any portion of a Loan is outstanding or unpaid they shall, for the benefit of Lenders, except as permitted under this Agreement: (a)   Notify Lenders before taking or filing any action, judicial or otherwise, to enforce any rights or pursue any remedy under the Loan Documents, except for delivering notices hereunder. (b)   Refrain from (1) selling any portion of the Loan to the Borrowers or any affiliate of the Borrowers and (2) accepting any substitute guaranty or any other security for, the Loan from the Borrowers or any Affiliate of the Borrowers, without Lenders consent. In the event Lender refuses to consent to such requested action, Lead Lenders shall be entitled to either repurchase Lenders Participation Interest for the amount of principal and accrued interest outstanding or offer the Lenders a Substitution of Security. 2.2 Representations and Warranties. Lead Lenders and Lenders represent and warrant to each other that: (a)  It (1) is a legal entity duly organized, existing and in good standing under the laws and governmental authority of the jurisdiction of its domicile, and (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated. (b)  The execution, delivery and performance by such Lead Lenders or Lenders of this Agreement has been authorized by all necessary proceedings (corporate or otherwise) and does not and will not contravene any provision of law, its charter or by-laws or operating agreement or any amendment thereof, or of any indenture, agreement, instrument or undertaking binding upon such Lead Lenders or Lenders. (c)  The execution, delivery and performance by such Lead Lenders or Lenders of this Agreement will result in a valid and legally binding obligation of such Lead Lenders or Lenders enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors’ rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (d)  It has received and approved, as to form and content, sample copies of the Loan Documents and Assignments, however, such approval shall not operate as a warranty or representation of the adequacy, validity or binding effect of any of the Loan Documents or Assignments. 2.3 Cooperation: Accountings. Lead Lenders will, upon the reasonable request of Lenders, from time to time execute and deliver or cause to be executed and delivered in a timely fashion such further instruments, and do and cause to be done such further acts as may be necessary or proper to carry out more effectively the provisions of this Agreement The Lead Lenders agree to provide to Lenders upon reasonable request, but in no event more frequently than once a month, a statement of all payments received in respect of the Loan. 2.4 Reliance on Lead Lenders. The Lead Lenders shall promptly provide to Lenders a copy of all financial statements and reports of operating results and other documents and information received by the Lead Lenders in its capacity as such pursuant to the Loan Documents. The Lead Lenders shall have a duty and responsibility to provide Lenders with any credit or other information concerning the affairs, financial condition or business of the Borrowers which may come into the possession of the Lead Lenders, including financial statements, credit reports and any other documents and information.     --------------------------------------------------------------------------------   2.5 Limitation on Lead Lender’s Liability. (a)  In addition to the Lead Lender’s failure to comply with the terms of this Agreement, including the Priority of Payment, the Lenders shall have full recourse against Lead Lenders for the amounts payable by the terms of this agreement. Lead Lenders obligation with respect to such payments shall be to remit to the Lenders a monthly payment based on the agreed Interest Rate calculated on the Participation Interest and the principal amount of the Participation interest when a Loan pays off or matures in accordance with this Agreement. (b)  Although Lead Lenders will exercise the same care in administering the Loan as if the Loan were made entirely for Lead Lenders’ own account, Lead Lenders liability shall be limited to the Lenders Participation Interest and the amount payable on that at the Interest Rate, except for a loss due to Lead Lenders’ own gross negligence, willful acts or misconduct (c)  Lead Lenders shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram, cable or telecopy) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the Lenders. Should approval of any action, any inaction or any proposed course of conduct in administering the Loan (either before or after the occurrence of an Event of Default) be requested in writing by the Lead Lenders from Lenders, such Lenders shall approve or deny such request in writing and shall deliver the writing to the Lead Lenders within ten (10) calendar days after the Lenders’ receipt of the Lead Lender’s request. Any Lenders’ failure to respond within the ten (10) calendar days shall be deemed consent by such Lender to such request (d)  Lead Lenders do not assume and shall have no responsibility or liability, express or implied, for (i) the collectibility of the Loan made to Borrowers under, or the enforceability of, any of the Loan Documents, or (ii) the financial condition or creditworthiness of the Borrowers, or (iii) any credit or other information furnished by the Borrowers to Lead Lenders, or (iv) the value of any collateral for the Loan. 2.6 Lead Lender Rights as Lender. The Lead Lender in its capacity as a lender hereunder shall have the same rights, powers and obligations hereunder as all ‘other Lenders and may exercise the same as though it were not acting as the Lead Lender. SECTION 3. ADMINISTRATION OF LOAN 3.1 Administration and Servicing of Loan. In administering and servicing the Loan, Lead Lenders shall act in its own behalf as to its interest in the Loan and shall act as an independent contractor (and not as an agent or trustee) for the Lenders with respect to their respective interests in the Loan. The Lenders hereby appoint and authorize Lead Lenders to act for and on behalf of the Lenders with regard to the Loan, subject to the restrictions set forth in this Agreement Lead Lenders shall utilize its own facilities and equipment and its own employees and other persons authorized under the Loan Documents in the administering and servicing of the Loans, all without cost to the Lenders. In its administering and servicing of the Loan, Lead Lenders shall perform the following duties (the enumeration of said duties not being intended to limit the duties to be performed by Lead Lenders in accordance with the foregoing paragraph) and shall be subject to the following restrictions and shall have the following rights: (a)  Possession of Loan Documents. For the benefit of the Lenders, Lead Lenders shall hold in its possession at its principal office executed originals of all the Loan Documents for each Loan assigned and shall deliver conformed copies of each thereof to the Lenders. (b)  Expenses/Losses. In the event that any reasonable legal expenses or other expenses for the preservation of the collateral for the Loan or for the enforcement of the Loan are incurred by Lead Lenders in connection with the Loan or on or after or in connection with the occurrence of an Event of Default or the enforcement of any of the Loan Documents (including fees of counsel and other expenses), Lead Lenders shall bear and advance all such costs. Upon receipt of reimbursement for such expenses from Borrowers or any other person, Lead Lenders shall be entitled to retain such reimbursement     --------------------------------------------------------------------------------   (c)  Collections. Lead Lenders shall use reasonable efforts to collect all payments of principal, interest and fees due from the Borrowers under the Loan Documents and shall remit to the Lenders on a monthly basis a payment calculated at the agreed Interest Rate based on the outstanding balance of the Participation Interest. The Lenders shall have the right to an accounting for all monies received by Lead Lenders in connection with each Loan that has a Participation Interest by Lenders. (d)  Payment Returns. If any payment received by Lead Lenders and distributed or credited to the Lenders is later rescinded or is otherwise required to be returned by Lead Lenders to the Borrowers for whatever reason (including, without limitation, settlement of an alleged claim), the Lenders shall be entitled to retain any payment received. The covenant contained in this paragraph shall survive the termination of this Agreement. (e)  Records. Lead Lenders shall maintain such books and records relating to the Loan as it would were the Loan made solely by Lead Lenders, which books and records shall be made available to the Lenders at Lead Lender’s main branch in Las Vegas, Nevada at all reasonable times for purposes of inspection, examination and audit upon no less than forty-eight (48) hours prior notice. (f)  Information. During the term of this Agreement, Lead Lenders shall provide to the Lenders complete and current information as to the accrual status of the Loan and the status of principal and interest payments, and all information supplied by Borrowers in connection with the Loan. The Lenders will treat all such information as confidential, except that disclosure thereof may be made if required by law or the order of a court having jurisdiction. (g)  Administrative Decisions. Lead Lenders shall not, without written consent of Lenders, (1) release, or agree to the substitution of other security for any portion of the Real Property, Leasehold Rights and/or Collateral securing the Loans, (2) grant any release in favor of the Borrowers under the Loan Documents, or waive the Lenders’ rights to enforce the obligations of the Borrowers, (3) agree to the revision, modification or amendment of any of the Loan Documents, or (4) consent to or accept the cancellation or termination of any of the Loan Documents, except upon payment in full of each Loan. Subject to the foregoing limitations, and until the occurrence and declaration of an Event of Default under the Loan Documents and Borrowers failure to cure within twenty (20) days, Lead Lenders shall have the right to make decisions in connection with the day-to-day administration and servicing of the Loan, relating to inspections, review of financial data, and other matters of an ordinary nature involved in the administration and servicing of the Loan, without the Lenders’ prior review or approval. (h)  Reasonable Efforts. If any Event of Default shall occur under any of the Loans, Lead Lenders shall use reasonable efforts in accordance with the Loan Documents to cause the Borrowers, Guarantors and/or Limited Guarantors to remedy the default (i)  Hazard Insurance and Condemnation Awards. If Lead Lenders becomes aware of any damage to or actual or potential condemnation affecting any material portion of the Real Property, Leasehold Rights and/or Collateral securing the Loans, Lead Lenders will promptly notify Lenders thereof. The proceeds of any insurance recovery or condemnation award received by Lead Lenders and not immediately disbursed or applied to the repayment of the Loan or not otherwise distributed by Lead Lenders shall be deposited in an interest-bearing account, in trust for all lenders, and the income, if any, received by Lead Lenders from such account and not payable to others shall be shared with the Lenders in accordance with terms of this Agreement.     --------------------------------------------------------------------------------   3.2 Payment Priorities Between Lead Lenders and Lenders. (a)  Lead Lenders and Lenders agree that all payment and/or prepayment of principal due on the Loan, received by the Lead Lenders, shall be for held for the account of the Lenders and Lead Lenders as their respective interests may appear, and such payment shall be applied in the following order of priority: (I) first to the payment of that portion of principal of the Loan provided by Owens Financial and Owens Mortgage Investment Fund (ii) next to pay any accrued or outstanding interest due Lenders at the agreed Interest Rate (iii) next to that portion of the principal of the Loan provided by Originations, VRM I, VRM II and VF III. In the event of default under the Loan Documents: (I) Originations, VRM I, VRM II and VF III agree to purchase the Participation Interest of Owens Financial and Owens Mortgage Investment Fund for the outstanding balance of that Participation Interest plus any accrued interest; and (ii) Originations, VRM I, VRM Il and VF III shall not be entitled to receive any payment of their Pro Rata Share of the principal of the Loan in question until Owens Financial and Owens Mortgage Investment Fund has received payment of its Participation Interest of the principal of the Loan and all accrued interest, late charges, default interest, and any other charges payable to Lenders under this Agreement. (b)  Each payment of interest on the Loan, received by the Lead Lender, shall be for the account of the Lenders and Lead Lenders as their respective interests may appear, and such payment shall be applied first to the payment of agreed Interest Rate due on the Participation Interest of the Loan assigned to Owens Financial or Owens Mortgage Investment Fund for such period that the interest is due. (c)  As an example, assume Lenders fund a 64.0% Participation Interest in a $31,250,000.00 Loan. The Loan carries an interest rate of 12.0% and pays monthly interest only payments. Lenders and Lead Lenders would receive the following, provided however, that any reduction of the principal balance of the Loan through partial payoffs shall reduce proportionately the amounts shown in the examples below. Example 1: Borrowers make a monthly payment of $312,500.00. Lenders are paid their full share of interest at 11.0% on $20,000,000.00 or $183,333.33. Lead Lenders receive $129,166.67 or the balance of the interest paid. Example 2: Borrowers make a monthly payment of $250,000.00. Lenders are paid their full share of interest at 11.0% on $20,000,000.00 or $183,333.33. Lead Lenders receive $66,666.67, or the balance of the interest paid. Example 3: Borrowers do not make a monthly payment, default, declare bankruptcy or withhold payments for any reason then, Lead Lenders pay to Lenders the full share of interest at 11.0% on $20,000,000.00 or $183,333.33. At this point Lead Lender may buy Lender out of the loan for $20,000,000.00, plus any accrued interest. Example 4: Borrowers payoff a portion of the Loan. Lenders are paid their Pro Rata Share of the principal balance of the Participation Interest and interest due under the terms of the Loan to the date of the partial payoff. Example 5: Borrowers pay off the Loan. Lenders are paid their full Pro Rata Share of the Loan equal to their Participation Interest plus unpaid interest due under the terms of the Loan. 3.3 Defaults Under Loan Documents; Enforcement of Remedies. If foreclosure or similar proceedings are commenced under the Loan Documents, Lead Lenders shall buy out the Participation Interest of Owens Financial or Owens Mortgage Investment Fund at the sole an absolute discretion of Lenders. 3.4 Notices under Collateral Documents. Lead Lenders shall deliver to the Lenders, promptly upon receipt thereof, duplicates or copies of all notices, requests and other instruments received by it from any other party under or pursuant to any of the Loan Documents, if not previously furnished to the Lenders.     --------------------------------------------------------------------------------   SECTION 4. RESIGNATION OR REMOVAL OF LEAD LENDER Lead Lenders will repurchase the Participation Interests of Lenders at Lenders sole and absolute discretion at any time “for cause”. The term “for cause” shall be limited to Lead Lenders’ (i) material breach of the terms of this Agreement, or (ii) fraud committed against Borrowers or Lenders, or (iii) criminal acts committed against Borrowers or Lenders. Upon any such removal, the Lenders shall have the right to appoint a successor Lead Lender. SECTION 5. TERMINATION OF AGREEMENT Upon final payment in full of the Loan or all obligations owing to Lenders, such Lenders shall cease to be a party to this Agreement; provided, however, if all or any part of any payments to such Lenders are invalidated or set aside or required to be repaid to any Person in any Bankruptcy Proceeding or otherwise, then this Agreement shall be renewed as of such date and shall thereafter continue in full force and effect to the extent of the Loan so invalidated, set aside or repaid. If any portion of this agreement is declared to be invalid or unenforceable then the remaining portions of the Agreement shall remain in full force and effect. SECTION 6. INDEMNIFICATION OF LENDER Originations, Vestin, VRM I, VRM II and VF III indemnifies Owens Financial and Owens Mortgage Investment Fund for all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against them in any way relating to or arising out of this Agreement or by their participation in any Loan or by any action brought by any Borrower including all claims relating to the origination of the Loans, except for the gross negligence or willful misconduct of Lenders or the breach by Lenders of the terms of this Agreement. SECTION 7. NOT A JOINT VENTURE Neither the execution of this Agreement nor the Lenders’ several ownership of interests in Loans, nor any agreement to share in profits or losses arising as a result of the Loans, is intended to be, nor shall it be construed to be: (a) the formation of a partnership or joint venture between the Lead Lenders and Lenders, or (b) the creation of a loan transaction between the Lead Lenders, as lender, and Lender, as borrower. Vestin Mortgage, in its capacity as Lead Lender, shall not be deemed to be a trustee for the Lenders in connection with the Loans or their interests therein. Vestin Mortgage, in its capacity as Lead Lender, shall owe to the Lenders no duty except as specifically set forth in this Agreement, and no lender shall be liable to any other person for the liability of any other lender arising in connection with the Loans or any transaction related to the Loans, except as may be expressly set forth in this Agreement SECTION 8. MISCELLANEOUS 8.1 Amendment Neither this Agreement nor any provision hereof may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by all parties hereto. 8.2 Heading. The headings in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 8.3 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Nevada. 8.4 Parties in Interest; Decisions by Majority Lenders. All of the terms, covenants and conditions contained in this Agreement shall inure to the benefit of and be binding upon the parties hereto and their permitted successors and assigns. There shall be no third-party beneficiaries of this Agreement     --------------------------------------------------------------------------------   8.5 Further Sale, Pledge, etc. Lead Lender may not sell, pledge, assign or otherwise transfer all or any part of its interest in any Loan without the prior written consent of Lenders, which consent shall not be unreasonably withheld. In the event all or any part of Lead Lenders interest in any Loan is sold, pledged, assigned or otherwise transferred, Lead Lenders obligations under this Agreement will not be relieved. 8.6 Notices. Notices under this Agreement shall be in writing and personally delivered or sent by certified or registered U.S. mail, or a recognized air courier service, return receipt requested, or by telecopy, acknowledgment of receipt requested, to the parties at their addresses specified in the first paragraph of this Agreement Such addresses may be changed from time to time by the addressee by serving notice as provided above. 8.7 Counterpart Execution. This Agreement may be executed in any number of counterparts with the same effect as if all parties had signed the same document. All counterparts shall be construed together and shall constitute one agreement 8.8 Attorney’s Clause. If legal action is instituted to enforce the terms of this Agreement, the prevailing parties shall be entitled to recover from the losing parties, all costs of collection and enforcement, including reasonable attorney’s fees. For purposes of this section, the award and recovery of attorney’s fees shall survive the entry of any judgment thereon and shall include, without limitation, fees incurred in the following: (1) Post Judgment Motions; (2) Contempt Proceedings; (3) Garnishment, levy, debtor and third party examinations; (4) Discovery; (5) Bankruptcy proceedings or other litigation; and (6) appeals. 8.9 Loan Fees, Extension Fees, Late Charges. Default Interest, Etc. At the close of escrow, Lead Lender and/or Lead Lenders shall pay to Owens Financial, a loan fee of $400,000.00 (2.0% of the face amount of the Note). In addition, if Lender and/or Lenders have not been paid in full by December 31, 2006, then Lead Lender and/or Lead Lenders shall pay to Owens Financial an additional loan fee equal to 1% of the outstanding principal balance of Lender’s/Lenders’ Participation Interest in the Joan. Furthermore, Owens Mortgage Investment Fund and/or Owens Financial Group shall be entitled to their pro rate share of any extension fees, late charges, interest on advances, default interest, etc. collected by Lead Lender and/or Lead Lenders under the terms of the Note. (END OF TEXT, CONTINUED ON NEXT PAGE]     --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Lenders have caused this instrument to be duly executed as of the day and year first above written. VESTIN ORIGINATIONS, INC.,   VESTIN MORTGAGE, INC., a Nevada corporation   a Nevada corporation By:     By:     Michael V. Shustek     Michael V. Shustek   President     President           VESTIN FUND I, LLC   VESTIN FUND II, LLC a Nevada corporation   a Nevada corporation By: Vestin Mortgage, Inc.,   By: Vestin Mortgage, Inc.,   a Nevada corporation, Manager     a Nevada corporation, Manager           By:     By:     Michael V. Shustek     Michael V. Shustek   President     President                     OWENS FINANCIAL GROUP, INC.,       a California corporation                 By:           William E. Dutra         Senior Vice President                 OWENS MORTGAGE INVESTMENTS FUND,       a California Limited Partnership                 By: Owens Financial Group, Inc.         William E. Dutra,         Senior Vice President                 By:           William E. Dutra,         Senior Vice President      

Exhibit 10.8   Gannett Co., Inc. 2001 Omnibus Incentive Compensation Plan   Effective January 1, 2001   [Revised to reflect revisions through February 20, 2006] -------------------------------------------------------------------------------- Contents   Article 1. Establishment, Objectives, and Duration    1 Article 2. Definitions    1 Article 3. Administration    5 Article 4. Shares Subject to the Plan and Maximum Awards    5 Article 5. Eligibility and Participation    6 Article 6. Stock Options    7 Article 7. Stock Appreciation Rights    8 Article 8. Restricted Stock    10 Article 9. Performance Units, Performance Shares, and Cash-Based Awards    11 Article 10. Performance Measures    12 Article 11. Beneficiary Designation    13 Article 12. Deferrals    13 Article 13. Rights of Employees/Directors    13 Article 14. Termination of Employment/Directorship    14 Article 15. Change in Control    14 Article 16. Amendment, Modification, and Termination    16 Article 17. Withholding    17 Article 18. Successors    17 Article 19. General Provisions    17 -------------------------------------------------------------------------------- Gannett Co., Inc. 2001 Omnibus Incentive Compensation Plan   Article 1. Establishment, Objectives, and Duration   1.1 Establishment of the Plan. Gannett Co., Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes an incentive compensation plan to be known as the “Gannett Co., Inc. 2001 Omnibus Incentive Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units, and Cash-Based Awards.   Subject to approval by the Company’s stockholders, the Plan shall become effective as of January 1, 2001 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.   1.2 Objectives of the Plan. The objectives of the Plan are to optimize the profitability and growth of the Company through annual and long-term incentives that are consistent with the Company’s goals and that link the personal interests of Participants to those of the Company’s stockholders, to provide Participants with an incentive for excellence in individual performance, and to promote teamwork among Participants.   The Plan is further intended to provide flexibility to the Company and its Affiliates in their ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in that success.   1.3 Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Committee to amend or terminate the Plan at any time pursuant to Article 16 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions. However, in no event may an Award be granted under the Plan on or after the tenth (10th) anniversary of the Effective Date.   1.4 Prior Plans. Effective on May 8, 2001, no further awards shall be made under the Company’s 1978 Executive Long-Term Incentive Plan or the 1968 Executive Incentive Bonus Plan; provided, however, that any rights theretofore granted under either such plan shall not be affected.   Article 2. Definitions   Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:   2.1 “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act.   2.2 “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units, or Cash-Based Awards.   1 -------------------------------------------------------------------------------- 2.3 “Award Agreement” means a written or electronic agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan.   2.4 “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.   2.5 “Board” or “Board of Directors” means the Board of Directors of the Company.   2.6 “Cash-Based Award” means an Award granted to a Participant as described in Article 9 hereof.   2.7 “Change in Control” shall be deemed to have occurred under any one or more of the following conditions:   i. if, within three years of any merger, consolidation, sale of a substantial part of Gannett’s assets, or contested election, or any combination of the foregoing transactions (a “Transaction”), the persons who were directors of Gannett immediately before the Transaction shall cease to constitute a majority of the Board of Directors (x) of Gannett or (y) of any successor to Gannett, or (z) if Gannett becomes a subsidiary of or is merged into or consolidated with another corporation, of such corporation (Gannett shall be deemed a subsidiary of such other corporation if such other corporation owns or controls, directly or indirectly, a majority of the combined voting power of the outstanding shares of the capital stock of Gannett entitled to vote generally in the election of directors (“Voting Stock”));   ii. if, as a result of a Transaction, Gannett does not survive as an entity, or its shares are changed into the shares of another corporation;   iii. if any “person” (as that term is used in Section 13(d) or 14(d)(2) of the Exchange Act) becomes a beneficial owner directly or indirectly of securities of Gannett representing 20% or more of the combined voting power of Gannett’s Voting Stock;   iv. if three or more persons are elected directors of Gannett despite the opposition of a majority of the directors of Gannett then in office; or   v. upon determination by the Committee that a Change in Control has occurred, if such a person as defined in subparagraph (iii) above becomes the beneficial owner directly or indirectly of securities of Gannett representing from 12% up to 20% of the combined voting power of Gannett’s Voting Stock.   Effective as of December 4, 2001, “Change in Control” shall have the same definition as set forth in Section 5 of the Gannett Transitional Compensation Plan, as that definition may be amended from time to time.   2.8 “Code” means the Internal Revenue Code of 1986, as amended from time to time.   2 -------------------------------------------------------------------------------- 2.9 “Committee” means any committee appointed by the Board to administer Awards to Employees or Directors, as specified in Article 3 hereof.   2.10 “Company” means Gannett Co., Inc., a Delaware corporation and any successor thereto as provided in Article 18 hereof.   2.11 “Covered Employee” means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is one of the group of “covered employees,” as defined in the regulations promulgated under Code Section 162(m), or any successor statute.   2.12 “Director” means any individual who is a member of the Board of Directors of the Company; provided, however, that any Director who is employed by the Company shall be considered an Employee under the Plan.   2.13 “Disability” shall have the meaning ascribed to such term in the Participant’s governing long-term disability plan, or if no such plan exists, at the discretion of the Committee, or if different, as defined in the Employee’s employment contract with the Company or any of its Affiliates or Subsidiaries.   2.14 “Effective Date” shall have the meaning ascribed to such term in Section 1.1 hereof.   2.15 “Employee” means any employee of the Company or its Subsidiaries or Affiliates.   2.16 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.   2.17 “Fair Market Value” as of any date and in respect of any Share means the then most recent closing price of a Share reflected in the consolidated trading tables of USA Today or any other publication selected by the Committee, provided that, if Shares shall not have been traded on the New York Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of Shares shall be as determined by the Committee in such other manner as it may deem appropriate. In no event shall the fair market value of any Share be less than its par value.   2.18 “Freestanding SAR” means an SAR that is granted independently of any Options, as described in Article 7 hereof.   2.19 “Incentive Stock Option” or “ISO” means an option to purchase Shares granted under Article 6 hereof and that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422.   2.20 “Insider” shall mean an individual who is, on the relevant date, an executive officer, director or ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.   3 -------------------------------------------------------------------------------- 2.21 “Nonqualified Stock Option” or “NQSO” means an option to purchase Shares granted under Article 6 hereof and that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.   2.22 “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 hereof.   2.23 “Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.   2.24 “Participant” means an Employee or Director who has been selected to receive an Award or who has outstanding an Award granted under the Plan.   2.25 “Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Code Section 162(m).   2.26 “Performance Share” means an Award granted to a Participant, as described in Article 9 hereof.   2.27 “Performance Unit” means an Award granted to a Participant, as described in Article 9 hereof.   2.28 “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, pursuant to the Restricted Stock Award Agreement, as provided in Article 8 hereof.   2.29 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.   2.30 “Restricted Stock” means an Award granted to a Participant pursuant to Article 8 hereof.   2.31 “Retirement” means any retirement recognized under the Gannett Retirement Plan or any successor plan thereto.   2.32 “Shares” means the Company’s common stock, par value $1.00 per share.   2.33 “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 hereof.   2.34 “Subsidiary” means any corporation, partnership, joint venture, or other entity in which the Company has a majority voting interest.   4 -------------------------------------------------------------------------------- 2.35 “Tandem SAR” means an SAR that is granted in connection with a related Option pursuant to Article 7 hereof, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled).   Article 3. Administration   3.1 General. Subject to the terms and conditions of the Plan, the Plan shall be administered by the Committee. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Committee shall have the authority to delegate administrative duties to officers of the Company.   3.2 Authority of the Committee. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Employees and Directors who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and amend the terms and conditions of any outstanding Award as provided in the Plan. Further, the Committee shall make all other determinations that it deems necessary or advisable for the administration of the Plan. As permitted by law and the terms of the Plan, the Committee may delegate its authority herein. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any Award granted hereunder.   3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants, and their estates and beneficiaries, unless changed by the Board.   Article 4. Shares Subject to the Plan and Maximum Awards   4.1 Number of Shares Available for Grants. Subject to adjustment as provided in Section 4.2 hereof, the number of Shares hereby reserved for issuance to Participants under the Plan shall be thirty-two million five hundred thousand (32,500,000), no more than five million (5,000,000) of which may be granted in the aggregate in the form of Restricted Stock, Performance Shares and/or Performance Units. The Committee shall determine the appropriate methodology for calculating the number of shares issued pursuant to the Plan. Shares issued under the Plan may be authorized but unissued shares or treasury shares. The Plan also amends and restates the 1978 Executive Long-Term Incentive Plan and the 1968 Executive Incentive Bonus Plan, each in its entirety (it being noted that awards under such plans prior to May 8, 2001, shall not be impacted by this amendment).   Unless the Committee determines that an Award to a Covered Employee shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan:     (a) Stock Options: The maximum aggregate number of Shares that may be granted in the form of Stock Options, pursuant to any Award granted in any one fiscal year to any one Participant shall be one million (1,000,000).   5 --------------------------------------------------------------------------------   (b) SARs: The maximum aggregate number of Shares that may be granted in the form of Stock Appreciation Rights, pursuant to any Award granted in any one fiscal year to any one Participant shall be one million (1,000,000).     (c) Restricted Stock: The maximum aggregate grant with respect to Awards of Restricted Stock granted in any one fiscal year to any one Participant shall be five hundred thousand (500,000).     (d) Performance Shares/Performance Units and Cash-Based Awards: The maximum aggregate grant with respect to Awards of Performance Shares made in any one fiscal year to any one Participant shall be equal to the value of five hundred thousand (500,000) shares; the maximum aggregate amount awarded with respect to Cash-Based Awards or Performance Units to any one Participant in any one fiscal year may not exceed ten million dollars ($10,000,000).   4.2 Adjustments in Authorized Shares. Upon a change in corporate capitalization, such as a stock split, stock dividend or a corporate transaction, such as any merger, consolidation, combination, exchange of shares or the like, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares that may be delivered under Section 4.1, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in Section 4.1, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.   4.3 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may 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 4.2 hereof) affecting the Company or the financial statements of the Company 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; provided that, unless the Committee determines otherwise at the time such adjustment is considered, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan’s or any Award’s meeting the requirements of Section 162(m) of the Code, as from time to time amended.   Article 5. Eligibility and Participation   5.1 Eligibility. Persons eligible to participate in this Plan include all Employees and Directors.   6 -------------------------------------------------------------------------------- 5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees and Directors, those to whom Awards shall be granted and shall determine the nature and amount of each Award.   5.3 Newly Eligible Employees. The Committee shall be entitled to make such rules, regulations, determinations and awards as it deems appropriate in respect of any Employee who becomes eligible to participate in the Plan or any portion thereof after the commencement of an award or incentive period.   5.4 Leaves of Absence. The Committee shall be entitled to make such rules, regulations, and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any award. Without limiting the generality of the foregoing, the Committee shall be entitled to determine: (a) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan; and (b) the impact, if any, of such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence.   Article 6. Stock Options   6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.   6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan.   6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be as determined by the Committee; provided, however, the per-share exercise price shall not be less than 100 percent of the Fair Market Value of the Shares on the date the Option is granted.   6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant.   6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.   6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a written, electronic or telephonic notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.   The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; or (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares that are tendered must have been held by the Participant for at least six (6) months prior to their tender to   7 -------------------------------------------------------------------------------- satisfy the Option Price); or (c) by a combination of (a) and (b); or (d) any other method approved by the Committee in its sole discretion. The tendering of previously acquired shares may be done through attestation. No fractional shares may be tendered or accepted in payment of the Option Price.   Cashless exercises are permitted pursuant to Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law.   Subject to any governing rules or regulations, as soon as practicable after receipt of notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).   Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.   6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, or under any blue sky or state securities laws applicable to such Shares.   6.8 Nontransferability of Options.     (a) Incentive Stock Options. No ISO 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. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.     (b) Nonqualified Stock Options. Except as otherwise provided in a Participant’s Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant or such Participant’s legal representative.   Article 7. Stock Appreciation Rights   7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.   8 -------------------------------------------------------------------------------- Subject to the terms and conditions of the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.   The grant price of a Freestanding SAR shall equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option.   7.2 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.   7.3 Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion.   7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.   7.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.   7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:     (a) The difference between the Fair Market Value of a Share on the date of exercise over the grant price; by     (b) The number of Shares with respect to which the SAR is exercised.   In the sole discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, in some combination thereof, or in any other manner approved by the Committee. The Committee’s determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.   7.7 Nontransferability of SARs. Except as otherwise provided in a Participant’s Award Agreement, no SAR 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. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or such Participant’s legal representative.   9 -------------------------------------------------------------------------------- Article 8. Restricted Stock   8.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts, as the Committee shall determine.   8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.   8.3 Transferability. Except as provided in this Article 8, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant or such Participant’s legal representative.   8.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable federal or state securities laws.   To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.   Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.   8.5 Voting Rights. If the Committee so determines, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction.   8.6 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may, if the Committee so determines, be credited with dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Restricted Shares granted to a Covered Employee is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Restricted Shares, such that the dividends and/or the Restricted Shares maintain eligibility for the Performance-Based Exception.   10 -------------------------------------------------------------------------------- Article 9. Performance Units, Performance Shares, and Cash-Based Awards   9.1 Grant of Performance Units/Shares and Cash-Based Awards. Subject to the terms of the Plan, Performance Units, Performance Shares, and/or Cash-Based Awards may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.   9.2 Award Agreement. At the Committee’s discretion, each grant of Performance Units/Shares and Cash-Based Awards may be evidenced by an Award Agreement that shall specify the initial value, the duration of the Award, the performance measures, if any, applicable to the Award, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan.   9.3 Value of Performance Units/Shares and Cash-Based Awards. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. Each Cash-Based Award shall have a value as may be determined by the Committee. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares and Cash-Based Awards that will be paid out to the Participant. For purposes of this Article 9, the time period during which the performance goals must be met shall be called a “Performance Period.”   9.4 Earning of Performance Units/Shares and Cash-Based Awards. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares and Cash-Based Awards shall be entitled to receive payout on the number and value of Performance Units/Shares and Cash-Based Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. Unless otherwise determined by the Committee, notwithstanding any other provision of the Plan, payment of Cash-Based Awards shall only be made for those Participants who are Directors or in the employ of the Company at the end of the Performance Period or, if none has been specified, the end of the applicable award year.   9.5 Form and Timing of Payment of Performance Units/Shares and Cash-Based Awards. Payment of earned Performance Units/Shares and Cash-Based Awards shall be as determined by the Committee and, if applicable, as evidenced in the related Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares and Cash-Based Awards in the form of cash or in Shares (or in a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares and Cash-Based Awards at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. No fractional shares will be issued. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.   Unless otherwise provided by the Committee, Participants holding Performance Units/Shares may be entitled to receive dividend units with respect to dividends declared with respect to the Shares. Such dividends may be subject to the same accrual, forfeiture, and payout restrictions as   11 -------------------------------------------------------------------------------- apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 8.6 hereof, as determined by the Committee.   9.6 Nontransferability. Except as otherwise provided in a Participant’s Award Agreement, Performance Units/Shares and Cash-Based Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, a Participant’s rights under the Plan shall be exercisable during the Participant’s lifetime only by such Participant or such Participant’s legal representative.   Article 10. Performance Measures   Unless and until the Committee proposes for shareholder vote and shareholders approve a change in the general performance measures set forth in this Article 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Covered Employees that are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such grants shall be chosen from among:     (a) Earnings per share;     (b) Net income (before or after taxes);     (c) Net income from continuing operations;     (d) Return measures (including, but not limited to, return on assets, equity, capital or investment);     (e) Cash flow (including, but not limited to, operating cash flow and free cash flow);     (f) Cash flow return on investments, which equals net cash flows divided by owner’s equity;     (g) Earnings before or after taxes, interest, depreciation and/or amortization;     (h) Internal rate of return or increase in net present value;     (i) Dividend payments;     (j) Gross revenues;     (k) Gross margins;     (l) Operating measures such as growth in circulation, television ratings and advertising lineage;     (m) Internal measures such as achieving a diverse workforce;   12 --------------------------------------------------------------------------------   (n) Share price (including, but not limited to, growth measures and total shareholder return); and     (o) Any of the above measures compared to peer or other companies.   Performance measures may be set either at the corporate level, division level, or the business unit level.   Awards that are designed to qualify for the Performance-Based Exception, and that are held by Covered Employees, may not be adjusted upward (the Committee shall retain the discretion to adjust such Awards downward).   If applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.   Article 11. 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 in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. If a beneficiary designation has not been made, or the beneficiary was not properly designated (in the sole discretion of the Committee), has died or cannot be found, all payments after death shall be paid to the Participant’s estate. In case of disputes over the proper beneficiary, the Company reserves the right to make any or all payments to the Participant’s estate.   Article 12. Deferrals   The Committee may permit or require a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares and Cash-Based Awards. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.   Article 13. Rights of Employees/Directors   13.1 Employment. Nothing in the Plan shall confer upon any Participant any right to continue in the Company’s employ, or as a Director, or interfere with or limit in any way the right of the Company to terminate any Participant’s employment or directorship at any time.   13.2 Participation. No Employee or Director shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.   13 -------------------------------------------------------------------------------- 13.3 Rights as a Stockholder. Except as provided in Sections 8.5, 8.6 and 9.5, a Participant shall have none of the rights of a shareholder with respect to shares of Common Stock covered by any Award until the Participant becomes the record holder of such shares.   Article 14. Termination of Employment/Directorship   Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to such Participant’s outstanding Award(s) following termination of the Participant’s employment or directorship with the Company. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreements entered into with each Participant, need not be uniform among all Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.   Article 15. Change in Control   15.1 Treatment of Outstanding Awards Other than Cash-Based Awards. In the event of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, or unless the Committee shall determine otherwise in the Award Agreement:     (a) Any and all Options and SARs granted hereunder shall become fully exercisable during their remaining term;     (b) Any restriction periods and restrictions imposed on Restricted Stock that are not performance-based shall lapse; and     (c) The target payout opportunities attainable under all outstanding Awards of performance-based Restricted Stock, Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change in Control. The vesting of all such Awards denominated in Shares shall be accelerated as of the effective date of the Change in Control and, subject to Section 15.4, there shall be paid out to Participants within thirty (30) days following the effective date of the Change in Control, a pro rata number of shares based upon an assumed achievement of all relevant targeted performance goals and upon the length of time within the Performance Period that has elapsed prior to the Change in Control. Subject to Section 15.4, such Awards denominated in cash shall be paid pro rata to Participants in cash within thirty (30) days following the effective date of the Change in Control, with the proration determined as a function of the length of time within the Performance Period that has elapsed prior to the Change in Control, and based on an assumed achievement of all relevant targeted performance goals.   15.2 Treatment of Cash-Based Awards. In the event of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, or unless the Committee shall determine otherwise in the Award Agreement or resolutions adopted by   14 -------------------------------------------------------------------------------- the Committee relating to such Award, the vesting of all outstanding Cash-Based Awards shall be accelerated as of the effective date of the Change in Control (and, in the case of performance-based Cash-Based Awards, based on an assumed achievement of all relevant target performance goals), and subject to Section 15.4, all Cash-Based Awards shall be paid pro rata to Participants in cash within thirty (30) days following the effective date of the Change in Control, with the proration determined as a function of the length of time within the Performance Period that has elapsed prior to the Change in Control.   15.3 Limitation on Acceleration.     (a) Intention of Section 15.3: The acceleration or payment of Awards could, in certain circumstances, subject the Participant to the excise tax provided under Section 4999 of the Code. It is the object of this Section 15.3 to enable each Participant to retain in full the benefits of the Plan and to provide for the maximum after-tax income to each Participant. Accordingly, the Participant must determine, before any payments are made on Awards governed by Section 15.1, which of two alternative forms of acceleration will maximize the Participant’s after-tax proceeds, and must notify the Company in writing of his or her determination. The first alternative is the payment in full of all Awards governed by Section 15.1. The second alternative is the payment of only a part of the Participant’s Awards so that the Participant receives the largest payment possible without causing an excise tax to be payable by the Participant under Section 4999 of the Code. This second alternative is referred to in this Section as “Limited Vesting”.     (b) Limitation on Participant’s Rights: The Participant’s Awards shall be paid only to the extent permitted under the alternative determined by the Participant to maximize his or her after-tax proceeds, and the Participant shall have no rights to any greater payments on his or her Awards.     (c) Determination to be Conclusive: The determination of whether Limited Vesting is required and the application of the rules in Section 15.4 shall initially be made by the Participant and all such determinations shall be conclusive and binding on the Company unless the Company proves that they are clearly erroneous. In the latter event, such determinations shall be made by the Company.   15.4 Limitation on Payment. Notwithstanding Section 15.1, if Limited Vesting applies then the amount paid on exercise or payment of an Award shall not exceed the largest amount that can be paid without causing an excise tax to be payable by the Participant under Section 4999 of the Code. If payments are so limited, awards shall be deemed paid in the following order:     (a) all exercised Options or SARs that were accelerated pursuant to Section 15.1(a) shall be deemed paid first;   15 --------------------------------------------------------------------------------   (b) all awards of Performance Units, Performance Shares and performance-based Restricted Stock shall then be deemed paid; and     (c) finally, all awards of Restricted Stock that are not performance-based shall be deemed paid.   As among awards or portions of awards of the same type, those vesting at the most distant time in the future (absent a Change in Control) shall be deemed paid first.   15.5 Expenses. The Company shall pay all legal fees, court costs, fees of experts and other costs and expenses when incurred by a Participant in connection with any actual, threatened or contemplated litigation or legal, administrative or other proceeding involving the provisions of Section 15.4, whether or not initiated by the Participant.   15.6 Termination, Amendment, and Modifications of Change-in-Control Provisions. Notwithstanding any other provision of this Plan or any Award Agreement provision, the provisions of this Article 15 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards; provided, however, the Committee may terminate, amend, or modify this Article 15 at any time and from time to time prior to the date of a Change in Control.   Article 16. Amendment, Modification, and Termination   16.1 Amendment, Modification, and Termination. Subject to the terms of the Plan, the Committee or the Board may at any time and from time to time, alter, amend, suspend, or terminate the Plan in whole or in part.   16.2 Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.   16.3 Shareholder Approval Required for Certain Amendments. Shareholder approval will be required for any amendment of the Plan that does any of the following: (a) permits the grant of any Option with an Option Price less than the Fair Market Value of the Shares on the date of grant; or (b) reduces the Option Price of an outstanding Option, either by lowering the Option Price or by canceling an outstanding Option and granting a replacement Option with a lower exercise price.   16.4 Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, to the extent the Committee so determines, all Awards granted under this Plan to Employees who are or could reasonably become Covered Employees as determined by the Committee shall comply with the requirements of Code Section 162(m). In addition, if changes are made to Code Section 162(m) to permit greater flexibility with respect to any Award or Awards available under the Plan, the Committee may, subject to this Article 16, make any adjustments it deems appropriate.   16 -------------------------------------------------------------------------------- Article 17. Withholding   17.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy the Federal statutory minimum, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan. The Participant may satisfy, totally or in part, his obligations pursuant to this Section 17.1 by electing to have Shares withheld, to redeliver Shares acquired under an Award, or to deliver previously owned Shares, provided that the election is made in writing on or prior to (i) the date of exercise, in the case of Options and SAR’s (ii) the date of payment, in respect of Performance Units/Shares, or Cash-Based Awards, and (iii) the expiration of the incentive period, in respect of Restricted Stock. Any election made under this Section 17.1 shall be irrevocable by the Participant and may be disapproved by the Committee at any time in its sole discretion. If an election is disapproved by the Committee, the Participant must satisfy his obligations pursuant to this paragraph in cash.   Article 18. Successors   All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business, stock and/or assets of the Company.   Article 19. General Provisions   19.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.   19.2 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.   19.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan 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.   19.4 Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act, unless determined otherwise by the Board. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board.   19.5 Listing. The Company may use reasonable endeavors to register Shares allotted pursuant to the exercise of an Option with the United States Securities and Exchange Commission or to effect compliance with the registration, qualification, and listing requirements of any national securities laws, stock exchange, or automated quotation system.   17 -------------------------------------------------------------------------------- 19.6 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.   19.7 No Additional Rights. Neither the Award nor any benefits arising under this Plan shall constitute part of an employment contract between the Participant and the Company or any Subsidiary or Affiliate, and accordingly, subject to Section 16.2, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or any Affiliate for severance payments.   19.8 Employees Based Outside of the United States. Notwithstanding any provision of the Plan to the contrary, to comply with provisions of laws in other countries in which the Company, its Affiliates, and its Subsidiaries operate or have Employees, the Committee, in its sole discretion, shall have the power and authority to:     (a) Determine which Affiliates and Subsidiaries will be covered by the Plan or relevant subplans;     (b) Determine which Employees employed outside the United States are eligible to become Participants in the Plan;     (c) Modify the terms and conditions of any Award granted to Participants who are employed outside the United States;     (d) Establish subplans, modified exercise procedures, and other terms and procedures to the extent such actions may be necessary, advisable or convenient, or to the extent appropriate to provide maximum flexibility for the Participant’s financial planning. Any subplans and modifications to the Plan terms or procedures established under this Section 19.8 by the Committee shall be filed with the Plan document as Appendices; and     (e) Take any action, before or after an Award is made, which the Committee deems advisable to obtain, comply with, or otherwise reflect any necessary governmental regulatory procedures, exemptions or approvals, as they may affect this Plan, any subplan, or any Participant.   19.9 Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.   19.10 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts located in the Commonwealth of Virginia, County of Fairfax, to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.   18

Exhibit 10.4 ================================================================================ SECOND AMENDED AND RESTATED SHARED FACILITIES AGREEMENT by and between ST. REGIS MOHAWK GAMING AUTHORITY and MONTICELLO RACEWAY MANAGEMENT, INC. Dated as of December 1, 2005 ================================================================================ TABLE OF CONTENTS ARTICLE 1 DEFINITIONS; UNDEFINED TERMS.............................................2 Section 1.1 Definitions...............................................2 ARTICLE 2 TERM.....................................................................5 ARTICLE 3 COVENANTS OF THE AUTHORITY...............................................6 Section 3.1 Operating Covenants of the Authority......................6 Section 3.2 Construction Covenant of Authority........................6 ARTICLE 4 OPERATING COVENANTS OF MRMI..............................................6 ARTICLE 5 SHARED FACILITIES BUSINESS BOARD.........................................7 ARTICLE 6 MAINTENANCE, OPERATION, AND MANAGEMENT OF COMMON AREAS; ALLOCATION OF COSTS....................................................8 Section 6.1 Maintenance of Common Areas...............................8 Section 6.2 Lighting.................................................10 Section 6.3 Maintenance of Gaming Facility...........................10 Section 6.4 Maintenance of Track Facility............................10 Section 6.5 Use/Maintenance Easement Area E (Pedestrian Sky Bridge)..10 Section 6.6 Security.................................................11 Section 6.7 Employment of Contractors or Personnel...................11 Section 6.8 Parking..................................................11 Section 6.9 Allocation of Costs......................................11 Section 6.10 Rights of Authority to Common Areas......................11 ARTICLE 7 JOINT MARKETING AND ADVERTISING.........................................12 Section 7.1 Joint Marketing..........................................12 Section 7.2 Promotion Fund...........................................12 ARTICLE 8 CONDEMNATION............................................................12 Section 8.1 Notice of Condemnation...................................12 Section 8.2 Condemnation of Casino Property..........................12 Section 8.3 Condemnation of Track Property...........................13 Section 8.4 Restoration or Replacement Obligation of MRMI............13 Section 8.5 Condemnation Award.......................................13 Section 8.6 Condemnation Disputes....................................14 ARTICLE 9 INSURANCE...............................................................14 Section 9.1 Casualty Insurance.......................................14 Section 9.2 Liability Insurance......................................14 Section 9.3 Insurance Carriers: Form of Insurance Policies...........14 Section 9.4 Responsible for Respective Lots..........................15 Section 9.5 Waiver of Subrogation....................................15 Section 9.6 Blanket Policy...........................................15 ARTICLE 10 CASUALTY...............................................................15 Section 10.1 Notice and Restoration Obligations.......................15 Section 10.2 Insurance Proceeds.......................................16 Section 10.3 Razing of Damaged Property...............................16 ARTICLE 11 TRADE AND SERVICE MARKS................................................17 Section 11.1 The Authority's Trade and Service Marks..................17 Section 11.2 MRMI's Trade and Service Marks...........................17 Section 11.3 Confidentiality; Exclusivity.............................18 ARTICLE 12 DEFAULT, TERMINATION, DISPUTES AND ARBITRATION.........................19 Section 12.1 Default..................................................19 Section 12.2 Mutual Termination.......................................19 Section 12.3 Waiver of Sovereign Immunity; Disputes; Arbitration......19 Section 12.4 Indemnity................................................21 Section 12.5 No Personal Liability....................................22 ARTICLE 13 MECHANIC'S LIENS.......................................................22 ARTICLE 14 INTENTIONALLY DELETED..................................................22 ARTICLE 15 MISCELLANEOUS PROVISIONS...............................................22 Section 15.1 Government Savings Clause................................22 Section 15.2 Third Party Beneficiary..................................22 Section 15.3 Authorization............................................22 Section 15.4 Relationship.............................................23 Section 15.5 Notices..................................................23 Section 15.6 No Waiver................................................23 Section 15.7 Successors and Assigns...................................24 Section 15.8 Article and Section Headings.............................24 Section 15.9 Choice of Law............................................24 Section 15.10 Termination and Amendment................................24 Section 15.11 Excusable Delays.........................................24 Section 15.12 Severability.............................................25 Section 15.13 Counterparts.............................................25 Section 15.14 Effective Date...........................................25 EXHIBITS Exhibit A Track Property Exhibit B Casino Property Exhibit C Site Plan ii INDEX OF DEFINED TERMS Agreement............................1 Insurance Proceeds..................16 Amended and Revised Agreement........1 Insured Casualty....................15 Arbitrator..........................20 Authority.........................1, 3 Landscape Improvements...............4 Authority's Marks...................17 Lot..................................4 Award...............................13 Management Agreement.................4 Casino Property......................1 Manager..............................4 Common Areas.........................2 Marketing Program...................12 Common Utility Facilities............2 MRMI.................................1 Compact..............................2 MRMI's Marks........................18 Condemn..............................2 Condemnation.........................2 Obligation...........................4 Condemnee...........................12 Occupant.............................4 Condemnor...........................12 Parking Areas........................5 Declaration of Covenants.............3 Permitees............................5 Development Agreement................3 Person...............................5 Plans and Specifications.............5 Easement Areas.......................3 Promotion Fund......................12 Enterprise...........................3 Property.............................5 Exclusive Use Area...................3 Restrictions.........................5 Gaming...............................3 Gaming Authority.....................3 Shared Costs........................11 Gaming Enterprise....................3 Shared Facilities Business Board.....5 Gaming Facility...................1, 4 Site Plan............................5 Government Regulations...............4 Track Facility....................1, 5 IGRA.................................4 Track Property.......................1 Improvements.........................4 Tribe................................1 iii SECOND AMENDED AND RESTATED SHARED FACILITIES AGREEMENT THIS SECOND AMENDED AND RESTATED SHARED FACILITIES AGREEMENT (this "AGREEMENT") has been entered into as of December 1, 2005, by and between the ST. REGIS MOHAWK GAMING AUTHORITY, having an address c/o the St. Regis Mohawk Reservation, Community Building, Route 37, Box 8A, Hogansburg, New York 13655 (together with its permitted successors and assigns, the "AUTHORITY") and MONTICELLO RACEWAY MANAGEMENT, INC., a Delaware Corporation, having an address at Route 17B, P.O. Box 5013, Monticello, New York 12701-5193 (together with its permitted successors and assigns, "MRMI"). RECITALS WHEREAS, MRMI is the owner of certain land located in the city of Monticello, County of Sullivan, State of New York as shown by shading on EXHIBIT A attached hereto and made a part hereof (the "TRACK PROPERTY"); WHEREAS, contemporaneously with the effectiveness of this Agreement, MRMI shall convey land adjacent to the Track Property located in the city of Monticello, County of Sullivan, State of New York as shown by shading on EXHIBIT B attached hereto and made a part hereof (the "CASINO PROPERTY") to the United States of America to be held in trust for the benefit of the St. Regis Mohawk Tribe (the "TRIBE"); WHEREAS, the Tribe has established the Authority, an instrumentality of the Tribe, to which it has assigned its authority over the development and conduct of Gaming (hereafter defined) on the Casino Property; WHEREAS, the Tribe and the Authority contemplate entering into a Land Lease, pursuant to which the Tribe shall lease its interest in the Casino Property to the Authority; WHEREAS, it is intended by the Tribe and the Authority that the Authority shall construct and develop or cause to be constructed and developed on the Casino Property certain buildings, improvements and fixtures (the "GAMING FACILITY") for the purposes of operating a Gaming Enterprise (hereafter defined) on the Casino Property; WHEREAS, MRMI intends to operate and improve, or cause the operation and improvement of, the existing horse racing track and incidental facilities located upon the Track Property (the "TRACK FACILITY"); WHEREAS, Catskill Development, L.L.C. (predecessor to MRMI) and the Authority entered into an Amended and Revised Shared Facilities Agreement, dated July 31, 1996 (the "AMENDED AND REVISED AGREEMENT"), pursuant to which the parties thereto set forth and clarified its respective rights and obligations in order to ensure that the Gaming Facility and the Track Facility are maintained, repaired and operated in an integrated (but separate and distinct operational facilities), harmonious manner so as to maximize the benefits and usage of both the Gaming Facility and Track Facility; WHEREAS, the parties hereto desire to amend certain of the terms, provisions and conditions of the Amended and Revised Agreement and restate the terms, provisions and conditions of the Amended and Revised Agreement in their entirety as provided herein and otherwise subject to the terms, provisions and conditions hereof; WHEREAS, prior to the conveyance of the Casino Property to the United States to be held in trust for the benefit of the Tribe, MRMI as owner of the Track Property and Casino Property shall record the Declaration of Covenants (hereinafter defined); and WHEREAS, the parties intend that if there is any conflict between the terms, conditions and provisions of this Agreement and those of the Declaration of Covenants, then this Agreement shall govern. NOW, THEREFORE, in consideration of the payment of Ten Dollars ($10) and the mutual covenants, conditions and promises herein contained and other good and valuable consideration, the receipt and sufficiency of which are expressly acknowledged, Authority and MRMI hereby agree as follows: ARTICLE 1 DEFINITIONS; UNDEFINED TERMS Section 1.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings. All capitalized terms used herein, but not otherwise defined in this Agreement, shall have the respective meanings ascribed to them in the Management Agreement. A. "COMPACT" shall mean the tribal-state compact, and any amendments or modifications thereto, entered into between the Tribe and the State of New York pursuant to IGRA, or such other Compact as may be substituted therefor. B. "COMMON AREAS" shall mean those portions of the Casino Property and Track Property that are available for the common use, convenience and benefit of the parties hereto including, without limitation, the Easement Areas, the Parking Areas, Common Utility Facilities, and any walkways, connecting passageways, lobbies, public conveniences or sidewalks incidental thereto, and all other Improvements thereon, all as shown on the Site Plan. C. "COMMON UTILITY FACILITIES" shall mean all storm drainage facilities, sanitary sewer systems, gas systems, water systems, fire protection installations, electrical power cables and telephone lines situated on the Property used for the joint service of the Lots. D. "CONDEMNATION" or "CONDEMN" shall mean a taking of property or possession thereof pursuant to the power of eminent domain, or any conveyance in lieu of eminent domain made by a party under the threat of condemnation. 2 E. "DECLARATION OF COVENANTS" shall mean that certain Declaration of Covenants, Conditions and Restrictions, dated as of the date as of which this Agreement is made, executed by MRMI. F. "DEVELOPMENT AGREEMENT" shall mean the Second Amended and Restated Gaming Facility Development and Construction Agreement, dated as of the date as of which this Agreement is made, among the Authority, the Tribe, and Monticello Raceway Development Company, L.L.C., as the same may be amended from time to time. G. "EASEMENT AREAS" shall mean, collectively, Easement Area A, Easement Area B, Easement Area C, Easement Area D, Easement Area E (Pedestrian Sky Bridge), Easement Area F, Easement Area G the Bus Staging Area and Bus Drop-off Area, all as shown on the Site Plan. H. "EXCLUSIVE USE AREA" shall mean those portions of the Property which are or may become for the exclusive use of the Occupant of the Lot on which they are located, as shown on the Site Plan. I. "GAMING" shall mean any and all activities defined as Class II or Class III Gaming under the IGRA or authorized under the Compact. J. "GAMING AUTHORITY" or "AUTHORITY" shall mean the St. Regis Mohawk Gaming Authority. K. "GAMING ENTERPRISE" or "ENTERPRISE" shall mean any commercial enterprise of the Authority authorized by IGRA and/or the Compact and operated on the Casino Property, and any other lawful commercial activity related to Gaming allowed in the Gaming Facility including, but not limited to, automatic teller machines and, subject to any limitations contained in any agreement with a local government or in the Compact, the sale for individual consumption of food, beverages, tobacco, gifts and souvenirs but excluding any franchised or licensed vendors paying a fee to the Gaming Enterprise. It is acknowledged by the parties hereto that "Gaming Enterprise" shall exclude any wagering activities related to the outcome of any racetrack or racing contest conducted off the Casino Property; provided, however, that if a racetrack or racing contest has not been conducted on the racetrack that comprises a portion of the Non-Casino Facility at any time during a consecutive twenty-four (24) month period or if such racetrack has been abandoned and not reoccupied within seven (7) days after notice from the Authority to the record owner of the Non-Casino Facility, the foregoing prohibition against racetrack wagering activities shall (subject to applicable Legal Requirements (as defined in the Development Agreement) be of no further force or effect. The Gaming Enterprise includes any building or accommodation used for Gaming on the Casino Property and related on-site retail sales and services on the Casino Property. The Authority shall have the sole proprietary interest in and responsibility for the conduct of all Gaming conducted by the Gaming Enterprise subject to the rights and responsibilities of the Manager under the Management Agreement. 3 L. "GAMING FACILITY" shall mean the buildings, improvements, and fixtures, now or hereafter located on the Casino Property within which the Gaming Enterprise will be housed. M. "GOVERNMENT REGULATIONS" shall mean all present and future governmental laws, statutes, codes, ordinances, rules, regulations, limitations, restrictions, orders, judgments and other governmental requirements applicable to the Property. N. "IGRA" shall mean the Indian Gaming Regulatory Act of 1988, PL 100-497, 25 U.S.C. ss. 2701 ET SEQ. as same may, from time to time, be amended. O. "IMPROVEMENTS" shall mean all structures and appurtenances thereto of every type and kind, including, but not limited to, buildings, outbuildings, huts, horse racing tracks, kiosks, garages, tunnels, underground installations, irrigation and drainage devices or systems, fountains, fences, screening walls, retaining walls, gateways, porte cocheres, skybridges (including the skybridge anticipated to be located in Easement Area D shown on the Site Plan), Parking Areas, Bus Staging Areas, Bus Drop-off Areas, loading areas, poles, stairs, escalators, decks, light standards, signs, benches, walkways and Landscape Improvements. P. "LANDSCAPE IMPROVEMENTS" shall mean any plantings, ground cover, trees and shrubbery now or hereafter existing in Easement Area A and Easement Area B shown on the Site Plan, all foundation planting areas and the Bus Staging Area and the Bus Drop-off Area together with any alterations, systems, and equipment installed in order to enable reasonable irrigation, lighting and maintenance of the plantings, ground cover, trees and shrubbery. Q. "LOT" shall mean either the Casino Property or the Track Property as the context requires, but shall not include streets or alleys that have been dedicated to and accepted by any governmental agency having jurisdiction in the matter. R. "MANAGER" shall mean Monticello Casino Management, L.L.C., or any successor thereto pursuant to the Management Agreement. S. "MANAGEMENT AGREEMENT" shall mean the Second Amended and Restated Gaming Facility Management Agreement, dated as of the date as of which this Agreement is made, among the Authority, Manager and the Tribe, as the same may be amended from time to time. T. "OBLIGATION" shall have the meaning ascribed to it in the Declaration of Covenants. U. "OCCUPANT" shall mean, collectively, the record owner of either Lot and any Person from time to time entitled to the use and occupancy of any portion of the Property under any lease, license or concession agreement, or other similar instrument or arrangement. 4 V. "PARKING AREAS" shall mean those portions of the Property set forth in the Site Plan for parking of motor vehicles, including, without limitation, incidental and interior roadways and driveways, walkways, curbs and landscaping within the areas used for such parking, together with all improvements which at any time are erected thereon (as the same may be expanded or diminished). W. "PERMITEES" shall mean all Persons which may utilize the Property, including, without limitation, Occupants and their respective employees, agents, contractors, service people, customers and invitees. X. "PERSON" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. Y. "PLANS AND SPECIFICATIONS" shall have the meaning assigned in the Development Agreement. Z. "PROPERTY" shall mean, collectively, the Casino Property and the Track Property. AA. "RESTRICTIONS" shall mean the easements, covenants, conditions, restrictions, liens and charges and other encumbrances, now or hereafter established or imposed by or pursuant to the Declaration of Covenants. BB. "SHARED FACILITIES BUSINESS BOARD" shall mean the committee established pursuant to Article 5 hereof. CC. "SITE PLAN" shall mean that certain plan for the development of the Property attached hereto and made a part hereof as EXHIBIT C, as the same may be changed from time to time. DD. "TRACK FACILITY" shall have the meaning ascribed to it in the Recitals. ARTICLE 2 TERM. The term of this Agreement shall commence on the Commencement Date (as defined in the Management Agreement) and, unless otherwise terminated pursuant to the terms of this Agreement, shall terminate on the original expiration or termination of the Management Agreement. 5 ARTICLE 3 COVENANTS OF THE AUTHORITY. Section 3.1 OPERATING COVENANTS OF THE AUTHORITY. Subject to the provisions of Articles 8 and 10 hereof and to interruptions reasonably incident to the conduct of Gaming on the Casino Property, the Authority shall: A. continually operate or cause the Gaming Enterprise to be continually operated on a year-round basis, seven (7) days a week or as otherwise operated pursuant to the terms of the Management Agreement; B. operate or cause the Gaming Enterprise to be operated in a first class manner (including, without limitation, the maintenance of sufficient parking facilities); C. manage and operate the Gaming Facility under a name to be determined by the Shared Facilities Business Board and under no other name without the prior written approval of MRMI, which approval shall not be unreasonably withheld; and D. not use the Casino Property for any other purpose other than the conduct of Gaming and any incidental entertainment, parking, restaurant or retail facilities in connection therewith. Section 3.2 CONSTRUCTION COVENANT OF AUTHORITY. The Authority covenants that it shall develop and construct the Gaming Facility and make certain renovations, improvements or alterations to the Common Areas of the Track Facility free of defects and in a workerlike manner in accordance with the terms and provisions of the Development Agreement. MRMI agrees that it shall look solely to the General Contractor to insure that such work shall be free of defects and shall be performed in a workerlike manner. ARTICLE 4 OPERATING COVENANTS OF MRMI. Subject to the provisions of ARTICLES 8 and 10 hereof and provided that Gaming is being continuously conducted on the Casino Property as provided in Article 3 hereof, MRMI shall: A. from and after the date the Authority completes the construction contemplated by the provisions of SECTION 3.2 hereof, continually operate the Track Facility in a first-class manner consistent with operators of similar or comparable racetrack facilities with a reasonable number of racing days per year and for other lawful purposes such as hotel, entertainment, retail, restaurant and other similar uses other than Gaming as conducted on the Casino Property and industrial uses; provided that MRMI may conduct or operate any lottery games permitted under state law (e.g. Quick Draw, Pick 6, video-lottery terminals, etc.) provided the same is incidental to the use of the Track Facility as a racing venue and such uses are housed and operated within the existing improvements; and 6 B. manage and operate the Track Facility under the name "Monticello Racetrack" or any derivative thereof and under no other name without the prior written approval of the Authority, which approval shall not be unreasonably withheld. Notwithstanding the above, Authority acknowledges that if at any time during the term hereof it is no longer commercially practical to operate the Track Facility as a racing venue, MRMI may use the Track Property for any other lawful purpose such as hotel, entertainment, retail, restaurant and other similar uses other than Gaming as conducted on the Casino Property and industrial uses, provided the same does not materially adversely interfere with the use and operation of the Casino Property or the Common Areas. Except as otherwise mutually agreed, MRMI agrees that during the Term of this Agreement neither it nor any entities affiliated with or controlled by it nor any major owners (i.e., any person or entity owning more than 10% of it) will establish, own, operate, or manage any other gaming facility in Sullivan County (other than the Monticello Raceway and a tribal gaming facility) without the written consent of the Authority, provided that the Authority's consent to MRMI's establishment, operation, or management of a second tribal gaming facility in Sullivan County (in addition to the tribal gaming facility permitted by the preceding parenthetical) shall not be unreasonably withheld. ARTICLE 5 SHARED FACILITIES BUSINESS BOARD. On or prior to the Issuance Date (as defined in the Development Agreement), the Authority and MRMI shall establish the Shared Facilities Business Board. The Shared Facilities Business Board shall be a committee consisting of four representatives, representing the Authority, MRMI, and Manager. The Authority shall appoint two members, who shall be the same members appointed by it to the Management Business Board. Manager shall appoint one member, who shall be one of the same members appointed by it to the Management Business Board. MRMI shall appoint one member, who shall be one of the same members appointed by it to the Development Business Board. The Shared Facilities Business Board shall have the rights, obligations and powers set forth in this Agreement. Except as otherwise expressly provided in this Agreement, actions of the Shared Facilities Business Board shall require the affirmative vote of three members of the Shared Facilities Business Board. The attendance of three members of the Shared Facilities Business Board at any meeting shall constitute a quorum. The Tribe, MRMI and Manager may each change its respective representatives to such board at any time, provided this ARTICLE 5 is complied with and notice is given in accordance with SECTION 15.5 hereof. Members of the Shared Facilities Business Board may designate a proxy to act on behalf of a named representative to act in the absence of such representative to the Shared Facilities Business Board, provided that such designation be in writing by (x) in the case of the Authority, the chairman of the Authority, (y) in the case of MRMI, its managing director or (z) in the case of the Manager, its managing director, and that notice of such designation be provided pursuant to SECTION 15.5 of this Agreement. Such proxy shall have the full authority to act, vote or consent on behalf of such representative. Except as otherwise expressly provided in this Agreement, in order to be effective, any action of the Shared Facilities Business Board must be the result of agreement by at least three (3) members of 7 the Shared Facilities Business Board or designees. The Shared Facilities Business Board shall remain active during the entire term of this Agreement. The parties hereby agree to ensure that their respective representatives to the Shared Facilities Business Board shall cooperate fully and shall try to reach agreement or compromise on all matters before the Shared Facilities Business Board. In the event such agreement cannot be reached, the appropriate action shall be determined in the manner provided in ARTICLE 12 hereof. The parties shall cooperate in setting meeting schedules for the Shared Facilities Business Board during the term hereof. Any two or more representatives of the Shared Facilities Business Board shall have authority to call a special meeting of the Shared Facilities Business Board on three (3) days' written notice (by facsimile or otherwise) to the other representatives that comprise the Shared Facilities Business Board on such date. ARTICLE 6 MAINTENANCE, OPERATION, AND MANAGEMENT OF COMMON AREAS; ALLOCATION OF COSTS. Section 6.1 MAINTENANCE OF COMMON AREAS. A. The Authority shall, or shall cause the Manager to keep and maintain the Common Areas on the entire Property including, without limitation, the Landscape Improvements between the Lots in a good and safe state of repair and in a clean and orderly condition in keeping with commercially prudent standards (and the Authority shall have access to the Track Facility for such purpose, pursuant to and otherwise in accordance with this Agreement and the Declaration of Covenants). Such standards shall include (but shall not be limited to) the following: (i) All hard surfaced portions of the Common Areas shall be swept at intervals sufficient to maintain the same in a clean and safe condition and shall be kept reasonably clear of ice, snow, surface water, and debris before the Gaming Enterprise or the Track Facility shall open for business to the general public and thereafter during such operation. (ii) All sidewalks in the Common Areas shall be swept and washed at intervals sufficient to maintain the same in a clean and safe condition. (iii) All trash and rubbish containers located in the Common Areas for the use of Occupants or Permitees, shall be washed at intervals sufficient to maintain the same in a clean condition. (iv) All landscaping in the Common Areas shall be properly maintained, including removal of dead plants, weeds, and foreign matter and such replanting and replacement as the occasion may require. 8 (v) All hard surfaced markings (including all parking striping) in the Common Areas shall be inspected at regular intervals and promptly repainted as the same shall become unsightly or indistinct from wear and tear or other cause. (vi) All sewer catch basins in the Common Areas shall be cleaned on a schedule sufficient to maintain all sewer lines in a free flowing condition. All mechanical equipment and storm and sanitary sewer facilities shall be regularly inspected and kept in proper working order. (vii) All asphalt paving in the Common Areas shall be inspected at regular intervals and maintained in a first-class condition, which maintenance shall include patching and repair of chuckholes, potholes and cracks as they appear from time to time and shall include repaving if necessary. (viii) All Common Utility Facilities (including all Common Utility Facilities in the Common Areas) shall be kept in good order and repair. (ix) All directional signs and pavement signs in the Common Areas shall be kept distinct and legible. (x) All lighting and light poles in the Common Areas shall be kept in good order and repair (including repainting), and all tubes, ballasts, and bulbs shall be replaced as necessary. (xi) All Common Area stairways, paths and entrances, if any, shall be (a) swept and washed at intervals sufficient to maintain the same in a clean and safe condition, (b) inspected at regular intervals, and (c) promptly repaired upon the occurrence of any irregularities or worn portions thereof. The plan pursuant to which the Authority shall perform the above obligations (e.g. commencement, frequency) shall be adopted by the Shared Facilities Business Board from the plan proposed by the Management Business Board (as defined in the Management Agreement) for the Gaming Facility. B. All Improvements on and to the Common Areas shall be repaired or replaced by the Manager with materials, apparatus, and facilities of quality at least equal to the quality of the materials, apparatus, and facilities repaired or replaced. C. The parties hereto agree that the maintenance and repair of all other portions of the Property not covered by this Article 6 shall remain the sole cost and responsibility of, with respect to the Casino Property only, the Authority, and with respect to the Track Property only, MRMI or their designees; 9 PROVIDED HOWEVER, MRMI and the Authority shall maintain and keep the Track Property and Casino Property, respectively, in a good and safe state of repair and in a clean and orderly condition in accordance with commercially prudent business standards. Section 6.2 LIGHTING. During any period when the Gaming Enterprise is open for business and for commercially reasonable periods of time when the Gaming Enterprise is closed, if any, MRMI shall keep or cause to be kept the Parking Areas on the Track Facility well lighted during the period from dusk until dawn, with a minimum maintained intensity of not less than one (1) foot candle measured at ground level. Section 6.3 MAINTENANCE OF GAMING FACILITY. The Authority shall (or shall cause the same to be performed) (a) keep and maintain the interior and exterior of the Gaming Facility in a good and safe state of repair and in a clean and orderly condition, and (b) during any hours when (i) the Track Facility shall be open for business or when Occupants occupying seventy-five percent (75%) or more of the floor area of any building located on the Track Property are open for business and (ii) the Gaming Enterprise is open for business, and for a reasonable period of time before and after such hours, provide adequate light, heat, ventilation and air conditioning to the Gaming Facility in accordance with commercially prudent standards. Section 6.4 MAINTENANCE OF TRACK FACILITY. MRMI shall keep and maintain the interior and exterior of the Track Facility in a good and safe state of repair and in a clean and orderly condition, subject to the other provision of this Agreement. During any hours when the Track Facility shall be open for business, and for a reasonable period of time before and after such hours, MRMI shall provide adequate light, heat, ventilation and air conditioning to the Track Facility in accordance with commercially prudent standards. Section 6.5 USE/MAINTENANCE EASEMENT AREA E (PEDESTRIAN SKY BRIDGE). The parties hereto have agreed that Easement Area E shown on the Site Plan constitutes part of the Common Areas and, accordingly, the Manager shall be responsible to keep and maintain the Improvements located in Easement Area E including, without limitation, the connection to, the building materials surrounding the opening and the structural support features of, that portion of the Track Facility shown on Easement Area E as shown on the Site Plan. Notwithstanding such obligation however, and otherwise supplementing the provisions of PARAGRAPH 6.1 (C) hereof, each party hereto shall have the exclusive right to use the portion of Easement Area E allocated to it, respectively, for retail and other attendant purposes (as shown on the Site Plan, which will be based upon a fraction expressed as a percentage, (x) the numerator of which will be the length thereof that begins at a party's property line and ends at such party's building line, and (y) the denominator of which will be the total length of the pedestrian skybridge, e.g. to the extent the pedestrian skybridge spans and otherwise encroaches upon a party's Lot, such party will have the exclusive use of a portion of the bridge for retail purposes designated as such). The exclusive areas will be maintained at the sole cost and responsibility of the party enjoying and otherwise using such area for retail purposes. The area within the pedestrian bridge (size) which may be utilized for retail purposes shall be determined by the Shared Facilities Business Board. 10 Section 6.6 SECURITY. The Authority shall provide security for the Common Areas pursuant to a plan to be adopted by the Shared Facilities Business Board from the plan proposed by the Manager. Each of the parties hereto shall provide for security services based on commercially reasonable standards for their respective facilities. Each of the parties hereto shall cooperate with the other to assure that reasonably adequate and coordinated security is provided for the Property and the uses thereon, including traffic control and night patrols. Section 6.7 EMPLOYMENT OF CONTRACTORS OR PERSONNEL. The Authority or the Manager may engage outside contractors or hire personnel, in adequate numbers, and during business hours and such other hours as are prudent for the safe and orderly operation of the Common Areas and on commercially reasonable and prudent terms in order to carry out its obligations under this Article 6. The parties hereto shall share in the expenses of the Authority or the Manager under this SECTION 6.7 in the manner and to the extent provided in SECTION 6.9 of this Agreement. Section 6.8 PARKING. The parties hereto agree that no charge shall be collected from and/or time limit imposed upon any Occupant or Permitee for parking unless the parties hereto have otherwise mutually agreed in writing. The parties hereto also agree that they may jointly promulgate mutually acceptable rules and regulations with respect to the use of the Common Areas. Section 6.9 ALLOCATION OF COSTS. During the term of this Agreement, the Authority agrees that it shall pay for ninety percent (90%) of all costs and expenses incurred by or on behalf of the Authority in carrying out its obligations under this Article 6 (the "SHARED COSTS"). During the term of this Agreement, but only during those periods when the Track Facility is open to the public for business, MRMI agrees that it shall pay for ten percent (10%) of all Shared Costs; provided however, if either party desires to recalculate its percentage of Shared Costs because such party believes that the then current allocation percentage is no longer equitable based on each party's then current use, the parties hereto shall in good faith negotiate to mutually agree on a new percentage and if the parties hereto shall fail to reach an agreement on such percentage, then either party shall have the right to submit such dispute to arbitration in accordance with the terms of ARTICLE 12 hereof. Notwithstanding the above, with respect to Easement Area E shown on the Site Plan, the parties hereto shall share the maintenance costs and expenses (as opposed to the repair costs and expenses which will be the Authority's obligation as provided above) as provided in SECTION 6.5. Section 6.10 RIGHTS OF AUTHORITY TO COMMON AREAS. During the term hereof, the rights and benefits accruing to each owner of a Lot under the Declaration of Covenants shall inure to the benefit of the Authority and any Permittee. (In no event shall this Agreement restrict the rights of the Authority under the Declaration of Covenants.) 11 ARTICLE 7 JOINT MARKETING AND ADVERTISING. Section 7.1 JOINT MARKETING. In addition to the rights, obligations and powers of the Shared Facilities Business Board set forth in ARTICLE 5 hereof, the Shared Facilities Business Board shall be responsible for establishing and maintaining a joint marketing and advertising program (the "MARKETING PROGRAM") that will maximize the joint promotion of the Gaming Facility and the Track Facility which program may include, without limitation, special events, shows, displays, institutional advertising, promotional literature, special promotional programs including, players clubs, VIP services, monthly newsletters, tour packages and other direct and media marketing programs and the engagement of outside consultants or companies to assist in carrying out the foregoing. The Shared Facilities Business Board shall have exclusive responsibility for determining the content, format and length of all joint promotion print and electronic media advertising and the location and size of all signage in the Common Areas. The Marketing Program adopted by the Shared Facilities Business Board shall be in conformance with the marketing plan approved by the Management Business Board. Notwithstanding the above, nothing contained herein shall or shall be deemed to restrict either party from establishing and maintaining its own separate advertising and marketing program with respect to the activities conducted on its Lot. Section 7.2 PROMOTION FUND. During the term of this Agreement, the Authority and MRMI may contribute in accordance with the percentages set forth in SECTION 6.9 hereof, funds (the "PROMOTION FUND") to be utilized to pay for all costs and expenses associated with the formulation of and carrying out the Marketing Program administered by the Shared Facilities Business Board, but neither party shall have any obligation to make such contributions. Upon the reasonable request of either party hereto, the Shared Facilities Business Board shall provide an accounting of all expenditures made out of the Promotion Fund for the preceding calendar year in which such request is made. ARTICLE 8 CONDEMNATION. Section 8.1 NOTICE OF CONDEMNATION. If any party hereto (the "CONDEMNEE") shall receive notice from a condemning authority (the "CONDEMNOR") of the proposed Condemnation of any of the Condemnee's property, such party shall promptly inform the other party by written notice of such fact, together with copies of all papers served in connection with such Condemnation, and when known, the portion or portions of its property so to be condemned and the date upon which it is anticipated that the Condemnee will be required to surrender possession thereof to the Condemnor. Section 8.2 CONDEMNATION OF CASINO PROPERTY. Subject to the terms of the Senior Secured Note Indenture (as defined in the Development Agreement), if any portion of the Casino Property shall be Condemned, the Authority shall promptly restore, replace or rebuild the same to the extent economically feasible to be of at least equal value and of substantially the same character as prior to such Condemnation. 12 Section 8.3 CONDEMNATION OF TRACK PROPERTY. If all or any portion of the Track Property shall be Condemned and in the good faith judgment of MRMI reasonably exercised in accordance with commercially prudent business standards it shall not be economically feasible to restore or replace the same to a complete architectural unit capable of being operated as previously used prior to such Condemnation, then MRMI shall have the right and option to exclude such portion of the Track Property from the operation and effect of this Agreement by specifying in a written notice delivered to the Authority at least forty-five (45) days prior to the date that it must surrender such condemned property to the Condemnor that it has elected to so exclude such property from this Agreement, provided that any future use of such property shall be for any lawful purpose such as hotel, entertainment, retail, restaurant and other similar uses other than Gaming as conducted on the Casino Property and industrial uses, provided that MRMI may conduct or operate any lottery games permitted under state law (e.g. Quick Draw, Pick 6, video-lottery terminals, etc.) provided the same is incidental to the use of the Track Facility as a racing venue and such uses are housed and operated within the existing improvements. Section 8.4 RESTORATION OR REPLACEMENT OBLIGATION OF MRMI. If as a result of a Condemnation, MRMI either (a) is not entitled to exclude its property from the operation and effect of this Agreement, or (b) being so entitled does not elect to do so or fails to do so in accordance with the terms and provisions of SECTION 8.3 hereof, regardless of whether any award or payment is collected or made in connection with such Condemnation, MRMI shall promptly proceed to restore, repair, replace or rebuild such Condemned property to the extent economically feasible to be of at least equal value and of substantially the same character as prior to such Condemnation. Section 8.5 CONDEMNATION AWARD. Subject to the terms of this Agreement and any Financing Agreements (as defined in the Development Agreement), the entire award or payment (the "AWARD") made for any Condemnation of any land, building(s) or other improvements shall belong to the party upon whose Lot such land, building(s) or other improvements were located. Notwithstanding anything to the contrary contained in the preceding sentence, with respect to any Award made in connection with a Condemnation of all or any portion of the Casino Property, such Award shall be deposited with a bank, trust company or other similar entity to be held and disbursed in a manner similar to the procedures set forth in the Disbursement and Escrow Agreement (as defined in the Senior Secured Note Indenture) and any balance remaining thereafter shall be paid to the Authority. The Occupant of each Lot shall have the right at its own cost and expense to make any compromises and settlements in connection with any Condemnation of any property on its respective Lots provided that, any party hereto may participate and join in any such Condemnation proceedings but only to the extent necessary to maintain its own claim. Notwithstanding anything to the contrary contained in the preceding sentence, subject to the approval of the Shared Facilities Business Board, the Manager shall have the right to negotiate and make any compromises and settlements in connection with any Condemnation of any Easement Areas and the costs of making any such settlements shall be paid by MRMI and the Authority in accordance with the respective percentages set forth in SECTION 6.9 hereof. 13 Section 8.6 CONDEMNATION DISPUTES. Any disputes under this ARTICLE 8 between MRMI and the Authority shall be determined by arbitration in accordance with the provisions of ARTICLE 12 hereof. ARTICLE 9 INSURANCE. Section 9.1 CASUALTY INSURANCE. Subject to the terms of the Financing Agreements, each party hereto shall keep at its own cost and expense, the buildings and other structures on its respective Lot (including those within Common Areas) insured against loss or damage by fire and other perils commonly covered under an extended coverage endorsement in an amount equal to the full replacement cost of such buildings and other structures, such insurance to be written on a full replacement cost basis. The costs of such insurance reasonably allocated to the Common Areas shall be allocated in accordance with the terms of SECTION 6.9 hereof. Section 9.2 LIABILITY INSURANCE. The Authority shall, or shall cause the Manager to, at all times during the term of this Agreement, maintain, or cause to be maintained, in full force and effect, comprehensive general liability insurance covering the Casino Property and the Common Areas, including coverage for any accident resulting in personal injury to or death of any person and consequential damages arising therefrom, in an amount not less than Fifty Million Dollars ($50,000,000) per occurrence and One Hundred Million Dollars ($100,000,000) in the aggregate. All costs of any general liability insurance for the Common Areas shall be allocated in accordance with the terms of SECTION 6.9 hereof. MRMI shall, at all times during the term of this Agreement, maintain or cause to be maintained, in full force and effect, comprehensive general liability insurance covering the Track Property in coverage and amounts equal to those maintained by owners of comparable racetrack properties in the exercise of its good faith judgment based on commercially prudent standards. Section 9.3 INSURANCE CARRIERS: FORM OF INSURANCE POLICIES. On or before the effective date of any insurance policy required to be maintained pursuant to this ARTICLE 9, the parties hereto shall furnish evidence to the other party that such insurance coverage is in full force and effect and that the premiums therefor have been paid. Subject to the terms of the Senior Secured Note Indenture, all insurance policies required to be maintained pursuant to this ARTICLE 9 shall (a) name the other party hereto as applicable, as named insured thereunder, (b) provide that such insurance policy may not be canceled, reduced or amended without at least thirty (30) days prior written notice being given by the insurer to all the parties hereto, (c) contain severability of interests endorsements, (d) be issued by responsible insurance companies licensed to do business in the State of New York with a claims paying ability rating of A or higher and a financial size category of not less than X as listed in the current Best's Insurance Reports or if such carrier is not rated by A.M. Best & Company, Inc., having the financial stability and size deemed appropriate as certified by a reputable insurance broker and (e) include a provision which prohibits any insurance carrier from invoking the Authority's sovereign immunity as a defense to any action within the limits of such policy. Any insurance policies required 14 to be maintained pursuant to this ARTICLE 9 may also be made payable to the holder of any first mortgage which is a lien upon all or any portion of the property of any insured under a standard mortgagee clause, provided such mortgagee is a bank, trust company, insurance company, or a pension fund or retirement fund having a bank or trust company as trustee, and agrees that it will, in the event of loss, apply the proceeds toward the costs of restoration in accordance with the terms of this Agreement. All insurance policies required to be maintained under this ARTICLE 9 which affect any Common Areas shall contain a provision which prohibits any cancellation, amendment or modification thereto without the prior written consent of MRMI, which consent (except with respect to cancellation) shall not be unreasonably withheld. Each party hereto shall, upon request, deliver to the other party certificates of insurance and other evidence of renewal of all policies required to be maintained under this ARTICLE 9. Section 9.4 RESPONSIBLE FOR RESPECTIVE LOTS. Each of the parties hereto covenants to defend, and does hereby, indemnify and hold harmless each other from and against all claims and all costs, expenses and liabilities (including reasonable attorneys' fees) incurred in connection with all claims, including any action or proceedings brought thereon, arising from or as a result of the death of, or any accident, injury, loss or damage whatsoever caused to any natural Person, or to the property of any Person, as shall occur on its respective Lot, except for claims caused by the active negligence or willful act or willful omission of such indemnified Person, or its Permitees. Section 9.5 WAIVER OF SUBROGATION. Each of the parties hereto shall, to the extent such insurance endorsement is available, obtain for the benefit of the other, a waiver of any right of subrogation which the fire and extended coverage insurer or any other insurance carrier may acquire against the other by virtue of the payment of any loss covered by such insurance. The foregoing waiver shall be operative only so long as the same shall not preclude the other party from obtaining insurance, and shall have no effect to the extent that it diminishes, reduces, or impairs the liability of any insurer or the scope of any coverage under any policy required to be maintained pursuant to this ARTICLE 9. Section 9.6 BLANKET POLICY. Any party hereto may carry any insurance required to be maintained under this ARTICLE 9 under a "blanket policy" covering other properties of such party and/or Person, provided that the other party shall be furnished evidence reasonably satisfactory to it that the protection afforded under such blanket insurance policy is not less than that which would have been obtained under separate policies and that such coverage is consistent with prudent commercial business practices. ARTICLE 10 CASUALTY. Section 10.1. NOTICE AND RESTORATION OBLIGATIONS. A. If all or any portion of the Casino Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (an "INSURED CASUALTY"), the Authority shall give prompt notice thereof to MRMI. Following 15 the occurrence of an Insured Casualty, the Authority shall, provided that insurance proceeds are available, at its own cost and expense, promptly proceed to restore, repair, replace or rebuild (if commercially practical) the same to be of at least equal value and of substantially the same character as prior to such damage or destruction. B. If all or any portion of the Track Property shall be damaged or destroyed in whole or in part, by fire or other casualty, MRMI shall give prompt notice thereof to the Authority. Following the occurrence of any such casualty, MRMI shall, provided that insurance proceeds are available, at its own cost and expense, promptly proceed to restore, repair, replace or rebuild (if possible) the same to be of at least equal value and of substantially the same character as prior to such damage or destruction provided that in the good faith judgment of MRMI such restoration, repair, replacement or rebuilding is economically practicable or otherwise such repair and restoration shall be performed to render the same a complete architectural unit. Notwithstanding anything to the contrary in the preceding sentence, MRMI shall not be required to restore, repair, replace or rebuild any property damaged by fire or other casualty if the failure to make such restoration, repair, replacement or rebuilding will not have a materially adverse economic effect on the operation of the Gaming Enterprise in which event the provisions of Article 4 shall control. Section 10.2 INSURANCE PROCEEDS. Any insurance proceeds or other settlements in lieu thereof ("INSURANCE PROCEEDS") made with respect to the damage or destruction of any land, building(s) or other improvements shall belong to the party upon whose Lot such land, building(s) or other improvements were located, subject to the provisions of any Financing Agreement. Notwithstanding anything to the contrary contained in the preceding sentence, with respect to any Insurance Proceeds paid in connection with a casualty of all or any portion of the Casino Property, such Award shall be deposited with a bank, trust company or other similar entity to be held and disbursed in a manner similar to the procedures set forth in the Disbursement and Escrow Agreement and any balance remaining thereafter shall be paid to the Authority. The Occupant of each Lot shall have the right at its own cost and expense to make any compromises and settlements in connection with any casualties or losses of any property on its respective Lots (subject to the provisions of any Financing Agreement), provided that, any party hereto may participate and join in any such settlement proceedings but only to the extent necessary to maintain its own claim. Notwithstanding anything to the contrary contained in the preceding sentence, subject to the approval of the Shared Facilities Business Board, the Manager shall have the right to negotiate and make any compromises and settlements in connection with any casualties or losses of property located on any Easement Areas and the costs of making any such settlements shall be paid by MRMI and the Authority in accordance with the respective percentages set forth in SECTION 6.9 hereof. Section 10.3 RAZING OF DAMAGED PROPERTY. To the extent that a party is not required to, and does not elect to, restore, replace or repair all or any portion of a building or other improvement which has been damaged or destroyed by any casualty or taken by Condemnation, such party shall raze the portions thereof which are not to be restored, replaced, repaired or rebuilt, clear away all debris and leave said area in a clean, orderly and sightly condition; 16 provided, however, that nothing contained herein shall prevent said party from subsequently constructing a building on said area subject to the terms of this Agreement. ARTICLE 11 TRADE AND SERVICE MARKS. Section 11.1 THE AUTHORITY'S TRADE AND SERVICE MARKS. A. MRMI agrees to recognize the exclusive right of ownership of the Authority to all the Authority's service marks, trademarks, copyrights, trade names, designs, logos, company name, fictitious business name, trade styles and/or other sources and/or business identifiers and applications pertaining thereto, including, without limitation, the use of all marks including the names "Mohawk" or "St. Regis", now or hereafter held or applied for in connection therewith; these marks shall include all marks which are unique to and developed for the Gaming Facility (collectively, the "AUTHORITY'S MARKS"). MRMI hereby disclaims any right or interest therein, regardless of any legal protection afforded thereto. MRMI acknowledges that all of the Authority's Marks might not be used in connection with the Gaming Enterprise, and the Authority shall have sole discretion to determine which of the Authority's Marks shall be so used. MRMI shall not use the Authority's name, or any variation thereof, directly or indirectly, in connection with (a) a private placement or public sale of securities or other comparable means of financing or (b) press releases and other public communications, without the prior written approval of the Authority. B. In the event the Authority and/or MRMI is (are) the subject of any litigation or action brought by any party seeking to restrain the use, for or with respect to the Gaming Enterprise, by the Authority and/or MRMI of any of the Authority's Marks used by MRMI for or in connection with the Gaming Enterprise, any such litigation or action shall be defended entirely at the expense of Authority, notwithstanding that Authority may not be named as a party thereto. In the event MRMI desires to bring suit against any user of any of the Authority's Marks, seeking to restrain such user from using any of the Authority's Marks, then such suit shall be brought only with the consent of Authority and at the expense of the Gaming Enterprise, notwithstanding that such user may be a prior or subsequent user. In all cases the conduct of any suit whether brought by the Authority and/or MRMI or instituted against the Authority and/or MRMI shall be under the absolute control of the Authority, notwithstanding that the Authority may not be a party to such suit. MRMI, at its sole cost, shall have the right to engage its own legal counsel and MRMI's own counsel shall have the right to non-controlling participation in any such litigation. MRMI shall have the right at any time during the course of such litigation to withdraw from participation therein. Section 11.2 MRMI'S TRADE AND SERVICE MARKS. A. The Authority agrees to recognize the exclusive right of ownership of MRMI to all MRMI's service marks, trademarks, copyrights, trade names, 17 designs, logos, company name, fictitious business name, trade styles and/or other sources and/or business identifiers and applications pertaining thereto, including, without limitation, the use of the marks "Monticello Race Track" now or hereafter held or applied for in connection therewith (collectively, the "MRMI'S MARKS"), provided that MRMI shall claim no ownership of any marks including the names "Mohawk" or "St. Regis." The Authority hereby disclaims any right or interest in MRMI's Marks, regardless of any legal protection afforded thereto. The Authority acknowledges that all of MRMI's Marks might not be used in connection with the Track Property, and MRMI shall have sole discretion to determine which of MRMI's Marks shall be so used. The Authority agrees that MRMI or its representative may, at any reasonable time after a termination of this Agreement, enter the Gaming Facility for the sole purpose of removing all signs, furnishings, printed material, emblems, slogans or other distinguishing characteristics which are now or hereafter may be connected or identified with MRMI's or which carry any MRMI's Mark. Such removal shall be accomplished in a manner that leaves the premises in a condition suitable for appropriate commercial use. The Authority shall not use MRMI's name, or any variation thereof, directly or indirectly, in connection with (a) a private placement or public sale of securities or other comparable means of financing or (b) press releases and other public communications, without the prior written approval of MRMI. B. In the event the Authority and/or MRMI is (are) the subject of any litigation or action brought by a party seeking to restrain the use, for or with respect to the Gaming Enterprise, by the Authority and/or MRMI of any of MRMI's Marks used by MRMI for or in connection with the Track Property, any such litigation or action shall be defended entirely at the expense of MRMI, notwithstanding that MRMI may not be named as a party thereto. In the event the Authority desires to bring suit against any user of any MRMI's Mark, seeking to restrain such user from using any MRMI's Mark, then such suit shall be brought only with the consent of MRMI and at the expense of the Authority, notwithstanding that such user may be a prior or subsequent user. In all cases the conduct of any suit whether brought by the Authority and/or MRMI or instituted against the Authority and/or MRMI shall be under the absolute control of MRMI, notwithstanding that MRMI may not be a party to such suit. The Authority, at its sole cost, shall have the right to engage its own legal counsel and the Authority's own counsel shall have the right to non-controlling participation in any such litigation. The Authority shall have the right at any time during the course of such litigation to withdraw from participation therein. Section 11.3 CONFIDENTIALITY; EXCLUSIVITY. Subject to the terms of this Agreement and any disclosure requirements of applicable law, including, federal securities laws, the Authority and MRMI covenant to keep confidential and exclusive the trademarks and other proprietary information that it may possess during the term hereof of the other party hereto. 18 ARTICLE 12 DEFAULT, TERMINATION, DISPUTES AND ARBITRATION. Section 12.1 DEFAULT. A. MRMI may terminate this Agreement for any material breach or the failure to perform any material duty or obligation by the Authority within sixty (60) days after the Authority's receipt of any notice from MRMI of Authority's material breach and default PROVIDED THAT, if the Authority has commenced to cure such default within such sixty (60) day period and such default is not reasonably susceptible of cure within such sixty (60) day period then the Authority shall have an additional reasonable period of time to cure such default so long as the Authority is diligently and continuously pursuing such cure. B. The Authority may terminate this Agreement for any material breach or the failure to perform any material duty or obligation by MRMI within sixty (60) days after MRMI's receipt of any notice from the Authority of MRMI's material breach and default PROVIDED THAT, if MRMI has commenced to cure such default within such sixty (60) day period and such default is not reasonably susceptible of cure within such sixty (60) day period then MRMI shall have an additional reasonable period of time to cure such default so long as MRMI is diligently and continuously pursuing such cure. Section 12.2 MUTUAL TERMINATION. Notwithstanding anything to the contrary contained in this Agreement, this Agreement may be terminated at any time during the term hereof by mutual consent between the Authority and MRMI, which consent may be granted or withheld in either party's sole discretion. Section 12.3 WAIVER OF SOVEREIGN IMMUNITY; DISPUTES; ARBITRATION. A. Subject to the terms of this ARTICLE 12, the Authority expressly waives sovereign immunity for the purpose of permitting or compelling arbitration as provided in subparagraph (b) below, and to be sued in any federal or state court of competent jurisdiction by MRMI for the purpose of compelling arbitration or enforcing any arbitration award or judgment arising out of this Agreement or the termination or purported termination thereof or any rules, actions or decisions of the Authority which have a materially adverse effect on the rights of MRMI hereunder. Without in any way limiting the generality of the foregoing, the Authority expressly authorizes any governmental authorities who have the right and duty under applicable law to take any action authorized or ordered by any court, to take such action, including, without limitation, entering the Casino Property and repossessing any furniture and equipment subject to a security interest or otherwise giving effect to any such judgment entered. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Authority other than the limited assets of the Authority specified herein. B. All disputes, controversies or claims arising out of or relating to this Agreement, shall be settled by binding arbitration in accordance with the Expedited Procedures provisions (Rules 53 through 57 in the current edition) of 19 the commercial arbitration rules of the American Arbitration Association. Arbitration shall occur before a single arbitrator, or any greater number of arbitrators if mutually agreed to by the Authority and MRMI (the "ARBITRATOR"). The Arbitrator(s) shall possess relevant expertise and shall be selected jointly by MRMI and the Authority. If the owners of each Lot are unable to agree on the selection of the Arbitrator(s), the Arbitrator(s) shall be selected by the American Arbitration Association. The Arbitrator(s) shall render a decision promptly after the submission of the dispute and shall apply the standards of a reasonable, prudent businessperson. The Arbitrator(s) shall have no authority to award punitive damages. Unless the owners of each Lot mutually agree otherwise, binding arbitration shall be the sole remedy as to all disputes arising out of this Agreement, except for disputes requiring injunctive or declaratory relief. The Arbitrator(s) may not require the Authority to take or modify any governmental legislative decision or governmental legislative action, and may not prohibit the Authority from taking any governmental legislative decision or governmental legislative action, provided however, that in the event the Authority engages in a governmental legislative decision or action that causes a breach of this Agreement and results in damage to Developer, the Arbitrator(s) may award Developer damages. C. In determining any matter, the Arbitrator(s) shall apply the terms of this Agreement, without adding to, modifying or changing the terms in any respect, and shall apply New York law and applicable federal and tribal law. All arbitration hearings shall be held at a place designated by the Arbitrator(s) in New York County, New York. The parties hereto covenant to maintain strict confidentiality with respect to any arbitration, subject to any requirements of any applicable law, including, federal securities law. D. The Authority's waiver of immunity from suit granted under this Article 12 shall be specifically limited to the following actions and judicial remedies: (i) The enforcement of an award of money damages by arbitration; PROVIDED THAT, the Arbitrator(s) and/or the court shall have no authority or jurisdiction to order execution against any assets or revenues of the Authority except (A) undistributed or future Net Revenues (as defined in the Management Agreement) of the Gaming Enterprise; or (B) if it has been specifically found by the Arbitrator(s) that, by the exercise of regulatory authority pursuant to the Tribal Gaming Ordinance or otherwise, or any rules, actions, or decisions of the Authority pursuant thereto or by other action, the Authority has knowingly and purposely prejudiced MRMI's rights under this Agreement or any other agreements executed in connection herewith, such award may be enforced against the future Net Revenues of any other gaming operations conducted by the Authority or any other entity of the Authority on the Casino Property. In no instance shall any enforcement of any kind whatsoever be allowed against any assets of the Authority other than the limited assets of the Authority specified herein. 20 (ii) The enforcement of a determination by the Arbitrator(s) that the Authority's consent or approval has been unreasonably withheld contrary to the terms of this Agreement. (iii) The enforcement of a determination by the Arbitrator(s) that (A) prohibits the Authority from taking any action that would adversely impair or affect any rights of MRMI under this Agreement, or (B) requires the Authority to specifically perform any of its obligations under this Agreement, provided that the Arbitrator(s) and/or the court may not require the the Authority to take or modify any governmental legislative decision or governmental legislative action, and may not prohibit the Authority from taking any governmental legislative decision or governmental legislative action, and provided further that the Arbitrator(s) and/or the court may not enjoin the Authority with regard to any Licensing Disputes (as defined in the Management Agreement). (iv) An action to compel arbitration as required pursuant to this ARTICLE 12. Section 12.4 INDEMNITY. A. MRMI shall indemnify and save the Authority harmless from and against all loss, cost, liability and expense, including, but not limited to, reasonable counsel fees and disbursements that may be occasioned by any acts constituting theft, fraud, willful misconduct or gross negligence on the part of MRMI in the performance of its duties under this Agreement. Except for the Authority's theft, fraud, willful misconduct or gross negligence, MRMI shall indemnify, defend and hold harmless the Authority from any loss, cost, liability and expense, including, but not limited to, reasonable counsel fees and disbursements, relating to the Track Property that results from the Authority's performance of its obligations under this Agreement. B. The Authority shall indemnify and save MRMI harmless from and against all loss, cost, liability and expense, including, but not limited to, reasonable counsel fees and disbursements that may be occasioned by any acts constituting theft, fraud, willful misconduct or gross negligence on the part of the Authority in the performance of its duties under this Agreement. Except for MRMI's theft, fraud, willful misconduct or gross negligence, the Authority shall indemnify, defend and hold harmless MRMI from any loss, cost, liability and expense, including, but not limited to, reasonable counsel fees and disbursements, relating to the Gaming Enterprise or Gaming Facility that results from MRMI's performance of its obligations under this Agreement. C. The indemnifications and terms set forth in this SECTION 12.4 shall survive the expiration or earlier termination of this Agreement. In addition, such indemnifications and terms are in addition to and not in substitution for the indemnification provisions set forth in the Declaration of Covenants. 21 Section 12.5 NO PERSONAL LIABILITY. Neither the Tribe nor any officer, officeholder, employee, agent, representative or member of the Tribe or the Authority shall have any personal liability for the obligations of the Authority under this Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Further, no member, officer, office-holder, employee, agent, representative, manager or member of MRMI shall have any personal liability for the obligations of MRMI under this Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. ARTICLE 13 MECHANIC'S LIENS. Neither MRMI nor the Authority shall permit any mechanic's, materialman's or similar lien to stand against any portion of the other's property for any labor performed or material furnished in connection with any work performed or caused to be performed pursuant to this Agreement. Any party which is responsible for the filing of such lien may bond and contest the validity or amount of any such lien but upon final determination as to the validity and amount thereof such party shall promptly discharge said lien. ARTICLE 14 INTENTIONALLY DELETED. ARTICLE 15 MISCELLANEOUS PROVISIONS. Section 15.1 GOVERNMENT SAVINGS CLAUSE. Each of the parties agrees to execute, deliver and, if necessary, record any and all additional instruments, certifications, amendments, modifications and other documents as may be reasonably required by the United States Department of the Interior, Bureau of Indian Affairs, the office of the Field Solicitor, the National Indian Gaming Commission, or any other applicable statute, rule or regulation in order to effectuate, complete, perfect, continue or preserve the respective rights, obligations and interests of the parties hereto to the fullest extent permitted by law; provided, that any such additional instrument, certification, amendment, modification or other document shall not materially change the respective rights, remedies or obligations of the Authority or MRMI under this Agreement or any other agreement or document related hereto. Section 15.2 THIRD PARTY BENEFICIARY. This Agreement is exclusively for the benefit of the parties hereto and it may not be enforced by any party other than the parties to this Agreement and shall not give rise to liability to any third party other than the authorized successors and assigns of the parties hereto. Section 15.3 AUTHORIZATION. The Authority and MRMI hereby represent and warrant to each other that each has the full power and authority to execute this Agreement and to be bound by and perform the terms hereof. Each party shall furnish evidence of such authority to the other upon the reasonable request thereof. 22 Section 15.4 RELATIONSHIP. MRMI and the Authority shall not be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other except as set forth in this Agreement. Section 15.5 NOTICES. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given to the applicable party (a) on the date of hand delivery with signed receipt, (b) on the business day immediately following transmittal to Federal Express or other nationally recognized overnight commercial courier with signed receipt or (c) five (5) days after deposit in the United States mail, postage prepaid; in any case addressed to the address of the applicable party set forth below, or such other address as such party may hereafter specify by notice to the other in accordance with the notice procedures described in this paragraph. The parties also designate the following persons as agents for receipt of service of process: If to the Authority: Chairman St. Regis Mohawk Gaming Authority c/o St. Regis Mohawk Reservation Community Building Route 37, Box 8A Hogansburg, New York 13655 with a copy to: Hobbs, Straus, Dean & Walker, LLP 2120 L Street, N.W., Suite 700 Washington, D.C. 20037 Attention: Michael Roy, Esq. If to MRMI: Monticello Raceway Management, Inc. Monticello Raceway, Route 17B P.O. Box 5013 Monticello, New York 12701-5193 Attention: Chief Financial Officer with a copy to: Latham & Watkins LLP 885 Third Avenue New York, New York 10022 Attention: James I. Hisiger, Esq. Section 15.6 NO WAIVER. No consent or waiver express or implied, by either party to any breach or default by the other party in the performance of any of the obligations or conditions of this Agreement or any related agreement shall be construed to be a consent to or waiver of any other breach or default by such party. Failure on the part of a party to complain of any act or failure to act by the other party, or failure to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver of the rights of such party. 23 Section 15.7 SUCCESSORS AND ASSIGNS. The benefits and obligations of this Agreement shall inure to and be binding upon the parties hereto and their respective permitted successors and assigns. Subject to the terms of this SECTION 15.7, the Authority's prior written consent shall not be required for MRMI to assign all or any of its rights, interests or obligations hereunder to a third party acquiring an interest, estate or other right in or to the Property or any portion thereof. All proposed assignees shall agree to be bound by the terms and conditions of this Agreement including, without limitation, SECTION 12.4 hereof. In addition, the assignment of a controlling interest in MRMI may be made without the prior written consent of the Authority. Notwithstanding anything to the contrary contained in this Agreement, the acquisition of MRMI or any member of MRMI by a third party shall not constitute an assignment of this Agreement by MRMI and this Agreement shall remain in full force and effect between the Authority and MRMI. Subject to the terms of this paragraph, the Authority shall, without the prior written consent of MRMI, have the right to assign this Agreement and the assets of the Gaming Enterprise to an instrumentality of the Authority or Tribe or to a corporation or other business entity wholly owned by the Authority or Tribe organized to conduct the business of the Gaming Enterprise for the Tribe provided that such assignee assumes all of the Authority's obligations herein. Any assignment by the Authority or Tribe shall not adversely prejudice the rights of MRMI under this Agreement. No assignment authorized hereunder shall be effective until all Legal Requirements (as defined in the Development Agreement) are met. Section 15.8 ARTICLE AND SECTION HEADINGS. Article and Section headings, where used herein, are inserted for convenience only and are not intended to be a part of this Agreement or in any way to define, limit or describe the scope and intent of the particular sections or paragraphs to which they refer. Section 15.9 CHOICE OF LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of New York. Section 15.10 TERMINATION AND AMENDMENT. This Agreement may be canceled, changed, modified, or amended in whole or in part only by written and recorded instrument executed by each of the record owners of the Lots. Section 15.11 EXCUSABLE DELAYS. Whenever performance is required of any party hereto, that party shall use all due diligence to perform and take all necessary measures in good faith to perform; provided, however, that if completion of performance shall be delayed at any time by reason of acts of God, war, civil commotion, terrorist acts, riots, strikes, picketing, or other labor disputes, or damage to work in progress by reason of fire or other casualty or causes beyond the reasonable control of such party then the time for performance as herein specified shall be appropriately extended by the amount of the delay actually so caused; provided, however, that the maximum length of any such extension shall in no event exceed twelve (12) months for any one cause. Failure by any party hereto to perform any obligation under this Agreement shall not be deemed to be a cause beyond the control of such party. 24 Section 15.12 SEVERABILITY. Invalidation of any of the provisions contained in this Agreement, or of the application thereof to any person, by judgment or court order shall in no way affect any of the other provisions hereof or the application thereof to any other person and the same shall remain in full force and effect. Section 15.13 COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. Section 15.14 EFFECTIVE DATE. This Agreement shall become effective, of full force and effect and the parties hereto shall be bound hereby, on the Effective Date (as such term is defined in the Management Agreement). IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day and year first above written. ST. REGIS MOHAWK MONTICELLO RACEWAY MANAGEMENT, INC. GAMING AUTHORITY By: /s/ David P. Hanlon ---------------------------------- By: /s/ Barbara A. Lazore Name: David P. Hanlon ------------------------------ Authorized Signatory Barbara A. Lazore, Member Management Board By: /s/ James W. Ransom ------------------------------ James W. Ransom, Member Management Board By: /s/ Lorraine White ------------------------------ Lorraine White, Member Management Board 25 EXHIBIT A TRACK PROPERTY EXHIBIT B CASINO PROPERTY EXHIBIT C SITE PLAN

PURCHASE AND SALE AGREEMENT Between CORPORATE REALTY INCOME FUND I, L.P. (Seller) and GREAT AMERICAN CAPITAL (Purchaser) 2630 Corporate Place Monterey Park, California Dated as of December 5, 2006 -------------------------------------------------------------------------------- PURCHASE AND SALE AGREEMENT      This Purchase and Sale Agreement (“Agreement”) is made as of December 5, 2006 (the “Effective Date”), by and between CORPORATE REALTY INCOME FUND I, L.P., a Delaware limited partnership (“Seller”), and GREAT AMERICAN CAPITAL, a Nevada corporation (“Purchaser”).      A. Seller owns in fee simple a certain parcel of real property located at 2630 Corporate Place, in the City of Monterey Park, County of Los Angeles, State of California, commonly referred to as the Kotura Building (collectively, as hereinafter described, “Real Property”).      B. Subject to the terms and conditions herein, Seller desires to sell and Purchaser desires to purchase the Real Property together with the other property described in Section 1.1.      NOW THEREFORE, in consideration of the mutual covenants contained herein, Seller and Purchaser agree as follows: 1. PURCHASE AND SALE      1.1 Property      Subject to the terms and conditions hereof, Seller hereby agrees to sell, convey and assign to Purchaser, and Purchaser hereby agrees to purchase and accept from Seller on the Closing Date (as defined in Section 4.1 below) the following (collectively, the “Property”):       (a)       the Real Property, which is legally described on Exhibit A attached hereto, together with any and all rights, privileges and easements appurtenant thereto that are owned by Seller, including without limitation all of Seller’s right, title and interest, if any, in and to all minerals, oil, gas and other hydrocarbon substances on and under the Real Property;   (b) all buildings located on the Real Property, and all other improvements and fixtures located on the Real Property that are owned by Seller, if any, including without limitation any apparatus, equipment and appliances incorporated therein and used in connection with the operation and occupancy thereof, such as heating and air conditioning systems and facilities used to provide any utility service, ventilation, or other services thereto, but excluding fixtures owned by tenants (all of which are collectively referred to as the “Improvements”);   (c) all right, title and interest of Seller in and to any furniture, furnishings, artwork, decorations and other tangible personal property located on and used in connection with the Real Property and Improvements, including without limitation the personal property listed on Schedule 1 (the “Personal Property”);   (d) all assignable or transferable intangible property, including, but not limited to: (i) all guaranties and warranties (including guaranties and warranties pertaining to construction of the Improvements); (ii) all air rights, excess floor area rights and other development rights relating or appurtenant to the Real Property or the Improvements; (iii) all rights to obtain utility service in connection with the Improvements and the Real Property; (iv) all assignable licenses and other governmental permits and permissions relating to the Real Property, the Improvements or the operation thereof, including without limitation the licenses and permits listed on Schedule 2 (the “Permits”); and (v) all assignable contracts and contract rights relating to the Real Property or the Improvements, including the contracts listed on Schedule 3 (the “Service Contracts”), which shall survive the Closing (all of the foregoing are hereinafter collectively referred to as the “Intangible Property”); and   (e) All right, title and interest of Seller in and to the leases and other occupancy agreements covering all or any portion of the Real Property or the Improvements to the extent they are in effect on the date of Closing (collectively the “Leases”), together with all current rents and other sums due thereunder (the “Rents”) and any and all security deposits in connection therewith (the “Security Deposits”). The Leases, in each case together with the current monthly rent and Security Deposit relative thereto, are set forth on Schedule 4 (the “Rent Roll”). -------------------------------------------------------------------------------- 2. PURCHASE PRICE       Purchaser shall pay as the total Purchase Price for the Property (“Purchase Price”) the amount of Five Million Three Hundred Thousand and No/100ths U.S. Dollars ($5,300,000.00), which shall be payable as follows:      2.1 Deposit Purchaser shall cause One Hundred Thousand and 00/100 Dollars ($100,000) to be delivered by wire transfer to Escrow Holder (as hereinafter defined) simultaneously with the receipt by Purchaser of a fully executed copy of this Agreement, and shall cause an additional One Hundred Thousand and 00/100 Dollars ($100,000) to be delivered by wire transfer to Escrow Holder on the Out Date (as hereinafter defined) unless Purchaser shall elect, pursuant to Section 3.5 below, on or before the Out Date, not to proceed with the purchase of the Property, and such amounts (collectively with all interest accrued thereon, the “Deposit”), shall be held by the Escrow Holder in accordance with the terms and conditions of this Agreement. The Deposit shall be held in an interest bearing account or instrument, as approved by Purchaser, as an earnest money deposit and, except as otherwise set forth herein, shall be applied toward the Purchase Price at Closing. Purchaser will provide Escrow Holder with its Taxpayer Identification Number and such additional information and documents as may be required by Escrow Holder.      The Escrow Holder shall be subject to the following terms and conditions:       (a)       The duties and obligations of the Escrow Holder shall be determined solely by the express provisions of this Agreement and no implied duties and obligations shall be read into this Agreement against the Escrow Holder.   (b) The Escrow Holder shall be entitled to rely, and shall not be subject to any liability in acting in reliance, upon any joint writing furnished to the Escrow Holder by Purchaser and Seller and shall be entitled to treat as genuine the document it purports to be, including any such letter, paper or other document furnished to the Escrow Holder in connection with this Agreement.   (c) In the event of any disagreement between Purchaser and Seller resulting in adverse claims and demands being made in connection with or against the funds held in the escrow created hereby, the Escrow Holder shall refuse to comply with the claims and demands of either party until such disagreement is finally resolved, either by Purchaser and Seller, as evidenced by a joint writing reflective thereof delivered to the Escrow Holder pursuant to subparagraph (b) above, or by a court of competent jurisdiction (in proceedings which the Escrow Holder or any other party may initiate, it being understood and agreed by Purchaser and Seller that the Escrow Holder has the authority (but no obligation) to initiate such proceedings). 2 --------------------------------------------------------------------------------       (d)       Subject to Seller’s right to retain the Deposit as liquidated damages pursuant to Section 12 below, in the event of a termination of this Agreement by either Seller or Purchaser as permitted by the terms of this Agreement, the Escrow Holder is authorized and directed to deliver the Deposit to the party hereto entitled to same pursuant to the terms hereof no later than the third Business Day following receipt by the Escrow Holder and the non- terminating party of written notice of termination delivered in accordance with Section 10 of this Agreement from the terminating party, unless the non-terminating party hereto notifies the Escrow Holder that it disputes the right of the other party to receive the Deposit. In such event, the Escrow Holder shall either continue to hold the Deposit or interplead the Deposit into a court of competent jurisdiction until such dispute is resolved, as more specifically provided in Section 2.1(c) above. All attorney’s fees and costs of the Escrow Holder incurred in connection with such dispute or interpleader shall be assessed against the party that is not awarded the Deposit, or if the Deposit is distributed in part to both parties then in the inverse proportion of such distribution.       2.2 Interest      Except as provided in Section 2.1 above and in other provisions of this Agreement where Seller shall be entitled to retain the Deposit as liquidated damages pursuant to Section 12 below, interest on the Deposit shall accrue to the benefit of Purchaser.      2.3 Cash at Closing      The balance of the Purchase Price, plus any other amounts required to be paid by Purchaser at Closing, and plus or minus any prorations and credits as provided for in this Agreement, in the form of immediately available U.S. funds, shall be deposited by Purchaser into escrow with the Escrow Holder, in time to allow the Closing to occur on the Closing Date (as hereinafter defined) by wire transfer as more particularly set forth in Section 4.3 below. 3. TITLE; INSPECTION; FINANCING; ESTOPPELS      3.1 Title Commitment; Survey       (a)       Prior to the Effective Date, Purchaser has received from Chicago Title Insurance Company (“Title Company”) a commitment (the “Title Commitment”) for an Owner’s Policy of Title Insurance, and a copy of all recorded documents referred to in the Title Commitment as exceptions to title to the Property (the “Title Documents”).   (b) Purchaser acknowledges that prior to the Effective Date, Seller has delivered to Purchaser an ALTA survey of the Real Property and Improvements made by Psomas and Associates dated March 26, 1992 (the “Existing Survey”). Purchaser shall have the right, at its sole cost and expense, to obtain a current survey of the Real Property and Improvements or to update the Existing Survey (the “Survey”) in accordance with the Minimum Standard Detail Requirements and Classifications for ALTA/ACSM Land Title Surveys published in 2005. 3 --------------------------------------------------------------------------------      3.2 Review of Title      Purchaser shall have until 5:00 p.m. Pacific Daylight Time on the Out Date (as defined below) to review the Title Commitment, Title Documents and Survey (collectively, “Title Evidence”) (the “Title Approval Date”) and render any objections as to matters of title in writing to Seller. Any matters shown in the Title Evidence not timely objected to by Purchaser shall be deemed waived and Purchaser shall be deemed to agree to acquire the Property subject to such exceptions (collectively, “Permitted Exceptions”) hereunder; provided, however, in no event shall Purchaser be required to object to the Required Removal Objections (as defined below) which, in no event, shall constitute Permitted Exceptions. Except for Required Removal Objections, which must be removed by Seller, Seller, in its sole and absolute discretion, may elect to remove or satisfy any such objections, provided that Seller shall have three (3) Business Days from the date of receipt of such objections to identify such objections that Seller so elects to remove or satisfy. Subject to Purchaser’s approval, which may be granted in Purchaser’s sole and absolute discretion, Seller may cause the Title Company to issue a title endorsement or “insure over” any objection (each, a “Seller Endorsement”) and it shall have the same effect as if such objection was removed or satisfied by Seller. If Seller does not elect to remove, insure over or satisfy such objections within such time or thereafter delivers written notice to Purchaser that notwithstanding Seller’s reasonable efforts, such objections may not be cured, then Purchaser may, by written notice to Seller within five (5) Business Days after the expiration of such time or the delivery of such written notice, either (a) terminate this Agreement without any liability on its part, in which case the Deposit shall be refunded to Purchaser, Purchaser shall return all documents, including all Due Diligence Documents (as hereinafter defined in Section 3.6(d)) received from Seller or Seller’s agents, to Seller and neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12 hereof), or (b) proceed to Closing and take title subject to such objections, in which case such non-cured objections shall become Permitted Exceptions hereunder. After the Title Approval Date but prior to the Closing Date, Purchaser shall also have the right to disapprove in writing any additional item not previously set forth in the Title Commitment that Title Company intends to show as an exception to title in the Title Policy. Any such additional item not specifically disapproved in writing delivered within three (3) Business Days following Purchaser’s receipt of written notice of such additional item shall be deemed approved. Seller shall have until Closing to remove or cause Title Company to insure over (subject to Purchaser’s approval, which may be granted in Purchaser’s sole and absolute discretion) any such disapproved item at Seller’s own expense. Seller may elect to (a) extend the Closing until the day after the date upon which Seller is able to remove or cause Title Company to insure over (subject to Purchaser’s approval, which may be granted in Purchaser’s sole and absolute discretion) any such disapproved item (but in no event shall such extension exceed ten (10) Business Days after the Closing Date), or (b) terminate this Agreement, unless Purchaser elects to take title subject to such disapproved item, and, if Seller elects to terminate this Agreement, Purchaser shall return all documents, including all Due Diligence Documents received from Seller or Seller’s agents, to Seller and the Deposit shall be returned to Purchaser and, thereupon, neither Seller nor Purchaser shall have any further obligation hereunder (except as set forth under Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12 hereof). Notwithstanding anything in this Agreement to the contrary, and notwithstanding any approval or consent given by Purchaser hereunder, Seller shall cause all mortgages and deeds of trust encumbering Seller’s interest in the Real Property, and all mechanic’s liens filed against the Property relating to work performed on the Property and contracted for by Seller (collectively “Required Removal Objections”), to be released and reconveyed from the Real Property, or, with respect to such mechanic’s liens, otherwise bonded, on or prior to the Closing and shall cause the Title Company to insure title to the Real Property as vested in Purchaser without any exception for such matters.  4 --------------------------------------------------------------------------------      3.3 Vesting of Title      At Closing, Seller shall convey all of Seller’s right, title and interest in and to the Real Property and Improvements to Purchaser by grant deed (as further described in Section 4.2(a)(i) below), subject to the Permitted Exceptions, and shall convey Seller’s interest in the Personal Property to Purchaser by bill of sale (as further described in Section 4.2(a)(ii) below).      3.4 Title Insurance      At Closing, the Title Company shall issue to Purchaser an extended ALTA Owner’s Policy of Title Insurance in the amount of the Purchase Price insuring that title to the Real Property and Improvements is vested in Purchaser subject only to the Permitted Exceptions (the “Title Policy”), provided that, if required by the Title Company, Purchaser shall, at its sole cost and expense, update the Existing Survey and deliver a copy of same, or the Survey, certified to the Title Company in a manner that will allow the Title Company to issue any additional coverage title policy; provided further that, at Purchaser’s election in its sole discretion, Purchaser may elect as and for the Title Policy the issuance of a standard form CLTA Owner’s Policy of Title Insurance in the amount of the Purchase Price insuring that title to the Real Property and Improvements is vested in Purchaser subject only to the Permitted Exceptions.      3.5 Inspection Period      Purchaser shall have until 5:00 p.m. Pacific Daylight Time on December 15, 2006 (the “Inspection Period”), to inspect the Property and the Due Diligence Documents, and to perform such other due diligence with respect to the Property as Purchaser reasonably deems necessary, subject to the rights of tenants in possession of the Property. Purchaser may, on or before the expiration of the Inspection Period (the “Out Date”), in its sole discretion, advise Seller and Escrow Holder, in writing, of its election to proceed or not to proceed with the purchase of the Property. If Purchaser, in its sole discretion, decides that it will not proceed with the purchase of the Property, Purchaser shall on or before the Out Date give notice to Seller and Escrow Holder that it is terminating this Agreement. If Purchaser fails to notify Seller and Escrow Holder of its decision on or before the Out Date, Purchaser shall be deemed to have elected not to terminate this Agreement pursuant to this Section 3.5. Upon any termination, in the absence of a default by Purchaser, the Deposit shall be refunded to Purchaser, all documents, including all Due Diligence Documents, received from Seller or Seller’s agents, shall be returned by Purchaser to Seller, Purchaser shall, at Seller’s request, at no cost to Seller, without representation or warranty, deliver to Seller true and correct copies of all third party reports obtained by Purchaser with respect to the Property, and, subject to Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12 hereof, neither party shall have any further rights or obligations hereunder. In the event Purchaser notifies Seller of its election to proceed with the purchase, then this Agreement will not be terminated, the Deposit shall become non-refundable (subject to the other terms and conditions of this Agreement) and Seller and Purchaser shall proceed to Closing in accordance with the terms and conditions hereof and the Inspection Period termination rights shall be deemed waived by Purchaser. Purchaser shall not undertake any soil borings, ground water testing or other “Phase II” investigative procedures without first having obtained the prior written consent of Seller. In connection with Purchaser’s inspection of the Property, Purchaser agrees that: 5 --------------------------------------------------------------------------------       (a)       All inspection fees, engineering fees, or other expenses of any kind incurred by Purchaser relating to the inspection of the Property will be at Purchaser’s sole cost and expense;   (b) Purchaser will give Seller reasonable advance notice of the dates of all inspections and will schedule all tests and inspections during normal business hours whenever feasible unless otherwise requested by Seller;   (c) Seller will have the right to have one or more representatives of Seller accompany Purchaser and Purchaser’s representatives, agents or designees while they are on the Property;   (d) Any entry by Purchaser, its representatives, agents or designees will not unreasonably interfere with Seller’s use of the Property or with the operations of any tenant;   (e) Purchaser will restore any damage caused to the Property by Purchaser’s entry on the Property for inspection purposes at Purchaser’s sole cost and expense if this transaction does not close; and   (f) In making any inspection hereunder, Purchaser will treat and will cause any representative of Purchaser to treat all information obtained by Purchaser pursuant to the terms of this Agreement as strictly confidential in accordance with Section 11.12 below. Purchaser shall have the right to further inspect the Property as provided in Section 3.6(b) hereafter (during normal business hours and upon notice to Seller), including for the purpose of confirming that the Property is in the same condition at Closing as existing at the end of the Inspection Period, reasonable wear and tear excepted; provided, however, that such continuing right of inspection shall in no way be deemed to extend or resurrect the Inspection Period or constitute a condition to Closing, subject however, to the other terms and conditions of this Agreement. For purposes of this Agreement, the term “Business Day” shall mean a day other than any Saturday, Sunday, or day upon which national banks in Monterey Park, California, or the Escrow Holder, are not open for general banking business.      The covenants of Purchaser contained in this Section 3.5(a) and (e) shall survive the Closing Date or any earlier termination of this Agreement.      3.6 Furnishing of Information       (a)       In furtherance of Purchaser’s rights set forth above, Seller has furnished, or within one (1) Business Day after the Effective Date will deliver to Purchaser’s office in California, to the extent in Seller’s possession or control, copies of the following:     (i)       a current Rent Roll, together with copies of all Leases and amendments and/or modifications currently in effect, together with a list pertaining to the status of rental payments by tenants under the Leases and any delinquencies in connection therewith (Seller has advised Purchaser that the Property is currently leased in its entirety to Kotura, Inc.) including, without limitation, evidence, certified by Seller to be true and correct and reasonably acceptable to Purchaser, as to the date of payment by tenants under the Leases for the prior twelve (12) months;     (ii) copies of the environmental, geology, and all other property condition reports in Seller’s possession or control, which are identified on Schedule 5, and any other environmental study or report of the Property prepared for Seller; 6 --------------------------------------------------------------------------------             (iii) copies of the Service Contracts, including any property management agreement (Seller has previously indicated to Purchaser that there are no Service Contracts or property management agreement);   (iv) copies of all warranties relating to the Property or any portion thereof or any of Seller’s equipment or the building systems therein;   (v) copies of licenses and permits relating to the Property and its operations;   (vi) copies of the originally issued certificate of occupancy for the Property;   (vii) copies of the current tax bill for the Property, and documentation concerning any property tax appeals during the past three years;   (viii) the most recent survey of the Property (Seller has previously indicated that the Existing Survey is the only survey of which Seller is aware);   (ix) operating statements regarding operation of the Property for the previous three (3) years and the year to date income expense reports relating to the operation of the Property for 2006 to date (Seller has advised Purchaser that the Property is operated under its Lease by Kotura, Inc., and Seller can provide information only relative to taxes, insurance and association fees);   (x) copies of all utility bills for the past (12) twelve months of operations paid by Seller (Seller has advised Purchaser that all utilities are paid by Kotura, Inc. under its Lease);   (xi) copies of any documentation relating to litigation that is in process or that has been threatened in writing;   (xii) all common area maintenance and/or expense pass through reconciliations for the past three (3) years, including the current estimates;   (xiii) aging report; and   (xiv)    site plans for the Property.       (b)       Seller will allow Purchaser and Purchaser’s agents reasonable access to the Property during regular business hours to inspect the Property during the Inspection Period and thereafter until the earlier of any termination of this Agreement and the Closing Date, subject to Section 3.6(c) below and the terms of the Leases. Purchaser hereby indemnifies, defends and holds Seller and the Property harmless from any and all costs, loss, damages or expenses, of any kind or nature (including, without limitation, mechanics’ liens and reasonable attorneys’ fees and expenses) (“Losses”) directly arising out of or resulting from or caused by such inspection, investigation, entry and/or other activities upon the Property by Purchaser, its employees, agents, contractors, subcontractors, and/or assigns; provided, however, such indemnification shall not be required to the extent such Losses are attributable to pre-existing conditions at the Property that are merely discovered as a result of the activities of Purchaser or its agents’ access to the Property, or to the extent such Losses result from the gross negligence or willful misconduct of Seller. Notwithstanding anything to the contrary herein, the indemnity set forth in this Section 3.6(b) shall survive (i) any termination of this Agreement and (ii) the Closing and shall not be merged therein. 7 --------------------------------------------------------------------------------       (c)       During any period of entry upon the Property prior to Closing, Purchaser shall maintain, with insurance companies acceptable to Seller, the following insurance: Worker’s Compensation Insurance as required by law and Employer’s Liability Insurance; Comprehensive General Liability or Commercial General Liability insurance, with limits of not less than One Million Dollars ($1,000,000). Each policy of insurance shall name Seller as an additional insured. Further, each policy of insurance shall state that such policy is primary and noncontributing with any insurance carried by Seller. Such policy shall contain a provision that the naming of the additional insured shall not negate any right the additional insured would have as a claimant under the policy if not so named and shall contain severability of interest and cross-liability clauses. A certificate, together with any endorsements to the policy required to evidence the coverage which is to be obtained hereunder, shall be delivered to Seller prior to the entry onto the Property by Purchaser or its agents. The certificate shall expressly provide that no less than ten (10) days prior written notice shall be given Seller in the event of any material alteration to or cancellation of the coverages evidenced by said certificate. A renewal certificate for each of the policies required by this Section 3.6(c) shall be delivered to Seller not less than ten (10) days prior to the expiration date of the term of such policy. Any policies required by the provisions of this Section may be made a part of a blanket policy of insurance with a “per project, per location endorsement” so long as such blanket policy contains all of the provisions required herein and does not reduce the coverage, impair the rights of the other party to this Agreement or negate the requirements of this Agreement.   (d) In addition to the information to be furnished to Purchaser under Section 3.6(a) above, Seller shall make available to Purchaser for inspection and copying on site at the Property or at the business office of Seller or its agents or otherwise, or at Seller’s option deliver to Purchaser, such documents, materials and information concerning the Property as Seller may have in its possession or under its control (including without limitation (i) lease files; (ii) copies of financial statements, if any, for the Property for the last three (3) years and copies of such historical information in the possession of Seller or Seller’s agents regarding operating expenses of the Property; (iii) guaranties, warranties, licenses, governmental permits (including certificates of occupancy); (iv) relevant, pertinent reports and agreements in the possession of Seller or Seller’s agents pertaining to the Property, if any (i.e., engineering reports, environmental reports, development records and as-built plans and specifications), excluding only (x) materials that Seller shall have obtained or developed in connection with the potential sale of the Property, including analyses of the value of the Property, and (y) materials that are subject to attorney-client privilege or work-product doctrine (collectively with the information described in Section 3.6(a) above, the “Due Diligence Documents”). Seller shall reasonably cooperate with Purchaser to obtain any consents required in connection with an assignment of any of the Due Diligence Documents. All of the Due Diligence Documents are confidential and shall not be distributed or disclosed by Purchaser to any person or entity not associated with Purchaser in accordance with Section 11.12 hereof. Seller agrees to deliver to Purchaser a copy of any written notices which Seller receives prior to Closing from any governmental authority pertaining to any violation of law or ordinance regulating the use of the Property which are received by Seller prior to the Closing Date and of any notice which Seller receives prior to Closing from any tenant regarding any default under any Lease. If the transaction fails to close for any reason whatsoever, Purchaser shall return to Seller all copies of the Due Diligence Documents which Seller or its agents may have delivered to Purchaser in accordance with this Section 3.6. THE FURNISHING OF ANY MATERIALS, DOCUMENTS, REPORTS, OR AGREEMENTS DESCRIBED ABOVE SHALL NOT BE INTERPRETED IN ANY MANNER AS A REPRESENTATION OR WARRANTY OF ANY TYPE OR KIND BY SELLER, ANY PARTNER OF SELLER OR AGENT OF SELLER, OR ANY OFFICER, DIRECTOR, OR EMPLOYEE OF SELLER, OR ITS AGENTS, OR ANY OTHER PARTY RELATED IN ANY WAY TO ANY OF THE FOREGOING. 8 --------------------------------------------------------------------------------      3.7 Tenant Estoppel Certificates      At least five (5) Business Days prior to the Closing, Seller shall deliver to Purchaser an estoppel certificate (the “Estoppel Certificate”) duly executed by Kotura, Inc. The Estoppel Certificate shall be in the form required under the terms of Kotura, Inc.’s Lease, as set forth on Exhibit I attached hereto. Seller shall not be deemed to be in default of its obligations under this Agreement as a result of Kotura’s failure to deliver the Estoppel Certificate, but any such failure shall constitute a failure of a condition under this Agreement. 4. CLOSING      4.1 Closing      The purchase and sale of the Property (“Closing”) shall occur on December 28, 2006 (the “Closing Date”); provided, however, that each of Seller and Purchaser shall be entitled to one (1) extension of the Closing Date for a period not to exceed two (2) days upon prior written notice thereof to the other party. Seller and Purchaser agree that this transaction shall close in escrow through the Title Company, Attn: Maggie Watson, which shall serve as escrow holder hereunder (“Escrow Holder”). In this regard, Seller and Purchaser shall execute Escrow Holder’s standard form general provisions and such other instructions consistent herewith as Escrow Holder may require and are reasonably acceptable to Seller and Purchaser; provided, however, nothing in such general provisions or instructions shall constitute an amendment to or modification of this Agreement and, in the event of any conflict, the terms of this Agreement shall prevail. Purchaser and Seller shall endeavor to conduct a “pre-closing” on the Business Day prior to the Closing Date with title transfer and payment of the Purchase Price to be completed on the Closing Date as set forth in Section 4.3 below.      4.2 Transactions at Closing      At least one (1) Business Day prior to the Closing Date:       (a)       Seller shall deliver or cause to be delivered to Escrow Holder the following documents (collectively, the “Conveyance Documents”) duly executed and acknowledged where appropriate:   (i)       A grant deed (the “Deed”) conveying the Real Property and the Improvements, subject to the Permitted Exceptions, in the form attached hereto as Exhibit E;     (ii) Bill of Sale in the form set forth on Exhibit B attached hereto, conveying the Personal Property to Purchaser;   (iii) Two counterparts of the Assignment and Assumption Agreement (the “Assignment”) in the form set forth on Exhibit C attached hereto, conveying all 9 --------------------------------------------------------------------------------                       interest of Seller as landlord in and to the Leases pertaining to the Real Property and Improvements as more specifically set forth on Schedule B to the Assignment and Assumption Agreement; and in and to any equipment leases, commission agreements and service contracts, as set forth on Schedules C, D and E, respectively, to the Assignment and Assumption Agreement;   (iv) Certificate of non-foreign status in the form set forth on Exhibit D attached hereto, to confirm that Purchaser is not required to withhold part of the Purchase Price pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended;   (v) Original executed copies of all Leases; provided, however, that the original Leases shall be held at the Property for delivery to the Purchaser incident to the Closing;   (vi) Information required by the Title Company to comply with the real estate reporting requirements set forth in Section 6045(e) of the Internal Revenue Code of 1986, as amended;   (vii) Certificate confirming that the representations and warranties of Seller under this Agreement remain true and correct in the form attached hereto as Exhibit G;   (viii) Evidence as to the authority of the person or persons executing documents on behalf of the Seller reasonably acceptable to Purchaser and the Title Company;   (ix) The Service Contracts which survive Closing, as provided in Section 9.5 below, together with such leasing and property files and records pertaining to day-to-day operation, leasing and maintenance of the Property, to the extent such files and records are in the possession of Seller or Seller’s building manager; provided, however, that such documentation shall be held at the Property for delivery to the Purchaser incident to the Closing, and provided, further, that proprietary information of Seller not relevant to the ownership or operation of the Property shall not be included. Until the earlier to occur of (i) the sale of the Property by Purchaser, or (ii) the expiration of a period of three (3) years after the Closing, Purchaser shall allow Seller and its agents and representatives reasonable access without charge but without cost to Purchaser to all files, records and documents delivered to Purchaser at the Closing upon reasonable advance notice and at all reasonable times, to examine and make copies of any and all such files, records and documents, which right shall survive the Closing;   (x) Affidavits as may be customarily and reasonably required by the Title Company, in form reasonably acceptable to Seller;   (xi) Closing Statement acceptable to Seller;   (xii) An updated Rent Roll in the same form as set forth as Schedule 4, certified by Seller as correct and complete as of the date of delivery thereof;   (xiii) keys to all locks on the Real Property and Improvements in Seller’s or Seller’s building manager’s possession; and 10 --------------------------------------------------------------------------------             (xiv)      Such other documents as may be reasonably necessary and appropriate to complete the Closing of the transaction contemplated herein.   (b)   Purchaser shall deliver to Escrow Holder the following:     (i) The Purchase Price as adjusted in Section 2.3 above, and as further adjusted to reflect the Purchaser’s share of closing costs, and any fees as more particularly set forth in Section 4.3 below;     (ii) Two counterparts of a duly executed and acknowledged Assignment (as described in Section 4.2(a)(iii) above);       (iii) Information required by the Title Company to comply with the real estate reporting requirements set forth in Section 6045(i) of the Internal Revenue Code of 1986, as amended;       (iv) Evidence of the authority of the person or persons executing documents on behalf of Purchaser reasonably acceptable to Seller and the Title Company;       (v) Certificate confirming that the representations and warranties of Purchaser under this Agreement remain true and correct in the form attached hereto as Exhibit H;       (vi) Closing Statement acceptable to Purchaser;       (vii) Affidavits as may be customarily and reasonably required by the Title Company, in form reasonably acceptable to Purchaser; and       (viii) Such other documents as may be reasonably necessary and appropriate to complete the Closing of the transaction contemplated herein.   (c)   Seller and Purchaser shall execute a tenant notification letter to all tenants under the Leases (the “Tenant Notification Letter”) in the form attached hereto as Exhibit F, and Purchaser shall, within forty-eight (48) hours following the Closing, cause the Tenant Notification Letter to be delivered to such tenants.      4.3 Title Transfer and Payment of Purchase Price      (a)      Purchaser agrees to deliver the cash payment specified in Section 4.2(b)(i) above by wiring the same to the Escrow Holder so that the wire may be confirmed in time to allow Closing to occur on the Closing Date. In addition, after all Purchaser’s conditions set forth in Section 7.2 have been satisfied or waived, Purchaser shall direct the Escrow Holder to deposit or wire the same into Seller’s designated account(s) upon the recording by the Title Company of the documents to be executed and delivered by Seller under Sections 4.2(a) above or upon issuance by the Title Company of, or unconditional agreement by the Title Company to issue, the Title Policy.   (b) Upon receipt of all items specified in Section 4.2 and following the satisfaction or waiver of all conditions precedent to Closing and upon Title Company issuing or committing to issue the Title Policy, Escrow Holder shall take the following actions: 11 --------------------------------------------------------------------------------                   (i)       Prorate any and all amounts to be prorated pursuant to Sections 5.1 and 5.2 below;   (ii) Date and cause to be recorded the Deed as of Closing and designate that the Deed be returned directly to Purchaser after recordation;   (iii) Issue the Title Policy to Purchaser;   (iv) Deliver the Deposit and the balance of the Purchase Price to Seller, plus or minus appropriate adjustments;   (v) Credit Purchaser with the total of any and all tenant security deposits then held by Seller under the Leases and any and all prorated rents and other items;   (vi) Deliver properly executed copies of the Closing Statement to Seller and to Purchaser, which Closing Statement shall have been approved by Seller and Purchaser prior to Closing;   (vii) Deliver to Seller a copy of the Deed as recorded and executed originals of all documents delivered by Purchaser to Escrow Holder pursuant to Section 4.2(b) above;   (viii) Deliver to Purchaser executed originals of all documents delivered by Seller to Escrow Holder pursuant to Section 4.2(a) above, other than the documents that are to be recorded (in which case Escrow Holder shall deliver Purchaser conformed copies thereof); and   (ix) Pay any broker’s commissions as provided herein.      4.4 Reporting Requirements      The Escrow Holder shall comply with all applicable federal, state and local reporting requirements relating to the closing of the transactions contemplated herein. Without limiting the generality of the foregoing, to the extent the transactions contemplated by this Agreement involve a real estate transaction within the purview of Section 6045 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), Escrow Holder shall have sole responsibility to comply with the requirements of Section 6045 of the Internal Revenue Code (and any similar requirements imposed by state or local law). Escrow Holder shall hold Purchaser, Seller and their respective counsel free and harmless from and against any and all liability, claims, demands, damages and costs, including reasonable attorneys’ fees and other litigation expenses, arising or resulting from the failure of Escrow Holder to comply with such reporting requirements. 5. PRORATIONS; CLOSING ITEMS      5.1 Prorations; Closing Costs       (a)       The parties shall endeavor to cause the utility and service providers of Seller to open new accounts with Purchaser effective as of the Closing Date. If that cannot be accomplished, the amount due on any gas, electric, water, sewer, or other utility bill, or service contract relating to the Property shall be prorated between Seller and Purchaser as of the Closing Date, to the extent such utilities or service contracts are the obligation of the Seller and not a direct or indirect obligation of a tenant under any of the Leases. Any utility deposits made by Seller shall be and remain the property of Seller. 12 --------------------------------------------------------------------------------       (b)       All collected rents and other payments from each tenant under the Leases, including, but not limited to, base rent, additional rent, percentage rent (if any), and expense reimbursements, shall be prorated between Seller and Purchaser as of the Closing Date. The balance remaining from any security deposits or prepaid rent under the Leases held by Seller shall be credited to Purchaser (including the balance of estimated tax, insurance and common area maintenance payments made to Seller by tenants under the Leases net of any payments by Seller thereon). Purchaser agrees to indemnify and hold harmless Seller from and against any loss, cost or expense (including, but not limited to, attorneys’ fees and expenses) resulting from any claim for such deposits or prepaid rent actually paid or credited to Purchaser. If any rent or other payments under the Leases are in arrears as of the Closing Date (“Delinquent Rents”), the amount of any such Delinquent Rents which are collected by Purchaser shall be promptly paid by Purchaser to Seller after Closing. Purchaser shall be entitled to deduct from any such payment (i) Purchaser’s reasonable costs of collection incurred with respect to such Delinquent Rents (including attorneys’ fees), (ii) rents and other payments due for the month in which such payment is received by Purchaser, and (iii) rents and other payments from such tenant attributable to any period after the Closing that are past due on the date of receipt. Purchaser agrees to include in its normal invoicing of tenants an appropriate statement seeking collection of any Delinquent Rents. Seller may make reasonable efforts to collect Delinquent Rents from and after the Closing Date; provided, however, that Seller shall not be entitled to pursue any action for eviction of any tenant from the Property. The provisions of this Section shall survive Closing and shall not be merged therein.   (c) All real estate taxes payable in respect of the Property shall be prorated as of the Closing Date; provided, Seller shall be entitled to recover any reimbursements from the tenants on account of such taxes for the period prior to Closing, and Purchaser shall immediately remit to Seller any such reimbursements received by Purchaser upon receipt thereof. Any real estate taxes due and payable for any periods subsequent to the Closing shall be the obligation of Purchaser and any real estate taxes due and payable for any periods prior to the Closing shall be the obligation of Seller, provided Purchaser shall cooperate with Seller to obtain any reimbursement from any tenant in respect of any such taxes. Seller and Purchaser agree to mutually cooperate with each other in connection with ongoing tax reduction proceedings relating to prior tax years, if any, and any ongoing or future proceedings relating to the year in which the Closing occurs, if any, and any refund resulting therefrom (to the extent not refundable to tenants under the Leases) shall be prorated between Seller and Purchaser based on the Closing Date, after deducting therefrom the reasonable out-of-pocket expenses incurred by the parties. The provisions of the immediately preceding two sentences shall survive Closing and shall not be merged therein.   (d) Purchaser shall pay for the cost of recording the Deed (excluding documentary transfer tax); the premium for the Title Policy in excess of the premium for a standard coverage policy; the cost of any endorsements (other than Seller Endorsements) and special or extended coverages of any nature in connection with the Title Policy; any recording fees with respect to the recordation of the documents relating to any Purchaser financing; one- half (1/2) of any escrow and closing fees charged by Escrow Holder; any surveys or updates prepared by or at the direction of Purchaser; any taxes payable on the transfer of the Personal Property; and any lender’s title insurance coverage on account of any loan   13 --------------------------------------------------------------------------------             obtained by Purchaser. Purchaser shall pay for all costs relating to any financing obtained by Purchaser in connection with its purchase of the Property, including any and all costs incurred by Purchaser in performing any tests and investigations. Seller shall pay for the premium for a standard coverage title policy in the amount of the Purchase Price; the cost of the Seller Endorsements (but not the cost of any endorsements or special or extended coverages other than the Seller Endorsements); the documentary transfer tax with respect to the recordation of the Deed; one-half (1/2) of any escrow and closing fees charged by Escrow Holder; any prepayment or reconveyance fee in connection with any payoff or release of any existing deed of trust or mortgage; and the recording fees with respect to documents which Seller elects to place of record in order to cure title objections raised by Purchaser to the extent Seller elects to cure the same, as fully described in Section 3.2. Each party shall pay its own attorneys’ fees.      5.2 Calculation of Prorations      For purposes of calculating prorations, Seller shall be deemed to be in title to the Property, and therefore entitled to the income therefrom and responsible for the expenses thereof, through the day prior to the Closing Date and Purchaser shall be deemed to be in title to the Property, and therefore entitled to the income therefrom and responsible for the expenses thereof, from and after 12:01 a.m. on the Closing Date. All prorations shall be made on the basis of the actual number of days of the year and month which have elapsed as of the Closing Date. All prorations which cannot be ascertained as of the Closing shall be prorated on the basis of the parties’ reasonable estimate of such amount. Except as otherwise stated above, if necessary, the amount of prorations shall be adjusted in cash after Closing, as and when complete and accurate information becomes available but in any event no later than ninety (90) days after the Closing Date; provided, however, the ninety (90) day period shall be extended for a reasonable time for any real property tax reduction or abatement proceeds, which are to be prorated between Purchaser and Seller pursuant to Section 5.1(c), and for any period of time which may be required for reconciliation of tax, insurance, and common area maintenance expenses for the calendar year in which the Closing Date occurs. Purchaser and Seller each agree to reasonably cooperate with the other with respect to such final proration. This provision shall survive Closing and shall not be merged therein. 6. REPRESENTATIONS AND WARRANTIES      6.1 Seller’s Representations and Warranties      Seller hereby represents and warrants to Purchaser as follows:       (a)       Seller’s Entity. Seller is a Delaware limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller has qualified as a foreign limited partnership in the state in which the Property is located, and the execution and performance of this Agreement will not violate any term of its limited partnership certificate or agreement, or any judicial decree, statute or regulation by which it may be bound or affected.   (b) Seller’s Authority. Seller has full power and authority to enter into this Agreement and to perform all its obligations hereunder, and has taken all action required by law, its governing instruments, or otherwise to authorize the execution, delivery and performance of this Agreement and all the deeds, agreements, certificates, and other documents contemplated herein, and this Agreement has been duly executed by and is a valid and binding agreement of Seller, enforceable in accordance with its terms, except as enforceability may be limited by equitable principles or by the laws of bankruptcy, insolvency, or other laws affecting creditors’ rights generally. 14 --------------------------------------------------------------------------------       (c)       No Conflict or Lien. Neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated herein will conflict with or result in a breach of any contract, license or undertaking to which Seller is a party or by which any of its property is bound, or constitute a default thereunder or, except as contemplated herein, result in the creation of any lien or encumbrance upon the Property.   (d) No Proceedings. No legal or administrative proceeding is (i) pending or to the best of Seller’s knowledge threatened against the Property or (ii) pending or to the best of Seller’s knowledge threatened against Seller which would materially adversely affect the Property or Seller’s right to convey the Property to Purchaser as contemplated in this Agreement.   (e) Leases; Service Contracts. Seller has delivered to Purchaser a correct and complete copy of each of the Leases and Service Contracts and any amendments thereto (Seller has advised Purchaser that Kotura, Inc. is the only tenant in the building and that there are no Service Contracts). The information regarding the Leases contained on the Rent Roll attached as Schedule 4, which identifies all tenants of the Property as of the Effective Date, is correct and complete as of the date of this Agreement. Except as set forth on Schedule 4, no commissions, tenant improvement costs or reimbursements for improvements are due or could become due from Seller in connection with the Leases. To the knowledge of Seller, each of the Leases and Service Contracts is in full force and effect, no notice has been given of any cancellation or surrender thereof, and neither Seller nor the tenant or other party is in default thereunder. Other than this Agreement, there are no contracts or agreements in effect relating to the sale, exchange or transfer of the Property or any part thereof to a third party purchaser.   (f) Violations. Seller has no knowledge of and has not received written notice from any governmental body, authority or agency of any violation of federal, state or local laws, ordinances, codes, rules or regulations affecting the Property, including any notice with respect to any Hazardous Materials (as hereinafter defined) or of any violation of any insurance requirements relative to the Property, any matters identified in which have not been corrected.   (g) Condemnation. Seller has no knowledge of and has received no written notice of any pending or threatened condemnation proceedings relating to the Property.   (h) Commissions. Except as set forth on Schedule 4, no leasing commissions are due and payable with respect to the existing terms of the Leases; provided, however, that nothing contained in this Section 6.1(h) shall be construed in any way to modify the obligations with respect to leasing commissions and tenant improvements described in Sections 9.2 and 9.3 hereof.   (i) Service Contracts. All material Service Contracts affecting the Property are accurately set forth on Schedule 3 hereto. Except for the Service Contracts and Leases, Seller has not entered into any contracts, subcontracts or agreements affecting the Property (including outstanding offers or proposals given by Seller) that will be binding upon Buyer after the Closing. 15 --------------------------------------------------------------------------------       (j)       Bankruptcy. No petition has been filed by Seller, nor has Seller received written notice of any petition filed against Seller, under the Federal Bankruptcy Code or any similar state or federal Law.   (k) Kotura, Inc. Right of First Offer. Kotura, Inc. has waived its right of first offer under Section 33 of the Lease and Seller may sell the Property as provided for herein without any further duty or obligation to Kotura, Inc. with respect thereto.      Except with respect to the warranties set forth in Section 6.1, Seller has not made any warranty or representation, express or implied, written or oral, concerning the Property, including without limitation any representations relating to Hazardous Materials (as defined in Section 6.3(c) below).      All representations and warranties of Seller contained herein are intended to and shall remain true and correct as of the Closing and shall survive the delivery of the Deed for a period of one (1) year after Closing and shall thereafter expire unless a claim thereunder has been commenced in compliance with the next sentence and diligently pursued thereafter. Any claims by Purchaser with respect to such representations or warranties shall be commenced by written notice to Seller within one (1) year after closing and shall be diligently pursued thereafter or shall be deemed waived by Purchaser. Notwithstanding the foregoing, Purchaser shall have no claim against Seller with respect to the representations and warranties set forth in this Section 6.1 if Purchaser had actual knowledge that a representation or warranty was untrue or inaccurate or incorrect as of the time of Closing and Purchaser nevertheless chose to proceed with Closing hereunder.      Whenever in this Agreement a representation of Seller is based on the “Seller’s knowledge” or words of similar import, such reference shall be deemed to be to the actual knowledge of Robert F. Gossett, Jr., without investigation or inquiry of any kind. There shall be no personal liability to said individual arising out of said representations or warranties. No knowledge of parties affiliated with, employed by, or related by agency to Seller shall be imputed to Seller or to the above-named person.      Notwithstanding anything to the contrary contained in this Agreement, the aggregate amount which may be collected by Purchaser pursuant to the representations and warranties of Seller set forth herein shall not exceed $200,000, plus any legal fees and costs awarded under Section 11.2.      6.2 Purchaser’s Representations and Warranties      Purchaser represents, warrants, and covenants to Seller that:       (a)       Authority to Execute; Organization. This Agreement constitutes the valid and binding obligation of Purchaser and is enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by equitable principles or by the laws of bankruptcy, insolvency, or other laws affecting creditors’ rights generally. Purchaser is a corporation validly organized and in good standing under the laws of the state of its organization, and the execution of this Agreement, delivery of money and all required documents, Purchaser’s performance of this Agreement and the transaction contemplated hereby have been duly authorized by the requisite action on the part of the Purchaser and Purchaser’s directors, shareholders, partners, members or trustees.   (b) Recording. Purchaser shall not record this Agreement or a memorandum hereof at any time. 16 --------------------------------------------------------------------------------       (c)       Litigation. There is no litigation pending or, to Purchaser’s knowledge, threatened, against Purchaser or any basis therefore before any court, regulatory authority or administrative agency that would likely result in any material adverse change in the business or financial condition of the Purchaser.   (d) Purchaser Experience. Purchaser is experienced in contracting for and investigating the suitability of real property similar to the Property for the acquisition thereof for investment purposes and is represented or has had an opportunity to be represented by counsel in connection with this transaction. Purchaser has the responsibility under this Agreement to inspect the Property and the real estate market in sufficient detail to fully satisfy itself with respect to the environmental conditions and the market conditions affecting the Property including, without limitation, property values, interest rates, and similar market factors. Purchaser has reached its conclusions based upon its own analysis and, other than as expressly set forth in this Agreement, without relying upon representations by Seller, its employees, agents or consultants.   (e) Terrorist Organizations. Purchaser is not acting, directly or indirectly, for or on behalf of any person, group, entity or nation named by the United States Treasury Department as a Specifically Designated National and Blocked person, or for or on behalf of any person, group, entity or nation designated in Presidential Executive Order 13224 as a person who commits, threatens to commit, or supports terrorism; and it is not engaged in this transaction directly or indirectly on behalf of, or facilitating this transaction directly or indirectly on behalf of, any such person, group, entity or nation.      6.3 Purchaser Accepts Property “As Is”       (a)       Purchaser Acknowledgment. As of the expiration of the Inspection Period, Purchaser acknowledges for Purchaser and Purchaser’s successors, heirs and assignees, (i) that Purchaser has been given full opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, either independently or through agents and experts of Purchaser’s choosing, (ii) that Purchaser is acquiring the Property based solely upon Purchaser’s own investigation and inspection thereof and Seller’s representations and warranties set forth in Section 6.1, and (iii) that the provisions of this Section 6.3(a) shall survive Closing and shall not be merged therein. SELLER AND PURCHASER AGREE THAT UPON CLOSING THE PROPERTY SHALL BE SOLD AND THAT PURCHASER SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE “AS IS, WHERE IS, WITH ALL FAULTS” WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE PURCHASE PRICE, AND THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN SECTION 6.1, SUCH SALE SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTY OF INCOME POTENTIAL, OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND SELLER DOES HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY. PURCHASER SPECIFICALLY ACKNOWLEDGES THAT PURCHASER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, SELLER’S AGENTS OR BROKERS, AS TO ANY MATTER CONCERNING THE PROPERTY (EXCEPT FOR THE WARRANTIES SPECIFICALLY SET FORTH IN SECTION 6.1), INCLUDING WITHOUT LIMITATION: (l) THE CONDITION OR SAFETY OF THE PROPERTY 17 --------------------------------------------------------------------------------             OR ANY IMPROVEMENTS THEREON, INCLUDING, BUT NOT LIMITED TO, PLUMBING, SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY, FOUNDATIONS, SOIL AND GEOLOGY INCLUDING HAZARDOUS MATERIALS (AS HEREINAFTER DEFINED), LOT SIZE, OR SUITABILITY OF THE PROPERTY OR ITS IMPROVEMENTS FOR A PARTICULAR PURPOSE; (2) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES ARE IN WORKING ORDER; (3) THE HABITABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (4) THE FITNESS OF ANY PERSONAL PROPERTY; OR (5) WHETHER THE IMPROVEMENTS ARE STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES, INCLUDING, WITHOUT LIMITATION THE REQUIREMENTS OF THE AMERICANS WITH DISABILITIES ACT, 42 USCA § 12101 et. seq. SUBJECT ONLY TO THE WARRANTIES EXPRESSLY SET FORTH IN SECTION 6.1, PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT IT IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY AND NOT UPON ANY REPRESENTATIONS MADE TO IT BY SELLER, ITS OFFICERS, DIRECTORS, CONTRACTORS, AGENTS OR EMPLOYEES. ANY REPORTS, REPAIRS OR WORK REQUIRED BY PURCHASER ARE TO BE THE SOLE RESPONSIBILITY OF PURCHASER AND PURCHASER AGREES THAT THERE IS NO OBLIGATION ON THE PART OF SELLER TO MAKE ANY CHANGES, ALTERATIONS, OR REPAIR TO THE PROPERTY AND PURCHASER ACKNOWLEDGES THAT, IN THE EVENT THAT PURCHASER ELECTS TO PROCEED TO CLOSING PRIOR TO THE EXPIRATION OF THE INSPECTION PERIOD AS PROVIDED IN THIS AGREEMENT, PURCHASER WILL HAVE COMPLETED ITS DUE DILIGENCE WITH RESPECT TO THE PROPERTY TO ITS SATISFACTION.   (b) No Claim for Hazardous Materials. Except to the extend arising out of a breach of any representations or warranties expressly set forth in this Agreement and then subject to the specific limitations on liability therefore provided in Section 6.1 of this Agreement, upon Closing, Purchaser, for Purchaser and Purchaser’s successors in interest, releases Seller from, and waives all claims and liability which Purchaser may have against Seller for, any structural, physical and environmental condition of the Property, including without limitation the presence, discovery or removal of any Hazardous Materials in, at, about or under the Property, or for, connected with or arising out of any and all claims or causes of action based upon the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), the Resource Conservation and Recovery Act (“RCRA”), the Toxic Substances Control Act (the “TSCA”), as such acts may be amended from time to time, or any other federal or state statutory or regulatory cause of action arising from or related to Hazardous Materials at, in or under the Property (collectively, the “Hazardous Waste Laws”). The waiver and release of Purchaser set forth in this Section 6.3(b) shall survive the Closing Date and shall be enforceable at any time after the Closing Date.   (c) “Hazardous Materials” Defined. For purposes of this Agreement, the term “Hazardous Material” shall mean any substance, chemical, waste or material that is or becomes regulated by any federal, state or local governmental authority because of its toxicity, infectiousness, radioactivity, explosiveness, ignitability, corrosiveness or reactivity, including, without limitation, those substances regulated by the Hazardous Waste Laws. 18 --------------------------------------------------------------------------------       (d)       No Representations as to Hazardous Materials. Purchaser acknowledges that Seller has made no representations or warranties whatsoever to Purchaser regarding the presence or absence of any Hazardous Materials in, at, or under the Property; provided, however, that Seller and Purchaser acknowledge that Seller has made certain representations as to no proceedings, notices received, knowledge or otherwise as more specifically set forth in Sections 6.1 (d), (f) and (g). Purchaser has made such studies and investigations, conducted such tests and surveys, and engaged such specialists as Purchaser has deemed appropriate to evaluate fairly the Property and its risks from an environmental and Hazardous Materials standpoint. 7. CONDITIONS TO CLOSING      7.1 Seller’s Conditions      The obligation of Seller to sell and convey the Property under this Agreement is subject to the satisfaction of the following conditions precedent or conditions concurrent (the satisfaction of which may be waived only in writing by Seller):       (a)       Delivery and execution by Purchaser to Escrow Holder of all monies, items, and other instruments required to be delivered by Purchaser to Escrow Holder and the performance by Purchaser of all its obligations under this Agreement;   (b) Purchaser’s covenants, warranties, and representations set forth herein shall be true and correct as of the Closing Date; and   (c) There shall be no uncured default by Purchaser of any of its obligations under this Agreement.      7.2 Purchaser’s Conditions      The obligation of Purchaser to acquire the Property under this Agreement is subject to the satisfaction of the following conditions precedent or conditions concurrent:       (a)       Delivery and execution by Seller to Escrow Holder of all monies, items and other instruments to be delivered by Seller to Escrow Holder and the performance by Seller of all its obligations under this Agreement, provided, however, that the original Leases and Service Contracts which survive Closing, and the leasing and property files and records pertaining to day-to-day operation, leasing and maintenance of the Property, to the extent same are in the possession of Seller, shall be held at the Property for delivery to the Purchaser incident to Closing;   (b) Seller’s covenants, warranties and representations set forth herein shall be true and correct as of the Closing Date;   (c) There shall be no uncured default by Seller of any of its obligations under this Agreement; and   (d) Title Company shall be irrevocably committed to issue the Title Policy subject only to the Permitted Exceptions.   19 --------------------------------------------------------------------------------      7.3 Failure of Condition       (a)       In the event of a failure of any condition contained in Section 7.1 or 7.2 above which is not the result of a default by either party, the party for whose benefit the condition existed may either waive the condition and proceed to Closing or may terminate this Agreement in which event the Deposit and all documents and funds deposited by Purchaser shall be immediately returned to Purchaser, all documents deposited by Seller shall be immediately returned to Seller, and neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12);   (b) In the event of a failure of any condition contained in Section 7.2 above due to a default by Seller, then Purchaser may in its sole discretion:     (i)       terminate this Agreement in which event the Deposit and all documents and funds deposited by Purchaser shall be immediately returned to Purchaser, all documents deposited by Seller shall be immediately returned to Seller, and upon such termination, neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12);     (ii) pursue specific performance of Seller’s obligation to convey the Property to Purchaser in accordance with the terms of this Agreement; or     (iii) waive such default and close the transaction.   (c) In the event of a failure of any condition contained in Section 7.1 above due to a default by Purchaser after the expiration of the Inspection Period, Seller may in its sole discretion:     (i) terminate this Agreement and retain as liquidated damages the Deposit, as described in Article 12, in which event all documents deposited by Purchaser shall be immediately returned to Purchaser, and all documents deposited by Seller shall be immediately returned to Seller, copies of all third party reports obtained by Purchaser shall be delivered to Seller in accordance with Section 3.5, and neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12); or     (ii) waive such default and close the transaction.   (d) Seller waives any rights it may have to specific performance in the event of a default by Purchaser with the exclusive remedy of Seller being the right to liquidated damages more fully described in Section 12 hereof. Purchaser waives any right to any claim of any nature for damages or otherwise in the event of a default by Seller and Purchaser acknowledges that its exclusive remedies in the event of a default by Seller shall be to either terminate this Agreement in accordance with Section 7.3(b)(i) above, to seek specific performance in accordance with Section 7.3(b)(ii) above, or waive such default and close the transaction in accordance with Section 7.3(b)(iii) above. 20 -------------------------------------------------------------------------------- 8. DAMAGE OR DESTRUCTION OF THE PROPERTY; CONDEMNATION      8.1 Damage or Destruction of the Property      (a)      If, between the Effective Date and the Closing Date, the Property is Materially Damaged or Destroyed (as hereinafter defined), Purchaser may elect in writing, within ten (10) Business Days after receipt of notice by Purchaser from Seller of such damage or destruction (the “Casualty Notice Date”), accompanied by information regarding the amount and payment of insurance, to terminate this Agreement or to purchase all of the Property without regard to such damage or destruction. If Purchaser fails to notify Seller of Purchaser’s election, Purchaser will be deemed to have elected not to proceed with the purchase of all of the Property. If Purchaser elects not to proceed, this Agreement shall terminate in which event the Deposit and all documents and funds deposited by Purchaser shall be immediately returned to Purchaser, all documents deposited by Seller shall be immediately returned to Seller, and neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12). In the event that Purchaser purchases the Property, Seller shall have no obligation to repair any such damage or destruction, nor shall the Purchase Price be adjusted except as provided in 8.1(b) below. “Materially Damaged or Destroyed” shall mean damage or destruction the repair or replacement of which either would not be permitted due to the then effective requirements of any applicable law, ordinance, rule or  regulation of any governmental or quasi-governmental agency having jurisdiction, or, as determined by a licensed general contractor having at least five (5) years experience in the construction of commercial office buildings, selected by Seller and reasonably approved by Purchaser, would exceed Five Hundred Thousand Dollars ($500,000) as to any casualty of a type against which insurance is maintained (a “Major Insured Casualty”) or would exceed Two Hundred Fifty Thousand Dollars ($250,000) as to any casualty against which insurance is not maintained (a “Major Uninsured Casualty”). As used herein, repair or replacement means such repair or replacement to the Improvements as may be required to restore the Improvements to a condition having substantially the same design, specifications and equipment of the Improvements immediately prior to the casualty. If, between the Effective Date and the Closing Date, the Property sustains damage which is not within the definition of Materially Damaged or Destroyed, the parties shall proceed to Closing. If between the Effective Date and the Closing Date, the Property is Materially Damaged or Destroyed due to a Major Uninsured Casualty, Seller may elect in writing, within five (5) days after the Casualty Notice Date, to terminate this Agreement. If Seller fails to notify Purchaser of Seller’s election, Seller will be deemed to have elected not to proceed with the sale of all of the Property.    (b) If Purchaser elects or is required to purchase the Property despite such damage or destruction, Seller shall assign its rights to and Purchaser shall be entitled to receive any insurance proceeds (with any accrued interest thereon) at or after Closing (as the same are available) and Purchaser shall receive a credit toward the Purchase Price (i) for the insurance deductible relative to Seller’s insurance on the Property with respect to an insured casualty, including a Major Insured Casualty, or (ii) for the cost of repair not covered by insurance with respect to an uninsured casualty, including a Major Uninsured Casualty. Seller shall reasonably cooperate with Purchaser to allow Purchaser to collect any available insurance proceeds. Seller agrees to maintain until the Closing the level of insurance coverage in effect on the Property as of the Effective Date.    (c) If, as a result of any casualty, any determination, election or agreement required by the terms of this Section 8.1 is not made by the scheduled Closing Date, the Closing Date shall be extended for an appropriate time, not to exceed twenty (20) days, after such determination, election or agreement. 21 --------------------------------------------------------------------------------      8.2 Condemnation      If prior to Closing all or any part of the Property is subject to a proposed taking by any public authority, Seller shall promptly notify Purchaser in writing of such proposed taking and Purchaser may terminate this Agreement by notice to Seller within fifteen (15) days after written notice thereof. If Purchaser so elects, this Agreement shall terminate in which event the Deposit and all documents and funds deposited by Purchaser shall be immediately returned to Purchaser, all documents deposited by Seller shall be immediately returned to Seller, and neither party shall have any further rights or obligations hereunder (except as set forth in Sections 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12) . If Purchaser does not so elect to terminate this Agreement, Purchaser shall accept the Property subject to the taking without a reduction in the Purchase Price and shall receive at Closing an assignment of all of Seller’s rights to any condemnation award to the extent that such amount does not exceed the Purchase Price plus any legal fees and expenses actually expended in obtaining such award, with any condemnation award in excess of such amount to be divided equally between Seller and Purchaser. Seller shall reasonably cooperate with Purchaser to allow Purchaser to collect any such award. 9. COMMISSIONS AND EXPENSES; COVENANTS      9.1 Payment of the Sale Commission      Purchaser and Seller represent and warrant to each other that no real estate broker or agent has been authorized to act on either parties’ behalf except (a) Trenton Bonner/Grubb & Ellis/BRE Commercial (“Seller’s Agent”) and (b) Steve Sprenger/Grubb & Ellis Company (Buyer’s Agent”). Seller will pay or cause to be paid to Seller’s Agent and Buyer’s Agent, at Closing, their respective commission payable pursuant to their applicable commission agreements. No commissions will be due if the Closing does not occur. Purchaser hereby indemnifies Seller and holds Seller harmless from and against any and all demands or claims which now or hereafter may be asserted against Seller for any brokerage fees, commissions or similar types of compensation which may be claimed by any broker which was engaged or which claims to have been engaged by Purchaser and all expenses and costs in handling or defending any such demand or claim, including reasonable attorneys’ fees. Seller hereby indemnifies Purchaser and holds Purchaser harmless from and against any and all demands or claims which now or hereafter may be asserted against Purchaser for any brokerage fees, commissions or similar types of compensation which may be claimed by any broker which was engaged or which claims to have been engaged by Seller and all expenses and costs in handling or defending any such demand or claim, including reasonable attorneys’ fees. This provision shall survive (i) any termination of this Agreement and (ii) the Closing and shall not be merged therein.      9.2 Leasing Commissions/Tenant Improvements      (a)      Seller shall pay all leasing commissions or tenant improvement costs payable under Leases executed prior to the Effective Date except for commissions and costs payable by reason of any expansion, extension or renewal of such Leases (but only to the extent such expansions, extensions or renewals are pursuant to option rights expressly set forth in such Leases as of the Effective Date, herein called the “Existing Rights”) occurring on or after the Effective Date, which shall be paid by Seller and Purchaser as hereinafter provided. A summary of the business terms of any amendment, renewal or expansion of  22 --------------------------------------------------------------------------------   an existing Lease (unless such renewal or expansion is pursuant to and in accordance with the terms of any Existing Rights, in which case Seller and Purchaser agree that any such renewal or expansion shall be effective upon the valid exercise by a tenant pursuant to the terms of any such Existing Rights) or of any new Lease which Seller wishes to execute between the Effective Date and the Closing Date will be submitted to Purchaser prior to execution by Seller. Purchaser agrees to notify Seller in writing within five (5) Business Days after its receipt thereof of either its approval or disapproval thereof, including all leasing commissions, tenant improvement and inducement payments to be incurred in connection therewith. If Purchaser informs Seller within such five (5) Business Day period that Purchaser does not approve the amendment, renewal or expansion of the existing Lease or the new Lease (a “New Lease Agreement”), and such notice is given after the expiration of the Inspection Period, then Seller shall not enter into the proposed New Lease Agreement. If such notice is given prior to the Out Date, Seller may elect by written notice to the Purchaser prior to the Out Date, (i) not to enter into the proposed New Lease Agreement or (ii) to proceed with such New Lease Agreement; provided, however, that in the event that Seller elects to proceed with such New Lease Agreement and the parties shall thereafter proceed to Closing, all leasing commissions, tenant improvement costs, inducement payments, attorneys’ fees or other fees payable incident to the initial tenancy under such New Lease Agreement shall be paid by Seller. In the event Purchaser fails to notify Seller in writing of its approval or disapproval of any New Lease Agreement within the five (5) Business Day period set forth above, Purchaser shall be deemed to have approved such New Lease Agreement. All leasing commissions and tenant improvement costs, inducement payments, attorneys’ fees and other fees paid or expenses incurred with respect to any New Lease Agreement (regarding which Seller has advised Purchaser in the requisite summary of business terms delivered to Purchaser as required above) approved or deemed approved by Purchaser as set forth above in this Section 9.2(a) shall be the obligation of Purchaser and Seller, divided pro rata based upon an allocation determined by the rental income received by Seller relative to such New Lease Agreement prior to Closing and the total rental income projected to be paid during the initial term of such New Lease Agreement.          (b)      To the extent Seller shall be obligated for any leasing commissions, tenant improvement costs, inducement payments, attorneys’ fees or other fees payable in connection with any Lease or New Lease Agreement pursuant to Section 9.2(a) above for which actual payment thereof has not been made by or on behalf of Seller on or before the Closing, Purchaser shall receive a credit at Closing for all such unpaid commissions, costs, expenses and fees.       9.3 Lease Expense Reimbursement and Assumption      At Closing, Purchaser shall (i) reimburse Seller for all leasing commissions, tenant improvement costs, inducement payments, attorneys’ fees and other fees paid or expenses incurred by Seller under any New Lease Agreement made on or after the Effective Date, if any, which has been approved or deemed approved by Purchaser pursuant to Section 9.2, less the pro rata share of all such costs and expenses otherwise payable by Seller pursuant to the last sentence of Section 9.2(a) above and (ii) assume all obligations of the landlord under Leases which either (a) arise after Closing or (b) are continuing covenants of the landlord which apply after Closing, if any. 23 --------------------------------------------------------------------------------      9.4 Maintenance of the Property; Property Personnel      Between Seller’s execution of this Agreement and the Closing, Seller shall continue to operate the Property in a manner consistent with the historical operations of the Property, and shall maintain the Property in its existing condition and repair, reasonable wear and tear excepted.      9.5 Service Contracts      Seller shall not, after the date of this Agreement, enter into any service contract affecting the Property or any amendment thereof, which shall be an obligation of Purchaser after Closing, or waive, compromise or settle any rights of Seller under any Service Contract which shall be assumed by Purchaser upon Closing, or agree to, or modify, amend, or terminate any Service Contract which shall be assumed by Purchaser upon Closing, without in each case obtaining Purchaser’s prior written consent thereto. Seller shall terminate at or before Closing those existing Service Contracts that Seller is contractually entitled to terminate without cost and that Purchaser designates to Seller, on or before the Out Date, as not to survive Closing (Seller has advised Purchaser that there are no Service Contracts).      9.6 Covenant Not to Encumber Property.      Seller covenants and agrees not to voluntarily place any additional liens, encumbrances or easements against the Property following the Effective Date without the prior consent of Purchaser, which consent may be withheld or delayed in Purchaser’s sole and absolute discretion. 10. NOTICES      All notices, requests or demands to a party hereunder shall be in writing and shall be effective (i) when received by overnight courier service or facsimile telecommunication (provided that a copy of such notice, request or demand is deposited into the United States mail within one (1) Business Day of the facsimile transmission), or (ii) three (3) days after being deposited into the United States mail (sent certified or registered, return receipt requested), in each case addressed as follows (or to such other address as Purchaser or Seller may designate in writing in accordance with this Section 10):                If to Seller:   Corporate Realty Income Fund I, L.P.  475 Fifth Avenue, 21st Floor  New York, New York 10017  Attention: Robert F. Gossett, Jr.      With a copy to:    Arnold & Porter LLP  399 Park Avenue  New York, New York 10022  Attention: Michael J. Canning, Esq.  24 -------------------------------------------------------------------------------- If to Purchaser:                   Great American Capital  8350 W. Sahara Ave. Suite 210  Las Vegas, NV 89117  Attention: Mr. Haskel Iny      With a copy to:    Santoro, Driggs, Walch,       Kearney, Johnson & Thompson  400 South Fourth Street, Third Floor  Las Vegas, NV 89101  Attention: Andrew J. Glendon, Esq.      If to Escrow Holder:    Chicago Title Insurance Company  24300 Tower Center Drive-Suite No. 320  Valencia, CA 91355  Attention: Maggie Watson  11. MISCELLANEOUS      11.1 Time      Time is of the essence in the performance of each party’s obligations hereunder.      11.2 Attorneys’ Fees      If any legal action, arbitration or other proceeding is commenced to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to an award of its attorneys’ fees and expenses. The phrase “prevailing party” shall include a party which receives substantially the relief desired whether by dismissal, summary judgment, judgment or otherwise. This provision shall survive (i) any termination of this Agreement and (ii) the Closing and shall not be merged therein.      11.3 No Waiver      No waiver by any party of the performance or satisfaction of any covenant or condition shall be valid unless in writing and shall not be considered to be a waiver by such party of any other covenant or condition hereunder.      11.4 Entire Agreement      This Agreement contains the entire agreement between the parties regarding the Property and supersedes all prior agreements, whether written or oral, between the parties regarding the same subject. This Agreement may only be modified in writing. 25 --------------------------------------------------------------------------------      11.5 Survival      Except for (i) the representations and indemnity obligations of Purchaser and Seller under this Agreement, (ii) the post-closing obligations of Purchaser and Seller under this Agreement and (iii) as otherwise specifically provided in this Agreement, none of the agreements, warranties and representations contained herein shall survive Closing.      11.6 Successors      Subject to Section 11.7, this Agreement shall bind and inure to the benefit of the parties hereto and to their respective legal representatives, successors and permitted assigns.      11.7 Assignment      Purchaser shall be entitled, without Seller’s prior consent, to assign some or all of Purchaser’s rights in and to this Agreement to one or more entities affiliated with Purchaser (a “Permitted Assignee”). Seller’s written consent shall be required for any other assignment of Purchaser’s rights to a nominee under this Agreement. Any attempted unpermitted assignment, except with Seller’s prior written consent, shall be ineffective and shall constitute a default under this Agreement. Notwithstanding any assignment hereunder, Purchaser shall remain liable for the obligations of Purchaser under this Agreement. Purchaser represents, warrants and certifies to Seller that Purchaser has not assigned, transferred or encumbered or agreed to assign, transfer or encumber, directly or indirectly, all or any portion of its rights or obligations under this Agreement. Purchaser shall give written notice of any proposed assignment at least five (5) Business Days prior to Closing. If there is an assignment permitted hereunder or if Seller approves such assignment, Seller shall have no obligation to reissue any surveys, or title commitments previously delivered to Purchaser, nor shall Seller be responsible for any costs or expenses of any nature associated with such transfer.      11.8 Relationship of the Parties      The parties acknowledge that neither party is an agent for the other party, and that neither party shall or can bind or enter into agreements for the other party.      11.9 Governing Law      This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of California.      11.10 Possession; Risk of Loss      Seller shall deliver to Purchaser possession of the Property on the Closing Date, subject only to the Leases and Permitted Exceptions. All risk of loss or damage with respect to the Property shall pass from Seller to Purchaser upon Closing.      11.11 Review by Counsel      The parties acknowledge that each party and its counsel have reviewed and approved this Agreement, and the parties hereby agree that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. 26 --------------------------------------------------------------------------------      11.12 Confidentiality      (a)      Seller and Purchaser hereby covenant and agree that, at all times after the date of execution hereof and prior to the Closing, unless consented to in writing by the other party, no press release or other public disclosure concerning this transaction shall be made, and each party agrees to use commercially reasonable efforts to prevent disclosure of this transaction, other than (i) to directors and officers of the parties, limited partners, members and/or shareholders of Seller, Purchaser or Permitted Assignee, and employees, prospective lenders of Purchaser or Permitted Assignee, attorneys, accountants, agents and affiliates of the parties who are involved in the ordinary course of business with this transaction, all of which shall be instructed to comply with the confidentiality provisions hereof, or (ii) as required by law or in response to lawful process or subpoena or other valid or enforceable order of a court of competent jurisdiction.    (b) Notwithstanding anything to the contrary contained elsewhere herein, Purchaser hereby acknowledges that all information furnished by Seller or its agents or representatives to Purchaser or obtained by Purchaser in the course of Purchaser’s investigation of the Property, or in any way arising from or relating to any and all studies or entries upon the Property by Purchaser, its agents or representatives, shall be treated as confidential information and further, that if any such confidential information is disclosed to unpermitted third parties prior to the Closing, Seller may suffer damages and irreparable harm. In connection therewith, Purchaser hereby expressly understands, acknowledges and agrees (i) that Purchaser will not disclose any of the contents or information contained in or obtained as a result of any reports or studies made in connection with Purchaser’s investigation of the Property, in any form whatsoever (including, but not limited to, any oral information received by Purchaser during the course of Purchaser’s inspection of the Property), to any party prior to the Closing other than (a) the Seller, Seller’s employees, agents or representatives, or Purchaser’s or a Permitted Assignee’s agents, employees, representatives, attorneys, consultants or potential institutional lenders without the prior express written consent of Seller (which consent shall not be unreasonably withheld) or (b) as required by law or in response to lawful process or subpoena or other valid and enforceable order of a court of competent jurisdiction; (ii) that in making any disclosure of such information as permitted hereunder, Purchaser will advise said parties of the confidentiality of such information and the potential of damage to Seller as a result of any disclosure of such information by said third party; and (iii) that Seller is relying on Purchaser’s covenant not to disclose any of the contents or information contained in any such reports or investigations to unpermitted third parties prior to Closing (all of which is deemed to be confidential information by the provisions of this Section). In the event this Agreement is terminated, Purchaser agrees to return to Seller all information, studies, or reports Purchaser or Purchaser’s agents have obtained from Seller or Seller’s agents, contractors or representatives with respect to the Property or the condition of the Property. In the event either Purchaser or Purchaser’s agents, employees, representatives, attorneys, consultants or potential institutional lenders cause a breach of Purchaser’s duty of confidentiality hereunder, Purchaser shall be liable to Seller for damages and Seller may pursue all of its remedies afforded it under this Agreement. This provision shall survive (i) any termination of this Agreement and (ii) the Closing and shall not be merged therein.    (c) Notwithstanding the foregoing, in no event shall the requirements regarding confidentiality of certain information include or apply to information or data: (i) generally publicly known, or (ii) that is a matter of public record. 27 --------------------------------------------------------------------------------      11.13 Termination      Upon termination of this Agreement for any reason by either party, Purchaser shall have the obligation to return to Seller all Due Diligence Documents and copies thereof (including the survey) and any other information or documentation received by Purchaser from Seller or Seller’s agents with respect to the Property and shall not disclose to any unpermitted third party the contents thereof.      11.14 Waiver of Jury Trial      THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT EITHER PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE PROPERTY, THE CONVEYANCE DOCUMENTS OR ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH, OR IN RESPECT OF ANY COURSE OF CONDUCT, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS TRANSACTION. PURCHASER’S INITIALS: /s/ SELLER’S INITIALS: RFG      11.15 Counterparts      This Agreement may be executed in one or more counterparts, each of which will be deemed an original, and the counterparts taken together shall constitute a single agreement.      11.16 Limitation on Liability      Purchaser expressly agrees that the obligations and liabilities of Seller under this Agreement and any document referenced herein shall not constitute personal obligations of the officers, directors, employees, agents, affiliates, members, representatives, partners, stockholders or other principals and representatives of Seller. Notwithstanding anything to the contrary, Seller’s liability, if any, arising in connection with this Agreement or with the Property shall, prior to Closing, be limited to the remedies as set forth in Section 7.3 of this Agreement and, post-Closing, shall be limited in accordance with Section 6.1 of this Agreement. The limitations of liability contained in this section shall apply equally and inure to the benefit of Seller’s present and future officers, directors, affiliates, members, representatives, trustees, partners, shareholders, agents and employees, and their respective heirs, successors and assigns.      Notwithstanding anything to the contrary, Purchaser’s liability, if any, arising in connection with this Agreement or with the Property shall, prior to Closing, be limited to the remedies as set forth in Section 7.3 of this Agreement. Without limiting the foregoing, Purchaser and Seller covenant and agree that Purchaser does not assume any liability, obligation or expense of Seller relating to the Property accruing prior to the Closing Date, except as expressly set forth in this Agreement.      11.17 Partial Invalidity      If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 28 --------------------------------------------------------------------------------      11.18 Construction      Headings at the beginning of each section and subsection are solely for the convenience of Purchaser and Seller and are not a part of this Agreement and shall have no effect upon the construction or interpretation of any part hereof. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine, and vice versa. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if Purchaser and Seller had prepared the same. Unless otherwise indicated, all references to sections and subsections are to this Agreement. All Exhibits referred to in this Agreement are attached hereto and incorporated herein by this reference. In the event the stated date for Closing or the date on which Purchaser or Seller is required to take any action under the terms of this Agreement is not a Business Day, the action shall be taken on the next succeeding Business Day thereafter. 12. LIQUIDATED DAMAGES      IF ESCROW DOES NOT CLOSE DUE TO BREACH OR DEFAULT BY PURCHASER IN ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT AFTER THE INSPECTION PERIOD, THEN IN ACCORDANCE WITH SECTION 7.3(c)(i) SELLER SHALL BE ENTITLED TO TERMINATE THIS AGREEMENT AND RETAIN THE AMOUNT OF THE DEPOSIT DESCRIBED IN SECTIONS 2.1 AND 2.2 AS LIQUIDATED DAMAGES. SELLER AND PURCHASER ACKNOWLEDGE THAT SELLER’S DAMAGES WOULD BE DIFFICULT TO DETERMINE, AND THAT THE DEPOSIT IS A REASONABLE ESTIMATE OF SELLER’S DAMAGES. SELLER AND PURCHASER SPECIFICALLY FURTHER AGREE AFTER NEGOTIATION THAT THIS SECTION 12 IS INTENDED TO AND DOES LIQUIDATE THE AMOUNT OF DAMAGES DUE SELLER, AND SHALL BE SELLER’S EXCLUSIVE REMEDY AGAINST PURCHASER, BOTH AT LAW AND IN EQUITY ARISING FROM OR RELATED TO A BREACH OR DEFAULT BY PURCHASER OF ITS OBLIGATION TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE PROVISIONS OF THIS SECTION 12 SHALL NOT BE CONSTRUED AS A LIMITATION ON THE OBLIGATIONS OF PURCHASER UNDER SECTIONS 3.5(a) and (e), 3.6(b), 9.1, 11.2 and 11.12 HEREOF. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS TRANSACTION. PURCHASER’S INITIALS: /s/ SELLER’S INITIALS: RFG 13. NO RECORDING      The provisions hereof shall not constitute a lien on the Property and this Agreement shall not be placed or suffered to be placed by Purchaser for recording with the office of the recorder (clerk) for the county in which the Property is located. Purchaser hereby appoints Seller as Purchaser’s true and lawful attorney-in-fact, coupled with an interest, for the purposes of the execution of such documents and doing such acts as shall be necessary to effect the discharge of the recording of this Agreement if such recording shall have been accomplished in violation of this Section. 14. EFFECTIVENESS      This Agreement shall only be effective if a counterpart is signed by both Seller and Purchaser. Signatures on following pages 29 --------------------------------------------------------------------------------      IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SELLER:   CORPORATE REALTY INCOME FUND I, L.P.        By:  /s/ Robert F. Gossett, Jr.     Robert F. Gossett, Jr.      General Partner    By:  1345 Realty Corporation,    General Partner        By:  /s/ Robert F. Gossett, Jr.     Robert F. Gossett, Jr.    President PURCHASER:   GREAT AMERICAN CAPITAL, a Nevada corporation      By:  /s/                                                                           Name:                                                                                  Title:                                                                                    ESCROW HOLDER:   CHICAGO TITLE INSURANCE COMPANY    By:  /s/                                                                             Its:                                                                                     30 -------------------------------------------------------------------------------- TABLE OF CONTENTS EXHIBIT A    Legal Description of Property  EXHIBIT B    Bill of Sale  EXHIBIT C    Assignment and Assumption Agreement  EXHIBIT D    Seller’s Affidavit  EXHIBIT E    Form of Limited Warranty Deed  EXHIBIT F    Tenant Notification Letter  EXHIBIT G    Form of Seller’s Recertification of Representations and Warranties  EXHIBIT H    Form of Purchaser’s Recertification of Representations and Warranties  EXHIBIT I    Form of Tenant Estoppel Certificate    SCHEDULE 1    Personal Property  SCHEDULE 2   Permits  SCHEDULE 3   Service and Other Contracts  SCHEDULE 4   Rent Roll  SCHEDULE 5   Environmental and Property Condition Reports  --------------------------------------------------------------------------------

Exhibit 10.8 Guaranty Contract (1) Guaranty Contract of Maximum Amount Entered Between BAK International Limited and China CITIC Bank on February 9, 2006 Main contents • Contract number: No. 2006 Shenyin sun’ebaozi 003 • As guarantor, BAK International Limited undertakes to assume joint and several liabilities for the Company’s indebtedness towards China CITIC Bank under Comprehensive Agreement from February 17th, 2006 to February 17th, 2007 and maximum amount secured is RMB 50million and US$10million. • Secured items include the loan principal, interest, penalty interest, breach of contract compensation, damage compensation, and all the expenses incurred for China CITIC Bank to realize its creditor’s right under Comprehensive Agreement ; • Guaranty period:   • Two years from the expiry date that the Company should fulfill its obligations in accordance with Comprehensive Agreement ;   • If due to the provisions of relevant PRC law or regulations or any agreement reached under Comprehensive Agreement , any loan becomes mature ahead of its term, guaranty period shall be two years starting from the advance mature date.       Headlines of the articles omitted: • Definition • Indebtedness to be secured and maximum amount • Method of guaranty • Guaranty period • Scope of guaranty • Representations and undertakings of the Company • Rights and obligations of the Company • Rights and obligations of the Creditor • Breach of Contract • Accumulation of rights and obligations • Continuity of obligations • Notarization and willing to accept enforcement • Force Majeure • Miscellaneous • Applicable laws • Dispute settlement • Validity • Effectiveness, amendment and cancellation • Others --------------------------------------------------------------------------------

Exhibit 10.1   HRES1 Properties Trust 400 Centre Street Newton, MA 02458 July 13, 2006 FS Patriot LLC FS Commonwealth LLC 400 Centre Street Newton, MA 02458 Master Lease Agreement dated as of March 3, 2006 Ladies and Gentlemen: Reference is made to the captioned agreement (as amended, the “Lease”). Capitalized terms used and not otherwise defined in this letter are used with the meanings ascribed to such terms in the Lease. The purpose of this letter is to confirm our understanding and agreement that, notwithstanding anything to the contrary set forth in the Lease, including, but not limited to, Section 5.3, there can be neither a transfer of ownership nor a new license issued without the approval of the Department of Public Health of The Commonwealth of Massachusetts. Please confirm your agreement with the foregoing by signing this letter below where indicated and returning a signed copy to me. Very truly yours, HRES1 PROPERTIES TRUST   By: /s/ David J. Hegarty         David J. Hegarty, President ACKNOWLEDGED AND AGREED: FS PATRIOT LLC FS COMMONWEALTH LLC By: /s/ Bruce J. Mackey, Jr.         Bruce J. Mackey, Jr., Treasurer      

Exhibit 10.26   CONFIDENTIAL Stock Option Agreement SLM Corporation Incentive Plan Net-Settled, Price-Vested Options – 1 Year Minimum - 2006   A.           Option Grant.  Stock Options (the “Options”) for a total of «Total_Option_Granted» shares of Common Stock, par value $.20, of SLM Corporation (the “Corporation”) are hereby granted, to «FIRST_NAME» «LAST_NAME» (the “Optionee”), subject in all respects to the terms and provisions of the SLM Corporation Incentive Plan (the “Plan”), which is incorporated herein by reference, and this Stock Option Agreement (the “Agreement”).  The Options are non-qualified stock options and are not incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended.   B.             Option Price.  The purchase price per share is «Option Price» dollars (the “Option Price”).   C.             Grant Date. The date of grant of these Options is «Grant Date» (the “Grant Date”).   D.            Vesting; Exercisability.  The Options are not vested as of the Grant Date.  All Options vest upon the earlier of: (1) the Corporation’s Common Stock price reaching a closing price equal to or greater than «Premium Vesting Price» per share for five days, but no sooner than one year from the Grant Date; (2) eight years from the Grant Date or (3) Optionee’s death, Disability or Involuntary Termination, unless the Options are terminated earlier in accordance with the provisions of the Plan or this Agreement.   •                  Upon termination of employment for any reason, other than death, Disability or Involuntary Termination, any unvested Options will not vest and will be canceled.   •                  Upon termination of employment for Misconduct, any Options, vested or unvested, are forfeited.   •                  Upon termination for death or Disability, vested Options are exercisable until the earlier of: (1) the Expiration Date; or (2) one year from the date of termination.   •                  Upon termination for all reasons except death or Disability, vested Options are exercisable until the earlier of: (1) the Expiration Date; or (2) three months from the date of termination.   E.              Expiration. These Options expire ten years from the Grant Date (the “Expiration Date”), subject to the provisions of the Plan and this Agreement, which may provide for earlier expiration in certain instances, including Optionee’s termination of employment.   F.              Non-Transferable; Binding Effect.  These Options may not be transferred except as provided for in the Plan, and may be exercised during the lifetime of the Optionee only by him or her.  The terms of these Options shall be binding upon the executors, administrators, heirs, and successors of the Optionee.   G.             Net-Settlement upon Option Exercise; Taxes.  These Options shall be exercised only in accordance with the terms of this Agreement.  Each exercise must be for no fewer than fifty (50) Options, other than an exercise for all remaining Options.  Upon exercise of all or part of the Options, the Optionee shall receive from the Corporation the number of shares of Common Stock resulting from the following formula:  the total number of Options exercised less the sum of “Shares for the Option Cost” and “Shares for Taxes”, rounded up to the nearest whole share.  “Shares for the Option Cost” equals the Option Price multiplied by the number of Options exercised divided by the fair market value of SLM common stock at the time of exercise.   “Shares for Taxes” equals the tax liability (the statutory withholding maximum) divided by the fair market value of SLM common stock at the time of exercise.  Optionee shall receive cash for any resulting fractional share amount.  As a condition to the issuance of shares of Common Stock of the Corporation pursuant to these Options, the Optionee agrees to remit to the Corporation at the time of any exercise of these Options any taxes required to be withheld by the Corporation under federal, state, or local law as a result of the exercise of these Options.   H.            Vesting Upon Change In Control.  Notwithstanding anything to the contrary in this Agreement, any of the Options which have not otherwise become exercisable shall become immediately exercisable upon a Change in Control of the Corporation, as defined in the Plan.   I.                 Board Interpretation.  The Optionee hereby agrees to accept as binding, conclusive, and final all decisions and interpretations of the Board of Directors of the Corporation and, where applicable, the Compensation and Personnel Committee of the Board of Directors (the “Committee”) concerning any questions arising under this Agreement or the Plan.   J.                Amendments for Accounting Charges: The Committee reserves the right to unilaterally amend this Agreement to reflect any changes in applicable law or financial accounting standards.   K.            Securities Law Compliance; Restrictions on Resale’s of Option Shares.  The Corporation may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any exercise of the Option and/or any resales by the Optionee or other subsequent transfers by the Optionee of any shares of Common Stock issued as a result of the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions that may be necessary in the absence of an effective registration statement under the Securities Act of 1933, as amended, covering the Option and/or the Common Stock underlying the Option and (c) restrictions as to the use of a specified brokerage firm or other agent for exercising the Option and/or for such resales or other transfers.  The sale of the shares underlying the Option must also comply with other applicable laws and regulations governing the sale of such shares.   L.              Data Privacy. As an essential term of this Option, the Optionee consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Option Agreement for the exclusive purpose of implementing, administering and managing Optionee’s participation in the Plan.  By entering into this Agreement and accepting the Option, the Optionee acknowledges that the Corporation holds certain personal information about the Optionee, including, but not limited to, name,   1 --------------------------------------------------------------------------------   home address and telephone number, date of birth, social security number or other identification number, salary, tax rates and amounts, nationality, job title, any shares of stock held in the Corporation, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding, for the purpose of implementing, administering and managing the Plan (“Data”).  Optionee acknowledges that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in jurisdictions that may have different data privacy laws and protections, and Optionee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Optionee or the Corporation may elect to deposit any shares of Common Stock acquired upon exercise of the Option.  Optionee acknowledges that Data may be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan as determined by the Corporation, and that Optionee may request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, provided however, that refusing or withdrawing Optionee’s consent may adversely affect Optionee’s ability to participate in the Plan.   M.         Electronic Delivery.  The Corporation may, in its sole discretion, decide to deliver any documents related to any options granted under the Plan by electronic means or to request Optionee’s consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Corporation or another third party designated by the Corporation, and such consent shall remain in effect throughout Optionee’s term of service with the Corporation and thereafter until withdrawn in writing by Optionee.   N.            Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of Delaware, without giving effect to principles of conflicts of law.   O.            Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered, telefaxed or telecopied to, or, if mailed, when received by, the other party at the following addresses:   If to the Corporation to:   Director, Stock Plans Sallie Mae 12061 Bluemont Way Reston, VA 20190 Fax: (703) 984-5170   If to the Optionee, to (i) the last address maintained in the Corporation’s Human Resources files for the Optionee or (ii) the Optionee’s mail delivery code or place of work at the Corporation.   P.              Miscellaneous.  In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of this Agreement shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.  The headings in this Agreement are solely for convenience of reference, and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. The Optionee shall cooperate and take such actions as may be reasonably requested by the Corporation in order to carry out the provisions and purposes of the Agreement.  The Optionee is responsible for complying with all laws applicable to Optionee, including federal and state securities reporting laws.   The Optionee must contact Merrill Lynch to accept the terms of this grant.  Merrill Lynch can be contacted at www.benefits.ml.com or by phone at 1-877-SLM-ESOP. If Optionee fails to accept the terms of this grant, the Options may not be exercised.     SLM CORPORATION           [g60412kgi001.jpg]     BY: Thomas J. Fitzpatrick   Chief Executive Officer     Copies of the Plan Document and Prospectus are available on the Sallie Mae Stock Options Intranet site located at http://salliemaecentral.com/legal/esop/plandocs.htm.  Paper copies of these documents can be obtained by contacting the Plan Administrator by sending an email to [email protected], or to request by fax to (703) 984-5170.   2 --------------------------------------------------------------------------------

EXHIBIT 10.1   Ryerson Inc.   2002 Incentive Stock Plan Performance Award Agreement   You have been selected to be a Participant in the Ryerson Inc. 2002 Incentive Stock Plan (the “Plan”), as specified below:   Participant:   Number of Performance Share Units Granted:   Date of Grant:   January     , 20     Beginning of Performance Cycle:   January 1, 20     End of Performance Cycle:   December 31, 20     Performance Measure:   Return on Net Assets (“RONA”) Performance Measurement Threshold:   4-year average RONA =         % Performance Measurement Target:   4-year average RONA =         % Performance Measurement Cap:   4-year average RONA =         % Maximum Number of Performance Share Units     Payable (subject to the Value Cap):       If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. -------------------------------------------------------------------------------- To the extent not specified in the Plan, the terms of this award have been determined by the Compensation Committee of the Board of Directors of the Company (the “Committee”), as outlined in this Agreement.   1. Settlement of Award. The number of Performance Share Units earned by you shall be determined in accordance with the provisions of Exhibit 1, which is attached to and forms a part of this Agreement. You may elect from time to time to receive payment of any earned Performance Share Units payable to you under this Agreement in cash or in Common Stock, or a combination thereof, provided that any earned Performance Share Units in excess of the Common Stock Cap shall be paid in cash; or you may elect to defer payment of earned Performance Share Units as provided in the Plan and in any rules adopted by the Committee, or as required by Section 409A of the Internal Revenue Code and regulations thereunder (collectively, “Section 409A”). Under Section 9(c) of the Plan and subject to the Common Stock Cap, for each Performance Share Unit earned by you, the Company shall deliver to you (a) one share of Common Stock or (b) cash equal to the Fair Market Value of one share of Common Stock. For earned Performance Share Units paid in shares of Common Stock, any fractional shares of Common Stock shall be rounded to the nearest whole share of Common Stock. The Fair Market Value of Common Stock shall have the definition provided in the Plan and in any rules adopted by the Committee.   2. Eligibility for Earned Performance Share Units. You shall be eligible for payment of earned Performance Share Units only if your employment with the Company:     (a) Continues through the end of the Performance Cycle;     (b) Is terminated due to Normal Retirement (as defined in the Ryerson Pension Plan) during the Performance Cycle;     (c) Is terminated due to Disability or death during the Performance Cycle; or     (d) Is terminated involuntarily for reasons other than Cause during the Performance Cycle.   If you retire under Normal Retirement, suffer a Disability, or are terminated involuntarily for reasons other than Cause during the Performance Cycle, you shall be eligible only for that proportion of the number of Performance Share Units earned for such Performance Cycle that your number of full months of participation during the Performance Cycle bears to 48 months. “Cause” has the same meaning ascribed to it in the Employment Agreement between you and the Corporation or, if you are not party to an Employment Agreement, in the form of employment agreement approved by the Compensation Committee and in effect at the date of your termination.   In the event of your death, the Performance Cycle for this award will be deemed to end at December 31 of the year of your death, attainment of the Performance Measures will be computed as of that December 31, and you shall be eligible only for that proportion of the number of Performance Share Units deemed earned for such deemed Performance Cycle that your number of full months of participation during the Performance Cycle bears to 48 months. Your beneficiary shall be entitled to the Performance Share Units to which you otherwise would have been entitled under the same conditions as would have been applicable to you.   Termination of employment during the Performance Cycle for any reason other than Normal Retirement, Disability, death, or involuntarily for reasons other than Cause, shall require forfeiture of this entire award, with no payment to you.   3. Deferral of Award. The payment of the shares of Common Stock earned pursuant to this Performance Award Agreement to you may be deferred, in whole or in part, at your election. If you elect to defer your receipt of such shares of earned Common Stock, the amount deferred will be denominated in share units that will be deemed to be invested in and ultimately be paid out, at your election, in the form of shares of Common Stock or in cash equal to the Fair Market Value of shares of Common Stock at the payment date. You must make a deferral election in accordance with Section 409A. The duration of the deferral extends to Retirement or termination of employment. Once made, the deferral election is irrevocable.   4. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require the Participant or beneficiary to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Agreement.   5. Nontransferability. Performance Share Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.   6. Change in Control. In the event of a Change in Control of the Company, you will receive an amount in cash with respect to this performance award if it is outstanding on the date of the Change in Control equal to (i) the Change in Control Price, multiplied by (ii) 100% of the target award amount, and further multiplied by (iii) a fraction, the denominator of which is the number of months (rounded to the nearest whole number) in the performance cycle, and the numerator of which is the number of months (rounded to the nearest whole number) of the performance cycle elapsed prior to the date of the Change in Control of the Company; provided, however, that if the Company’s market capitalization as of the date of the Change in Control is less than $250 million, “30%” shall be substituted for “100%” in clause (ii) above; and, provided further, that the foregoing amount shall be in lieu of any other payment with respect to this performance award, and if you receive any payment with respect to this performance award after the Change in Control, but prior to your Date of Termination, it shall reduce, but not below zero, the amount to which you are entitled under this paragraph (6) for this award.   7. Miscellaneous.   (a) This Agreement shall not confer upon Participant any right to continuation of employment by the Company, nor shall this Agreement interfere in any way with the Company’s right to terminate his or her employment at any time.   (b) With the approval of the Board, the Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any way adversely affect Participant’s rights under this Agreement.   (c) This Agreement 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. -------------------------------------------------------------------------------- Exhibit 1   This Exhibit 1 is incorporated into and forms a part of the Agreement.   Revision of Performance Measures. The Performance Measures set forth in this Exhibit 1 and the Agreement may be modified by the Committee during, and after the end of, the Performance Cycle to reflect significant events that occur during the Performance Cycle; provided, however, that if the Participant is or will be a Covered Employee for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, then such modification can only be undertaken in a manner consistent with the requirements of Section 162(m) and the regulations thereunder, unless the Committee, in its sole discretion, decides otherwise.   Amount of Award. No award shall be earned or payable unless the Company’s aggregate earnings over the Performance Period is greater than $0.00. When the Company’s aggregate earnings over the Performance Period is greater than $0.00, the amount distributable to the Participant under the Agreement shall be determined in accordance with the following schedule:   20     Award of Performance Share Units Earned and Payable at December 31, 20       Actual Average RONA for the Performance Cycle --------------------------------------------------------------------------------   RONA as a Percent of Performance Measurement Target --------------------------------------------------------------------------------     Performance Share Units Earned as a Percent of Target Award Amount --------------------------------------------------------------------------------     Target Award Amount (Number of Performance Share Units in the Initial Award) --------------------------------------------------------------------------------   Performance Share Units Earned (Number of Shares * / Value Cap) --------------------------------------------------------------------------------   Less than         %   Less than          %   0 %       0                             %            %   30 %*                *                           %            %   85 %*                *                           %   100 %   100 %                                     %            %   115 %*                *                           %            %   200 %*                *                     shares/$                               but not less than                                  shares   -------------------------------------------------------------------------------- * Subject to the Value Cap and the Common Stock Cap described below.   Note: Performance Share Units earned above a threshold average RONA over the Performance Cycle of         % will be interpolated from the above chart, up to a maximum number of Performance Shares earned at the Performance Measurement Cap of         %, which maximum is the lesser of (1)              shares and (2) the Value Cap of $            , but in no event less than              shares (the initial award of performance share units).     •   The Value Cap is a limit on the total economic value of what may be earned that can impact the share units earned as follows: performance share units can be earned only up to the point that the total economic value of all share units earned by a participant does not exceed two times the economic value of the initial award (except as noted below). The economic value of the initial award is computed by multiplying 100% of the performance share units underlying the initial award by the 12-month average price of Company Common Stock (excluding the highest and lowest prices) prior to the grant date, which price was $            . Notwithstanding this Value Cap, if performance is at or above target a participant will receive no less than the initial award of performance share units provided for at the beginning of the cycle.     •   The Common Stock Cap is a limit on the number of shares of Common Stock that can be delivered in payment of earned Performance Share Units. The Common Stock Cap is equal to the lesser of (a) 50% of the Performance Share Units earned and payable hereunder, and b) the initial number of Performance Share Units granted under this Agreement. To the extent that the number of earned Performance Share Units exceeds the Common Stock Cap, the excess Performance Share Units will be paid in cash.

Exhibit 10.53   GUARANTY OF PAYMENT   GUARANTY OF PAYMENT (this “Guaranty”), made as of June 28, 2006, by VORNADO REALTY TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland, having an address at 888 Seventh Avenue, New York, New York 10019 (“Guarantor”), for the benefit of JPMORGAN CHASE BANK, N.A. (the “Administrative Agent”), as agent for the Banks (the “Banks”) that are from time to time parties to that certain Revolving Credit Agreement (the “Credit Agreement”), dated as of June 28, 2006 among Vornado Realty, L.P. (the “Borrower”), Guarantor, the banks signatory thereto, the Administrative Agent, Bank of America, N.A. and Citicorp North America, Inc., as Syndication Agents and Deutsche Bank Trust Company Americas, LaSalle Bank National Association and UBS Loan Finance LLC, as Documentation Agents.   W I T N E S S E T H:   WHEREAS, the Banks have agreed to make loans and otherwise extend credit to Borrower in the aggregate principal amount not to exceed One Billion Dollars ($1,000,000,000) or, in the event that Borrower exercises its rights pursuant to Section 2.16(c) of the Credit Agreement, One Billion Two Hundred Fifty Million Dollars ($1,250,000,000) (hereinafter collectively referred to as the “Loans”);   WHEREAS, the Loans are and will be evidenced by (i) certain promissory notes of Borrower made to each of the Banks, (ii) a promissory note of Borrower made to the Administrative Agent, (iii) certain letters of credit, and (iv) certain promissory notes of Borrower made to each of the Designated Lenders, in each case in accordance with the terms of the Credit Agreement (collectively, the “Notes”);   WHEREAS, the Credit Agreement and the Notes and any other documents executed in connection therewith are hereinafter collectively referred to as the “Loan Documents”;   WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Credit Agreement;   WHEREAS, Guarantor is the sole general partner of Borrower; and   WHEREAS, as a condition to the execution and delivery of the Loan Documents, the Banks have required that Guarantor execute and deliver this Guaranty.   NOW, THEREFORE, in consideration of the premises and the benefits to be derived from the making of the Loans by the Banks to Borrower, and in order to induce the Administrative Agent, the Syndication Agents, the Documentation Agents, the Lead Arrangers and Bookrunners, and the Banks to enter into the Credit Agreement and the other Loan Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows:   1   -------------------------------------------------------------------------------- 1.     Guarantor, on behalf of itself and its successors and assigns, hereby irrevocably, absolutely and unconditionally guarantees the full and punctual payment when due, whether at stated maturity or otherwise, of all Obligations of Borrower now or hereafter existing under the Notes and the Credit Agreement and the other Loan Documents, including in the event that the Borrower exercises its rights under the Credit Agreement to increase the Total Loan Commitment, for principal and/or interest as well as any and all other amounts due thereunder, including, without limitation, all indemnity obligations of Borrower thereunder, and any and all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by the Administrative Agent and/or the Banks in enforcing their rights under this Guaranty (all of the foregoing obligations being the “Guaranteed Obligations”).   2.                                        It is agreed that the obligations of Guarantor hereunder are primary and this Guaranty shall be enforceable against Guarantor and its successors and assigns without the necessity for any suit or proceeding of any kind or nature whatsoever brought by the Administrative Agent or any of the Banks against Borrower or its respective successors or assigns or any other party or against any security for the payment and performance of the Guaranteed Obligations and without the necessity of any notice of non-payment or non-observance or of any notice of acceptance of this Guaranty or of any notice or demand to, or consent of, which Guarantor might otherwise be entitled (including, without limitation, diligence, presentment, notice of maturity, extension of time, or change in the nature or form of the Guaranteed Obligations, acceptance of security, release of security, Borrower or any other obligor in respect of the Guaranteed Obligations, imposition or agreement arrived at as to the amount of or the terms of the Guaranteed Obligations, notice of any adverse change in Borrower’s financial condition and any other fact which might materially increase the risk to Guarantor), all of which Guarantor hereby expressly waives; and Guarantor hereby expressly agrees that the validity of this Guaranty and the obligations of Guarantor hereunder shall in no way be terminated, affected, diminished, modified or impaired by reason of the assertion of, or the failure to assert by, the Administrative Agent or any of the Banks against Borrower or its respective successors or assigns, or any of the rights or remedies reserved to the Administrative Agent or any of the Banks pursuant to the provisions of the Loan Documents. Guarantor agrees that any notice or directive given at any time to the Administrative Agent or any of the Banks which is inconsistent with the waiver in the immediately preceding sentence shall be void and may be ignored by the Administrative Agent and the Banks, 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 the Administrative Agent has specifically agreed otherwise in a writing, signed by a duly authorized officer. Guarantor specifically acknowledges and agrees that the foregoing waivers are of the essence of this transaction and that, but for this Guaranty and such waivers, the Administrative Agent and the Banks would not extend credit to the Borrower.   2   -------------------------------------------------------------------------------- 3.                                        Guarantor waives, and covenants and agrees, that it will not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any and all appraisal, valuation, stay, extension, marshaling-of-assets or redemption laws, or right of homestead 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 the Administrative Agent or any of the Banks of, this Guaranty. Guarantor further covenants and agrees not to set up or claim any defense, counterclaim, offset, setoff or other objection of any kind to any action, suit or proceeding at law, in equity or otherwise, or to any demand or claim that may be instituted or made by the Administrative Agent or any of the Banks other than the defense of the actual timely payment and performance by Borrower of the Guaranteed Obligations; provided, however, that the foregoing shall not be deemed a waiver of Guarantor’s right to assert any compulsory counterclaim, if such counterclaim is compelled under local law or rule of procedure, nor shall the foregoing be deemed a waiver of Guarantor’s right to assert any claim which would constitute a defense, setoff, counterclaim or crossclaim of any nature whatsoever against Administrative Agent or any Bank in any separate action or proceeding. Guarantor represents, warrants and agrees that, as of the date hereof, its obligations under this Guaranty are not subject to any counterclaims, offsets or defenses against the Administrative Agent or any Bank of any kind.   4.                                        The provisions of this Guaranty are for the benefit of the Administrative Agent and the Banks and their successors and permitted assigns, and nothing herein contained shall impair as between Borrower and the Administrative Agent and the Banks the obligations of Borrower under the Loan Documents.   5.                                        This Guaranty shall be a continuing, unconditional, irrevocable and absolute guaranty and the liability of Guarantor hereunder shall in no way be terminated, affected, modified, impaired or diminished by reason of the happening, from time to time, of any of the following, all without notice or the further consent of Guarantor:   (a)                        any assignment, amendment, modification or waiver of or change in any of the terms, covenants, conditions or provisions of any of the Guaranteed Obligations or the Loan Documents or the invalidity or unenforceability of any of the foregoing;   (b)                        any extension of time that may be granted by the Administrative Agent and/or the Banks to Borrower, any guarantor, or their respective successors or assigns, heirs, executors, administrators or personal representatives;   (c)                        any action which the Administrative Agent or any of the Banks may take or fail to take under or in respect of any of the Loan Documents or by reason of any waiver of, or failure to enforce any of the rights, remedies, powers or privileges available to the Administrative Agent under this Guaranty or available to the Administrative Agent or any of the Banks at law, in equity or otherwise, or any action on the part of the Administrative Agent or any of the Banks granting indulgence or extension in any form whatsoever;   3   --------------------------------------------------------------------------------   (d)                        any sale, exchange, release, or other disposition of any property pledged, mortgaged or conveyed, or any property in which the Administrative Agent and/or the Banks have been granted a lien or security interest to secure any indebtedness of Borrower to the Administrative Agent and/or the Banks or any failure to perfect, or any impairment of any such lien or security interest;   (e)                        any release of any person or entity who may be liable in any manner for the payment and collection of any amounts owed by Borrower to the Administrative Agent and/or the Banks;   (f)                         the application of any sums by whomsoever paid or however realized to any amounts owing by Borrower to the Administrative Agent and/or the Banks under the Loan Documents in such manner as the Administrative Agent shall determine in its sole discretion;   (g)                        Borrower’s or Guarantor’s voluntary or involuntary liquidation, dissolution, sale of all or substantially all of their respective assets and liabilities, appointment of a trustee, receiver, liquidator, sequestrator or conservator for all or any part of Borrower’s or Guarantor’s assets, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment, or the commencement of other similar proceedings affecting Borrower or Guarantor or any of the assets of any of them, including, without limitation, (i) the release or discharge of Borrower or any guarantor from the payment and performance of their respective obligations under any of the Loan Documents by operation of law, or (ii) the impairment, limitation or modification of the liability of Borrower or any guarantor in bankruptcy, or of any remedy for the enforcement of the Guaranteed Obligations under any of the Loan Documents, or any guarantor’s liability under this Guaranty, resulting from the operation of any present or future provisions of the Bankruptcy Code or other present or future federal, state or applicable statute or law or from the decision in any court; or   (h)                        any improper disposition by Borrower of the proceeds of the Loans, it being acknowledged by Guarantor that the Administrative Agent or any Bank shall be entitled to honor any request made by Borrower for a disbursement of such proceeds and that neither the Administrative Agent nor any Bank shall have any obligation to see to the proper disposition by Borrower of such proceeds.   4   -------------------------------------------------------------------------------- 6.                                        Guarantor agrees that if at any time all or any part of any payment at any time received by the Administrative Agent from Borrower under the Loan Documents or Guarantor under or with respect to this Guaranty is or must be rescinded or returned by the Administrative Agent or any Bank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower or Guarantor), the Guaranteed Obligations hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence notwithstanding such previous receipt by such party, and Guarantor’s obligations hereunder shall continue to be effective or reinstated, as the case may be, as to such payment, as though such previous payment had never been made.   7.                                        Until this Guaranty is terminated pursuant to the terms hereof, Guarantor (i) shall have no right of subrogation against Borrower by reason of any payments or acts of performance by Guarantor in compliance with the obligations of Guarantor hereunder, (ii) waives any right to enforce any remedy which Guarantor now or hereafter shall have against Borrower by reason of any one or more payments or acts of performance in compliance with the obligations of Guarantor hereunder and (iii) from and after an Event of Default, subordinates any liability or indebtedness of Borrower now or hereafter held by Guarantor or any affiliate of Guarantor to the obligations of Borrower under the Loan Documents. The foregoing, however, shall not be deemed in any way to limit any rights that Guarantor may have pursuant to the Agreement of Limited Partnership of Borrower or which it may have at law or in equity with respect to any other partners of Borrower.   8.                                        Guarantor represents and warrants to the Administrative Agent and the Banks with the knowledge that the Administrative Agent and the Banks are relying upon the same, as follows:   (a)                        as of the date hereof, Guarantor is the sole general partner of Borrower;   (b)                        based upon such relationships, Guarantor has determined that it is in its best interests to enter into this Guaranty;   (c)                        this Guaranty is necessary and convenient to the conduct, promotion and attainment of Guarantor’s business, and is in furtherance of Guarantor’s business purposes; and   (d)                        the benefits to be derived by Guarantor from Borrower’s access to funds made possible by the Loan Documents are at least equal to the obligations undertaken pursuant to this Guaranty.   9.                                        Guarantor and Administrative Agent each acknowledge and agree that this Guaranty is a guarantee of payment and performance and not of collection and enforcement in respect of any obligations which may accrue to the Administrative Agent and/or the Banks from Borrower under the provisions of any Loan Document.   5   -------------------------------------------------------------------------------- 10.                                      Subject to the terms and conditions of the Credit Agreement, and in conjunction with an assignment of its Loans, any Bank may assign any or all of its rights under this Guaranty. In the event of any such assignment, the Administrative Agent shall give Guarantor prompt notice of same. If any Bank elects to sell any or all of the Loans or participations in the Loans and the Loan Documents, including this Guaranty, such Bank may forward to each purchaser and prospective purchaser all documents and information relating to this Guaranty or to Guarantor, whether furnished by Borrower or Guarantor or otherwise, subject to the terms and conditions of the Credit Agreement.   11.                                      Guarantor agrees, upon the written request of the Administrative Agent, to execute and deliver to the Administrative Agent, from time to time, any modification or amendment hereto or any additional instruments or documents reasonably considered necessary by the Administrative Agent or its counsel to cause this Guaranty to be, become or remain valid and effective in accordance with its terms, provided, that any such modification, amendment, additional instrument or document shall not increase Guarantor’s obligations or diminish its rights hereunder and shall be reasonably satisfactory as to form to Guarantor and to Guarantor’s counsel.   12.                                      The representations and warranties of Guarantor set forth in this Guaranty shall survive until this Guaranty shall terminate in accordance with the terms hereof.   13.                                      This Guaranty, together with the Credit Agreement, contains the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements relating to such subject matter and may not be modified, amended, supplemented or discharged except by a written agreement signed by Guarantor and the Administrative Agent.   14.                                      If all or any portion of any provision contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, such provision or portion thereof shall be deemed stricken and severed from this Guaranty and the remaining provisions and portions thereof shall continue in full force and effect.   15.                                      This Guaranty may be executed in counterparts which together shall constitute the same instrument.   16.                                      All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, facsimile transmission followed by telephonic confirmation or similar writing) and shall be addressed to such party at the address set forth below or to such other address as may be identified by any party in a written notice to the others:   6   --------------------------------------------------------------------------------       If to Guarantor Vornado Realty Trust   210 Route 4 East   Paramus, New Jersey 07652-0910   Attn: Chief Financial Officer   Telephone: (201) 587-1000   Telecopy: (210) 587-0600           With Copies of Sullivan & Cromwell LLP Notices to Guarantor to: 125 Broad Street   New York, New York 10004   Attn: William G. Farrar, Esq   Telephone: (212) 558-4000   Telecopy: (212) 558-3588   and         Vornado Realty Trust   888 Seventh Avenue   New York, NY 10019   Attn: Executive Vice President - Capital Markets and Senior Vice President - Corporation Counsel   Telephone: (212) 894-7000   Telecopy: (212) 894-7073           If to the JPMorgan Chase Bank, N.A. Notices to Guarantor to: 270 Park Avenue, Fourth Floor Administrative Agent: New York, New York 10017   Attn: Marc Costantino   Telephone: (212) 622-8167   Telecopy: (212) 534-0574           With Copies to: JPMorgan Chase Bank, N.A.   1111 Fannin, Eighth Floor   Houston, Texas 77002   Attn: Loan and Agency Services   Telephone: (713) 750-2736   Telecopy: (713) 750-2732   7   --------------------------------------------------------------------------------       With Copies of Skadden, Arps, Slate, Meagher & Flom LLP Notices to 4 Times Square Administrative Agent: New York, New York 10036   Attn: Loan and Agency Services   Attn: Martha Feltenstein, Esq.   Telecopy: (713) 750-2732     Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when such facsimile is transmitted to the facsimile number specified in this Section and the appropriate facsimile confirmation is received, (ii) if given by certified or registered mail, return receipt requested, with first class postage prepaid, addressed as aforesaid, upon receipt or refusal to accept delivery, (iii) if given by a nationally recognized overnight carrier, the Banking Day after such communication is deposited with such carrier with postage prepaid for next day delivery, or (iv) if given by any other means, when delivered at the address specified in this Section.   17.                                      Any acknowledgment or new promise, whether by payment of principal or interest or otherwise by Borrower or Guarantor, with respect to the Guaranteed Obligations shall, if the statute of limitations in favor of Guarantor against the Administrative Agent and the Banks shall have commenced to run, toll the running of such statute of limitations, and if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations.   18.                                      This Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit of the Administrative Agent and the Banks and their successors and permitted assigns, provided that the Guarantor may not assign or transfer or delegate any of its rights or obligations hereunder without the prior written consent of all of the Banks (and any attempt at such assignment, transfer or delegation without such consent shall be null and void).   19.                                      The failure of the Administrative Agent to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against the Administrative Agent or any Bank, nor excuse Guarantor from its obligations hereunder. Any waiver of any such right or remedy to be enforceable against the Administrative Agent and the Banks must be expressly set forth in a writing signed by the Administrative Agent (acting with the requisite consent of the Banks as provided in the Credit Agent).   8   -------------------------------------------------------------------------------- (a)                                                      THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.   (b)                                                      Any legal action or proceeding with respect to this Guaranty and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Guaranty, the Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. The Guarantor 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 Guarantor at its address for notices set forth herein. The Guarantor 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 Guaranty brought in the courts referred to 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. Nothing herein shall affect the right of the Administrative Agent to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction.   (c)                                                      GUARANTOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY AND ALL CLAIMS OR CAUSES OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. IT IS HEREBY ACKNOWLEDGED BY GUARANTOR THAT THE WAIVER OF A JURY TRIAL IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND THE BANKS TO ACCEPT THIS GUARANTY AND THAT THE LOANS MADE BY THE BANKS ARE MADE IN RELIANCE UPON SUCH WAIVER. GUARANTOR FURTHER WARRANTS AND REPRESENTS THAT SUCH WAIVER HAS BEEN KNOWINGLY AND VOLUNTARILY MADE, FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED BY THE ADMINISTRATIVE AGENT IN COURT AS A WRITTEN CONSENT TO A NON-JURY TRIAL.   (d)                                                      Guarantor does hereby further covenant and agree to and with the Administrative Agent that Guarantor may be joined in any action against Borrower in connection with the Loan Documents and that recovery may be had against Guarantor in such action or in any independent action against Guarantor (with respect to the Guaranteed Obligations), without the Administrative Agent or any Bank first pursuing or exhausting any remedy or claim against Borrower or its successors or assigns. Guarantor also agrees that, in an action brought with respect to the Guaranteed Obligations in any jurisdiction, it shall be conclusively bound by the judgment in any such action by the Administrative Agent and/or the Banks (wherever brought) against Borrower or its successors or assigns, as if Guarantor were a party to such action, even though Guarantor was not joined as a party in such action.   9   -------------------------------------------------------------------------------- (e)                                                      Guarantor agrees to pay all reasonable expenses (including, without limitation, attorneys’ fees and disbursements) which may be incurred by the Administrative Agent or the Banks in connection with the enforcement of their rights under this Guaranty, whether or not suit is initiated.   20.                                      Notwithstanding anything to the contrary contained herein, this Guaranty shall terminate and be of no further force or effect upon the full and indefeasible performance and payment of the Guaranteed Obligations hereunder. Upon termination of this Guaranty in accordance with the terms of this Guaranty, the Administrative Agent promptly shall deliver to Guarantor such documents as Guarantor or Guarantor’s counsel reasonably may request in order to evidence such termination.   21.                                      All of the Administrative Agent’s and the Banks’ rights and remedies under each of the Loan Documents or under this Guaranty are intended to be distinct, separate and cumulative and no such right or remedy therein or herein mentioned is intended to be in exclusion of or a waiver of any other right or remedy available to the Administrative Agent or any Bank.   10   -------------------------------------------------------------------------------- 22.                                      The Guarantor shall not use any assets of an “employee benefit plan” within the meaning of Section 3(3) of ERISA or a “plan” within the meaning of Section 4975(e)(1) of the Internal Revenue Code (the “Code”) to repay or secure the Loans, the Notes, the Credit Agreement, the Guaranteed Obligations or this Guaranty. The Guarantor shall not assign, sell, pledge, encumber, transfer, hypothecate or otherwise dispose of any of its rights or interests (direct or indirect) in Borrower, or attempt to do any of the foregoing or suffer any of the foregoing, or permit any party with a direct or indirect interest or right in Borrower to do any of the foregoing, if such action would cause the Notes, the Loans, the Credit Agreement, the Guaranteed Obligations, this Guaranty, or any of the Loan Documents or the exercise of any of the Administrative Agent’s or any Bank’s rights in connection therewith, to constitute a prohibited transaction under ERISA or the Code (unless the Guarantor furnishes to the Administrative Agent a legal opinion satisfactory to the Administrative Agent that the transaction is exempt from the prohibited transaction provisions of ERISA and the Code (and for this purpose, the Administrative Agent and the Banks, by accepting the benefits of this Guaranty, hereby agree to supply Guarantor all relevant non-confidential, factual information reasonably necessary to such legal opinion and reasonably requested by Guarantor) or would otherwise result in the Administrative Agent or any of the Banks being deemed in violation of Section 404 or Section 406 of ERISA or Section 4975 of the Code or would otherwise result in the Administrative Agent or any of the Banks being a fiduciary or party in interest under ERISA or a “disqualified person” as defined in Section 4975(e)(2) of the Code with respect to an “employee benefit plan” within the meaning of Section 3(3) of ERISA or a “plan” within the meaning of Section 4975(e)(1) of the Code. The Guarantor shall indemnify and hold free and harmless each of the Administrative Agent and the Banks from and against all loss, costs (including attorneys’ fees and expenses), expenses, taxes and damages (including consequential damages) that each of the Administrative Agent and the Banks may suffer by reason of the investigation, defense and settlement of claims arising out of, and in obtaining, any prohibited transaction exemption under ERISA necessary in Administrative Agent’s or any Bank’s reasonable judgment by reason of a breach of the foregoing provisions by Guarantor. The foregoing indemnities shall survive the repayment of the Loans and the Notes.   [SIGNATURE PAGE FOLLOWS]   11   -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as of the date and year first above written.       GUARANTOR: VORNADO REALTY TRUST By:     Name:     Title:         ACCEPTED: JPMORGAN CHASE BANK, N.A., as Administrative Agent By:   Name:   Title:     12   -------------------------------------------------------------------------------- ACKNOWLEDGMENT FOR GUARANTOR   STATE OF NEW YORK )   ) SS. COUNTY OF NEW YORK )     On June __, 2006, before me personally came _______________, to me known to be the person who executed the foregoing instrument, and who, being duly sworn by me, did depose and say that [s]he is _____________ of Vornado Realty Trust, and that [s]he executed the foregoing instrument in the organization’s name, and that [s]he had authority to sign the same, and [s]he acknowledged to me that [s]he executed the same as the act and deed of said organization for the uses and purposes therein mentioned.   [Seal]   _______________________________ Notary Public     13    

Exhibit 10.5 SECURITY AGREEMENT THIS SECURITY AGREEMENT (“Agreement”) is entered into as of this 18th day of October, 2006 by and among VERTICAL COMMUNICATIONS, INC., a Delaware corporation (“VCI”), VERTICAL COMMUNICATIONS ACQUISITION CORP., a Delaware corporation (“VCAC” and together with VCI, the “Borrowers” and each a “Borrower”), and COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT, as agent and investment manager (“Investment Manager”), for the benefit of itself and NEIPF, L.P. (“Lender”). WHEREAS, Borrowers, Investment Manager and Lender entered into a certain Credit Agreement of even date herewith as amended, modified, supplemented or otherwise modified from time to time (the “Credit Agreement”), pursuant to which Lender has agreed to provide certain credit extensions to Borrowers to be evidenced by Borrowers’ issuance to Lender of certain notes in the aggregate principal amount of up to Thirty Million Dollars ($30,000,000). As a condition of the credit extensions under the Credit Agreement, Lender has required that Borrowers enter into this Agreement. NOW THEREFORE, in order to induce Lender and Investment Manager to enter into the Credit Agreement, Borrowers hereby agree in favor of Investment Manager, for the benefit of Investment Manager and Lender, as set forth below. ARTICLE I CREDIT AGREEMENT 1.1 Incorporation by Reference. This Agreement is entered into pursuant to the terms and conditions of the Credit Agreement and each of the terms and conditions of the Credit Agreement are hereby incorporated by reference. 1.2 Definitions. Any capitalized term used herein and not otherwise defined herein shall have the meaning given to it in the Credit Agreement. Terms used herein which are defined in the Code and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Code. To the extent the definition of any category or type of collateral is modified by any amendment, modification or revision to the Code, such modified definition will apply automatically under this Agreement as of the date of such amendment, modification or revision.   1. -------------------------------------------------------------------------------- ARTICLE II GRANT OF SECURITY INTEREST 2.1 Grant. As security for the full, prompt and complete payment and performance of each of the Obligations when due (whether at stated maturity, by acceleration or otherwise and whether now existing or hereafter arising), each Borrower hereby grants to Investment Manager, as agent for the benefit of itself and Lender, a continuing security interest in all of such Borrower’s right, title and interest in and to the personal and real property set forth in Exhibit A attached hereto (collectively, the “Collateral”), subject and subordinate only to Permitted Encumbrances. 2.2 Rights of Investment Manager and Lender. In addition to the rights and remedies granted to Investment Manager and Lender herein and in the other Loan Documents, Investment Manager and Lender (as applicable) shall have all of the rights and remedies of a secured creditor under the Code with respect to all of the Collateral. ARTICLE III RIGHTS OF INVESTMENT MANAGER AND LENDER; COLLECTION OF ACCOUNTS. 3.1 Contracts and Licenses. Notwithstanding anything contained in this Security Agreement to the contrary, neither Investment Manager nor Lender shall have any obligation or liability under any Contractual Obligations or License by reason of or arising out of this Agreement or the granting to Investment Manager of a lien therein or the receipt by Investment Manager or Lender of any payment relating to any Contractual Obligation or License pursuant hereto, nor shall Investment Manager or Lender be required or obligated in any manner to perform or fulfill any of the obligations of any Borrower under or pursuant to any Contractual Obligation or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contractual Obligation or License, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. If the security interest granted hereby in any rights of either Borrower under any contract included in the Collateral is prohibited by such contract, then the security interest hereby granted therein nonetheless remains effective to the extent allowed by the Code or other applicable law but is otherwise limited by that prohibition. 3.2 Collection of Accounts. Investment Manager authorizes Borrowers to collect their Accounts, provided that such collection is performed in a prudent and businesslike manner, and Investment Manager may, upon the occurrence and during the continuation of any Event of Default and without notice, limit or terminate said authority at any time. Upon the occurrence and during the continuance of any Event of Default, at the request of Investment Manager, Borrowers shall deliver all original and other documents evidencing and relating to the performance of labor or services or to Licenses which created such Accounts, including, without limitation, all original orders, invoices, related shipping receipts, and licenses.   2. -------------------------------------------------------------------------------- 3.3 Notification and Verification. Investment Manager may at any time, upon the occurrence and during the continuance of any Event of Default, without notifying Borrowers of its intention to do so, notify Account Debtors of Borrowers, parties to the Contractual Obligations of Borrowers, obligors in respect of Instruments of Borrowers and obligors in respect of Chattel Paper of Borrowers, that the Accounts and the right, title and interest of Borrowers in and under such Contractual Obligations, Instruments and Chattel Paper have been assigned to Investment Manager and that payments shall be made directly to Investment Manager. Upon the occurrence and during the continuance of an Event of Default and at the request by Investment Manager, Borrowers shall so notify such Account Debtors, parties to such Contractual Obligations, obligors in respect of such Instruments and obligors in respect of such Chattel Paper. Upon the occurrence and during the continuance of any Event of Default, Investment Manager may, in its name or in the name of others, communicate with such Account Debtors, parties to such Contractual Obligations, obligors in respect of such Instruments and obligors in respect of such Chattel Paper to verify with such parties, to Investment Manager’s satisfaction, the existence, amount and terms of any such Accounts, Contractual Obligations, Instruments or Chattel Paper. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce Investment Manager and Lender to enter into the transactions contemplated by the Credit Agreement, Borrowers jointly and severally represent and warrant as of the date hereof as follows (which representations and warranties shall survive the execution and delivery of this Agreement and the funding of the credit extensions): 4.1 Priority of Security Interest. This Agreement creates a legal and valid security interest on and in all of the Collateral in which Borrowers or any of them now has rights and all filings and other actions necessary to perfect such security interest have been duly taken. Accordingly, Investment Manager has a fully perfected security interest in all of the Collateral in which Borrowers or any of them now has rights, subject only to Permitted Encumbrances. 4.2 Other Names. No Borrower has changed its name or used any other name or any trade name within the five (5) years immediately preceding the date of this Agreement except as set forth on the Perfection Certificate attached hereto as Exhibit B (the “Perfection Certificate”). No Borrower shall conduct business under any other name than that given above nor change or reorganize the type of business entity under which it does business except upon 30 days prior written notice to Investment Manager. If such a change of name or business entity shall occur, Borrowers guarantee that all documents, instruments and agreements reasonably requested by Investment Manager to evidence that the applicable Borrower under such new name or such new business entity is a “Borrower” under the Credit Agreement and the other Loan Documents shall be prepared and filed at Borrowers’ expense no more than ten days after such change of name or business entity is effective.   3. -------------------------------------------------------------------------------- 4.3 Location of Goods and Inventory. All of the Goods of Borrowers and Inventory of Borrowers are located only at the Real Estate or leased locations described in the Perfection Certificate, and none of the Goods or Inventory of Borrowers is stored with, or in the possession of, any bailee, warehouseman, subcontractor, or other similar Person except as noted in the Perfection Certificate. 4.4 Accuracy of Perfection Certificate. The information contained in the Perfection Certificate, is true, accurate and complete in all material respects. 4.5 Intellectual Property. As of the date of this Agreement, no Borrower has any registered Intellectual Property or applications therefor except as noted in the Perfection Certificate or in the Credit Agreement. Each Borrower owns the sole, full and clear title to its Intellectual Property, subject to Permitted Encumbrances. To the best of Borrowers’ knowledge, each of the Copyrights, Trademarks and Patents of Borrowers is valid and enforceable, and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part. Borrowers’ rights as licensees of intellectual property do not give rise to more than 5% of their consolidated gross revenues in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. ARTICLE V COVENANTS Until the monetary Obligations are repaid in full and each of the other Obligations has been satisfied in full and discharged and in addition to the covenants set forth in the Credit Agreement, Borrowers jointly and severally covenant and agree as follows: 5.1 Books and Records. 5.1.1 Borrowers will keep and maintain, at their own cost and expense, satisfactory and materially complete books and records of and with respect to the Collateral, including, without limitation, records of the status of any pending applications or registrations for Intellectual Property; 5.1.2 Investment Manager shall have access to the above-referenced books and records and any other data relating to the Collateral at such times and upon such notice as set forth in Section 4.1 of the Credit Agreement; and 5.1.3 Subject to its duty to exercise reasonable care with respect to the Collateral and to maintain the confidentiality of confidential information, Investment Manager shall have a special property interest in all books and records of Borrowers pertaining to the Collateral and, at any time, upon the request by Investment Manager upon the occurrence and during the continuance of an Event of Default, Borrowers shall, at their own cost and expense, deliver all such books or records to Investment Manager or its designated representatives and shall deliver to Investment Manager or its designated representatives all original and other documents evidencing and relating to the Collateral.   4. -------------------------------------------------------------------------------- 5.2 Equipment. Borrowers shall use their Equipment solely in the conduct of its business and in a prudent and proper manner. Borrowers shall keep all of their Equipment at the principal places of business or at those locations stated in the Perfection Certificate and shall not change the location of any item of the Equipment without 30 days prior written notice to Investment Manager. 5.3 Goods and Inventory. Borrowers shall keep, store or regularly garage all of the Goods and Inventory of Borrowers in a prudent, reasonably secure and proper manner at Borrowers’ principal places of business or at those locations stated in the Perfection Certificate and shall not change the location of any item of the Goods or Inventory other than in the ordinary course of business without providing Investment Manager with advance written notice at least thirty (30) days prior to such relocation. 5.4 Deposit Accounts. Borrowers shall, at Investment Manager’s request, procure control agreements in favor of Investment Manager, for the benefit of Investment Manager and Lender, from each third party in possession of a deposit account that is included within the definition of Collateral (and therefore subject to Investment Manager’s security interest hereby granted). 5.5 No Transfers of Collateral. Notwithstanding that Proceeds are included within the definition of “Collateral” (and therefore subject to Investment Manager’s security interest hereby granted), no Borrower shall sell, assign, transfer or otherwise dispose of the Collateral or any portion thereof or any interest therein without the prior written consent of Investment Manager, except to the extent expressly permitted by the terms and conditions of the Credit Agreement. 5.6 Liens, Claims and Attachments. Borrowers shall at Borrowers’ expense, maintain the Collateral free from all Liens (other than Permitted Encumbrances), and Borrowers shall notify Investment Manager within two (2) days after receipt of notice of any Lien, attachment or judicial proceeding affecting the Collateral in whole or in material part. 5.7 Maintenance, Repairs and Replacements. Borrowers shall keep and maintain, or cause to be kept and maintained, all of the tangible Collateral in good condition, subject to normal wear and tear, and shall provide all maintenance and service and make all repairs and replacements necessary for such purpose, subject to Borrowers’ commercially reasonable discretion and the economic viability of such repair or replacement. If any parts or accessories forming part of the tangible Collateral become worn out, lost, destroyed, damaged beyond repair or otherwise permanently rendered unfit for use, Borrowers, at their own expense, shall within a reasonable time replace such parts or accessories or cause the same to be replaced by replacement parts or accessories that have a value and utility at least equal to the parts or accessories replaced, subject to Borrowers’ commercially reasonable discretion and the economic viability of such repair or replacement. All accessories, parts and replacements for or which are added to or become attached to any of the tangible Collateral shall immediately be deemed incorporated in the tangible Collateral and subject to the security interests granted by Borrowers under this Agreement.   5. -------------------------------------------------------------------------------- 5.8 Right to Inspect. Investment Manager shall have the right to inspect all of the tangible Collateral; such times and upon such notice as provided in Section 4.1 of the Credit Agreement. 5.9 Insurance; Application of Insurance Proceeds. Borrowers shall maintain insurance in accordance with Section 4.3 of the Credit Agreement. The proceeds of the insurance maintained by Borrowers and payable as a result of loss of or damage to any of the tangible Collateral shall be applied in accordance with the Credit Agreement. Each Borrower irrevocably appoints Investment Manager as such Borrower’s attorney-in-fact to make claim for, receive payment of, and execute and endorse all documents, checks or drafts received in payment for loss or damage under any of these insurance policies. 5.10 Financing Statements; Recording Costs; Possession of Collateral. Borrowers shall promptly deliver to Investment Manager all UCC Financing Statements or UCC continuation statements or other documents reasonably required, or procure any documents reasonably required (including UCC termination statements, as necessary), to carry out the transactions contemplated by the Loan Documents and to maintain Investment Manager’s perfected security interest in all of the Collateral with the lien priority indicated in the Credit Agreement. Each Borrower further authorizes the Investment Manager to file UCC-1 financing statements naming such Borrower as debtor and the Investment Manager as secured party, including, without limitation, financing statements describing the collateral as “all assets” or “all personal property” or words of similar import. Borrowers shall pay all state and local stamp or documentary taxes, recordation and transfer taxes, clerks’ fees and filing fees, and all other costs to record such documents and to perfect and maintain Investment Manager’s perfected security interest in all of the Collateral with the lien priority indicated in the Credit Agreement. If any material portion of the Collateral is of a type as to which it is necessary or desirable for Investment Manager to take possession of the Collateral in order to perfect, or maintain the priority of, Investment Manager’s security interest, then on or prior to the Initial Closing Date, Borrowers shall deliver all such Collateral to Investment Manager, and, with respect to any such Collateral acquired by any Borrower after the Initial Closing Date, such Borrower shall promptly deliver same to Investment Manager. A carbon, photographic, photocopy or other reproduction of a security agreement (including this Agreement) or financing statement shall be sufficient as a financing statement. 5.11 Supporting Materials. Borrowers, upon request by Investment Manager, shall provide Investment Manager from time to time with: (a) written statements or schedules identifying and describing the Collateral, and all additions, substitutions, and replacements thereof, in such detail as Investment Manager may reasonably require; (b) copies of customers’ invoices or billing statements; (c) proof of the sale or lease of goods or evidence of the satisfactory performance of services which gave rise to any Accounts; and (d) such other schedules and information as Investment Manager reasonably may require. The items to be provided under this Section 5.11 shall be in form reasonably satisfactory to Investment Manager and are to be delivered to Investment Manager from time to time solely for Investment Manager’s convenience in maintaining records of   6. -------------------------------------------------------------------------------- the Collateral. Borrowers’ failure to give any of such items to Investment Manager shall not affect, terminate, modify or otherwise limit Investment Manager’s security interest in any of the Collateral. 5.12 Notification of Delays. Borrowers, upon request by Investment Manager, shall regularly advise Investment Manager of any material delay in delivery or performance, or material claims made, in regard to any of the Collateral. 5.13 No Material Changes. No Borrower shall make any material change to the terms of any general intangible, chattel paper, instrument or account (if the account has a book value equal to or greater than ten percent (10%) of Borrowers’ annual gross revenues), without the prior written permission of Investment Manager. Material changes shall include, without limitation: (a) granting an extension of the time of payment of any of the accounts, chattel paper, instruments, or amounts due under any contract or document, (b) compromising, compounding or settling the same for less than the full amount thereof, (c) releasing, wholly or partly, any person liable for the payment thereof, or (d) allowing any credit or discount whatsoever thereon other than trade discounts or rebates granted in the ordinary course of Borrowers’ businesses. 5.14 Additional Covenants Relating to Accounts and Chattel Paper. 5.14.1 Borrowers shall, upon request by Investment Manager, deliver to Investment Manager within fifteen (15) calendar days after the last day of each month, a listing and aging report for the Accounts, in form and substance reasonably satisfactory to Investment Manager, together with such other information and financial reports as Investment Manager may request in Investment Manager’s reasonable discretion from time to time; and 5.14.2 Upon the request by Investment Manager, at any time after the occurrence and during the continuance of an Event of Default, Borrowers shall deposit, or cause to be deposited, all checks, drafts, cash and other remittances in payment of, or on account of payment of, any and all Accounts and Chattel Paper (all of the foregoing herein collectively referred to as “items of payment”) to an account (the “Collateral Account”) designated by Investment Manager at a bank or other financial institution designated by Investment Manager. Neither Investment Manager nor Lender shall be responsible for the solvency of any such bank or other financial institution, or the management and administration of the Collateral Account. Investment Manager alone shall have the power to access and make withdrawals from the Collateral Account. Borrowers shall deposit such items of payment for credit to the Collateral Account within one banking day of the receipt thereof and in precisely the form received, except for the endorsement of Borrowers where necessary to permit the collection of such items of payment, which endorsement each Borrower hereby agrees to make. Pending such deposit, Borrowers will not commingle any such items of payment with any of their other funds or property, but will hold them separate and apart. Investment Manager shall be entitled, from time to time in Investment Manager’s discretion, to apply the funds in the Collateral Account against any of the Obligations.   7. -------------------------------------------------------------------------------- 5.14.3 No Borrower shall create any Chattel Paper without placing a legend on such Chattel Paper acceptable to Investment Manager indicating that Investment Manager has a security interest in the Chattel Paper. 5.15 Additional Covenants Relating to Intellectual Property. 5.15.1 No Borrower shall file any application for the issuance or registration of a Patent, Copyright or Trademark with the United States Copyright Office or the United States Patent and Trademark Office or any similar office or agency in the United States or any other country, unless such Borrower has notified Investment Manager in writing of such action within thirty (30) days after such filing and, upon request by Investment Manager, such Borrower shall execute and deliver to Investment Manager any and all assignments, agreements, instruments, documents and such other papers as may reasonably be requested by Investment Manager to effect an assignment of such application to Investment Manager reflecting the security interest granted hereby; 5.15.2 Borrowers will, without cost to Investment Manager or Lender, render any assistance reasonably necessary to Investment Manager in any proceeding before the United States Copyright Office or the United States Patent and Trademark Office or any similar office or agency in the United States or any other country to maintain each application or registration for any Patents, Copyrights or Trademarks, including, without limitation, the filing of all renewals and the payment of all annuities. 5.15.3 Borrowers shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable: (i) those intellectual property rights listed on any exhibits or schedules to the Intellectual Property Security Agreement delivered to Investment Manager by Borrowers in connection with this Agreement, within 30 days of the date of this Agreement, (ii) all registrable intellectual property rights any Borrower has developed as of the date of this Agreement but heretofore failed to register, within 30 days of the date of this Agreement, subject, however, to Borrowers’ commercially reasonable discretion as to whether registration is in the best interests of Borrowers, and (iii) those additional registrable intellectual property rights developed or acquired by any Borrower after the date of this Agreement (including without limitation major revisions or additions which significantly improve the functionality of the intellectual property rights listed on such exhibits or schedules), subject, however, to Borrowers’ commercially reasonable discretion as to whether registration is in the best interests of Borrowers. Borrowers shall give Investment Manager prompt notice of all such applications or registrations. As of the date hereof, no Borrower has any Patents, Copyrights or Trademarks issued by, or the subject of pending applications or registrations in, the United States Copyright Office or the United States Patent and Trademark Office or any similar office or agency in the United States or any other country, other than those described in such exhibits or schedules. 5.15.4 Borrowers shall execute and deliver such additional instruments and documents from time to time as Investment Manager shall reasonably request to perfect Investment Manager’s security interest in the Intellectual Property.   8. -------------------------------------------------------------------------------- 5.15.5 Borrowers shall to the extent determined by them in their commercially reasonable discretion (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Investment Manager in writing of material infringements detected and (iii) prevent any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Investment Manager. 5.15.6 Investment Manager may from time to time audit Borrowers’ Intellectual Property to confirm compliance with this Section 5.15. 5.15.7 Investment Manager shall have the right, but not the obligation, to take, at Borrowers’ sole expense, any actions that Borrowers are required under this Section 5.15 to take but which Borrowers fail to take, after 15 days’ notice to Borrowers. 5.15.8 Borrowers shall reimburse and indemnify Investment Manager and Lender for all costs and expenses incurred in the reasonable exercise of the rights set forth under this Section 5.15. 5.16 Consent of Inbound Licensors. Prior to entering into or becoming bound by any license or agreement that will constitute a Material Agreement, Borrowers shall take commercially reasonable efforts, if requested by Investment Manager, to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrowers’ interest in such licenses or contract rights to be deemed Collateral and for Investment Manager to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future. 5.17 Notice to Investment Manager; Joinder by Borrowers. Borrowers will promptly notify Investment Manager if any Borrower learns of any unauthorized use or infringement by any Person with respect to any of the Collateral. If requested by Investment Manager, Borrowers, at Borrowers’ expense, shall join with Investment Manager in such action as Investment Manager, in Investment Manager’s discretion, may reasonably deem advisable for the protection of the perfected, first-priority continuing security interest, subject only to the Permitted Encumbrances. ARTICLE VI DEFAULT AND REMEDIES Upon the occurrence and during the continuance of any Event of Default, Investment Manager may exercise, in addition to those available at law or in equity, all of the following rights and remedies: 6.1 Assemble Collateral. Investment Manager may require Borrowers (at Borrowers’ sole expense) to assemble and to forward promptly any or all of the Goods, Equipment, Chattel   9. -------------------------------------------------------------------------------- Paper, and Inventory to Investment Manager at such location(s) as shall be reasonably required by Investment Manager. 6.2 Take Possession. Without breaching the peace, Investment Manager may enter upon the premises where any Goods, Equipment, Chattel Paper, monies, deposit accounts or rights to money are located and take immediate possession thereof, by summary proceedings or otherwise, and Investment Manager may remove any of such items, all without liability of Investment Manager to any Borrower for or by reason of such entry, taking of possession or removal in the absence of gross negligence or willful misconduct or violation of the Code. 6.3 Appointment of Receiver. Investment Manager shall be entitled to appointment of a receiver to take possession of and to manage all or any portion of the Collateral. Investment Manager may obtain such appointment without notice to, or demand of any Borrower, on an ex parte basis before any court of competent jurisdiction, and without regard to the adequacy of the Collateral as security for the Obligations. 6.4 Sale of Collateral. Investment Manager in accordance with the Code may sell, assign, and deliver or otherwise dispose of or cause to be sold or otherwise disposed of, the whole or any part of the Collateral, at one or more commercially reasonable public or private sales, without demand or advertisement of the time or place of sale or of any adjournment thereof, each of which is hereby expressly waived to the extent permitted by applicable law. The sale or other disposition may be made for such price and upon such terms and conditions as Investment Manager, if any, may deem best in its exercise of its commercially reasonable discretion. Investment Manager may apply the proceeds from such sale or sales or such other disposition or dispositions: first, to the settlement of all liens or claims on the Collateral with a lien priority greater than that of Investment Manager, if any; second, to the payment of all expenses connected with the assembly, preservation, preparation, and sale or other disposition of the Collateral, including any trustees’ or auctioneers’ fees, commissions or other expenses; third, to the payment and satisfaction in full of the Obligations; and fourth, returning the excess, if any, to Borrowers. Each Borrower hereby expressly waives all rights of appraisal, whether before or after the sale or other disposition, and any right of redemption after the sale or other disposition. 6.5 Attorney-in-Fact. Upon the occurrence and during the continuance of an Event of Default, each Borrower hereby irrevocably appoints Investment Manager as such Borrower’s attorney-in-fact, with power of substitution, to do each of the following in the name of such Borrower or in the name of Investment Manager or otherwise, for the use and benefit of Investment Manager and Lender, but at the cost and expense of Borrowers, and without notice to any Borrower: 6.5.1 notify the debtors or other party(ies) obligated under any of the Accounts, Chattel Paper or General Intangibles to make payments thereon directly to Investment Manager, and to take control of the cash and non-cash proceeds of any Collateral; 6.5.2 compromise, extend, or renew any of the Collateral or deal with the same as it may deem advisable;   10. -------------------------------------------------------------------------------- 6.5.3 release, make exchanges, substitutions, or surrender all or any part of the Collateral; 6.5.4 remove from such Borrower’s place of business all books, records, ledger sheets, correspondence, invoices and documents, relating to or evidencing any of the Collateral or without cost or expense to Investment Manager, make such use of such Borrower’s place(s) of business as may be reasonably necessary to administer, control and collect the Collateral; 6.5.5 repair, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Account Debtor; 6.5.6 demand, collect, receipt for and give renewals, extensions, discharges and releases of any of the Collateral; 6.5.7 institute and prosecute legal and equitable proceedings to enforce collection of, or realize upon, any of the Collateral; 6.5.8 settle, renew, extend, compromise, compound, exchange or adjust claims with respect to any of the Collateral or any legal proceedings brought with respect thereto; 6.5.9 endorse the name of such Borrower upon any items of payment relating to the Collateral or upon any proof of claim in bankruptcy against an Account Debtor; 6.5.10 institute and prosecute necessary legal and equitable proceedings to reclaim any of the goods sold to any debtor obligated on an Account, Chattel Paper, or General Intangible at a time when such debtor was insolvent; 6.5.11 receive and open all mail addressed to such Borrower and notify the postal authorities to change the address for the delivery of mail to such Borrower to such address as Investment Manager may designate; and 6.5.12 execute and deliver on behalf of such Borrower one or more instruments of assignment of the Intellectual Property (or application, letters patent or recording relating thereto), in form suitable for filing, recording or registration. 6.6 Right to Make Payments or Otherwise Cure. Whether or not such failure shall constitute an Event of Default, Investment Manager may, in its sole discretion, pay any amount or do any act which Borrowers or any of them fails to do or pay as required by the terms of this Agreement or any of the other Loan Documents. Investment Manager may also take any actions, make any payments, or incur any reasonable expenses (including, without limitation, the payment of filing fees, court costs, travel expenses and attorneys’ fees) as may be necessary or appropriate to preserve, defend, protect, maintain, record or enforce the Obligations, the Collateral, or the security interest granted hereunder.   11. -------------------------------------------------------------------------------- 6.7 Right to Defend. Whether or not such failure shall constitute an Event of Default, if any material portion of the Collateral is or becomes the subject of any litigation or other proceeding and Borrowers fail to reasonably defend such litigation or other proceeding and to reasonably protect Borrowers’ and Investment Manager’s rights in such Collateral in good faith, then Investment Manager may, at its sole option, elect to defend and control the defense of such litigation or other proceeding, including the right to: (a) select and retain counsel; (b) determine whether settlement shall be offered or accepted; and (c) determine and negotiate all settlement terms. Investment Manager, if it so elects, shall be fully, jointly and severally, indemnified by Borrowers and shall be reimbursed for all costs of litigation and settlement, including, without limitation, all costs, expenses and reasonable attorneys’ fees for actions taken in compliance with this Section. Any payments made pursuant to the authority granted in Article VI and Section 6.6 above or this Section 6.7 shall be deemed added to the principal amounts outstanding under the Credit Agreement and shall accrue interest as provided in the Credit Agreement. ARTICLE VII ADDITIONAL PROVISIONS 7.1 Deficiency. Borrowers shall be and remain liable for all of the Obligations remaining after crediting to Borrowers any net proceeds received by Investment Manager following exercise of any of its rights and remedies hereunder. 7.2 No Duty to Act. Nothing contained in this Agreement or any of the other Loan Documents shall be construed as requiring Investment Manager or Lender to take any particular enforcement or remedial action or combination of enforcement or remedial actions at any time. 7.3 Remedies Not Limited; Partial Exercise. All of Investment Manager’s and Lender’s rights and remedies, whether provided under this Agreement, the other Loan Documents, at law, in equity, or otherwise shall be cumulative and none is exclusive. Such rights and remedies may be enforced alternatively, successively or concurrently, and each Borrower hereby agrees that Investment Manager may enforce its rights hereunder with respect to individual items or classes of Collateral without waiving or prejudicing in any respect Investment Manager’s rights hereunder with respect to any other items or classes of Collateral. Investment Manager and Lender may exercise any other right or remedy which may be available to them under this Agreement, the Credit Agreement or applicable law, including, without limitation, the remedies set forth in Section 7.2 of the Credit Agreement, or may proceed by appropriate court action to enforce the terms hereof, to recover damages for the breach hereof, or to rescind this Agreement in whole or in part. 7.4 Costs of Enforcement. Borrowers shall be liable for all reasonable costs incurred by Investment Manager and Lender in collecting any sums owed to Investment Manager and Lender under the Loan Documents or in otherwise enforcing any of the Obligations (whether or not suit is brought), including, but not limited to, all reasonable attorneys’ fees and expenses, court costs, and reasonable costs of consultants, appraisers and other advisors retained by Investment Manager and Lender. To the extent of any exercise by Investment Manager or Lender of their rights under   12. -------------------------------------------------------------------------------- Section 6.6, any reasonable expenditures made for such purpose shall be added to the principal amount outstanding under the Credit Agreement. 7.5 Mitigation of Damages. To the extent permitted by the applicable law, each Borrower hereby waives any notice or other mandatory requirements of applicable law, now or hereafter in effect, which might require Investment Manager to sell, lease or otherwise use any of the Collateral in mitigation of Investment Manager’s or Lender’s damages; provided, however, that such Borrower does not waive any legal requirement that Investment Manager act in a commercially reasonable manner. 7.6 No Waivers by Investment Manager. No failure of Investment Manager or Lender to exercise, or delay by Investment Manager or Lender in the exercise of, any rights or remedies granted herein following the occurrence of an Event of Default shall constitute a waiver of any of Investment Manager’s or Lender’s rights with respect to such Event of Default or any subsequent Event of Default (whether or not similar). Any failure or delay by Investment Manager or Lender to require strict performance by any Borrower of any of the provisions, warranties, terms and conditions contained herein or in any other agreement, document or instrument, shall not affect Investment Manager’s and Lender’s right to demand strict compliance and performance therewith. 7.7 Waiver of Notice and Hearing Regarding Probable Cause by Borrowers. Each Borrower acknowledges being advised of a constitutional right, as to pre-judgment relief as may be sought by Investment Manager through the process of a court, to notice and a court hearing to determine whether, upon default, there is probable cause to sustain the validity of Investment Manager’s claim and whether Investment Manager is entitled to possession of the Collateral. Being so advised, each Borrower, in regard to such relief, hereby voluntarily gives up, waives and surrenders any right to a notice and hearing to determine whether there is probable cause to sustain the validity of Investment Manager’s claim. Any notices required pursuant to any state or local law shall be deemed reasonable if mailed by Investment Manager to the persons entitled thereto at its last known address at least ten days prior to disposition of the Collateral, and in reference to a private sale, need state only that Investment Manager intends to negotiate such a sale. 7.8 Investment Manager’s Actions. Investment Manager and Lender may take or release the Collateral or other security, may release any party primarily or secondarily liable for any indebtedness to Investment Manager or Lender, may grant extensions, renewals or indulgences with respect to such indebtedness, and may apply any other security therefor held by either of them to the satisfaction of such indebtedness, all without prejudice to any of their rights or Borrowers’ obligations hereunder or under any of the other Loan Documents. 7.9 Liability for Loss. Neither Investment Manager nor Lender shall be liable for any loss to the Collateral in its possession, nor shall such loss diminish the debt due, even if the loss is caused or contributed by Investment Manager’s or Lender’s negligence, except as otherwise provided in the Code.   13. -------------------------------------------------------------------------------- 7.10 Notices. All notices hereunder shall be given in accordance with the notice provisions in the Credit Agreement. Borrowers agree that ten (10) days prior notice of the time and place of any public sale of all or any portion of the Collateral, or of the time after which a private sale of all or any portion of the Collateral will be made, is commercially reasonable notice. 7.11 Further Assurances. Borrowers will promptly and duly execute and deliver to Investment Manager such further documents and assurances and take such further actions as Investment Manager may from time to time reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of Investment Manager, for the benefit of Investment Manager and Lender hereunder. 7.12 Termination of Agreement; Release of Security Interest. Upon the repayment in full of all payment Obligations and the satisfaction of all other Obligations, this Agreement shall terminate without further action by Investment Manager, Lender or any other Person. Notwithstanding the foregoing, upon request, Investment Manager will execute and deliver to Borrowers any releases, termination statements or similar instruments of reconveyance as Borrowers may reasonably request. All such instruments and documents shall be prepared by Borrowers and filed or recorded by Borrowers, at Borrowers’ sole expense, and Investment Manager shall have no duty, obligation or liability with respect thereto, except as otherwise provided in the Code. 7.13 Headings. The headings in this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. [signature page follows]   14. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto execute this Agreement as of the day and year first above written.   VERTICAL COMMUNICATIONS, INC. By:   /s/ WILLIAM Y. TAUSCHER Name:   William Y. Tauscher Title:   President VERTICAL COMMUNICATIONS ACQUISITION CORP. By:   /s/ WILLIAM Y. TAUSCHER Name:   William Y. Tauscher Title:   President COLUMBIA PARTNERS, L.L.C. INVESTMENT MANAGEMENT, as Investment Manager By:   /s/ JASON A. CRIST Name:   Jason A. Crist Title:   Managing Director [Signature Page to Security Agreement] -------------------------------------------------------------------------------- EXHIBIT A COLLATERAL DESCRIPTION The Collateral consists of all of each Borrower’s right, title and interest in and to the following, all whether now owned or hereafter developed, arising or acquired and wherever located: All goods and equipment, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; All inventory, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of such Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above; All contract rights and general intangibles, including, without limitation, payment intangibles, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, contracts, licenses, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, software, computer discs, computer tapes, literature, reports, catalogs, design rights, tax and other types of refunds, returned and unearned insurance premiums, payments of insurance and rights to payment of any kind; All accounts, contract rights, royalties, license rights and all other forms of obligations owing to such Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by such Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by such Borrower; All letter-of-credit rights (whether or not evidenced by a writing); All documents (including warehouse receipts), cash, cash equivalents, deposit accounts, securities, securities entitlements, securities accounts (including health-care-insurance receivables and credit card receivables), commodity accounts, commodity contracts, investment property, financial assets, letters of credit rights, certificates of deposit, instruments (including promissory notes) and chattel paper (including electronic chattel paper and tangible chattel paper) and such Borrower’s books relating to the foregoing; All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information; all mask work or similar rights available for the -------------------------------------------------------------------------------- protection of semiconductor chips; all claims for damages by way of any past, present and future infringement of any of the foregoing; All commercial tort claims, if any, described below; and All books relating to the foregoing and any and all claims, rights and interests in any of the above and all replacements of, substitutions for, additions and accessions to and proceeds thereof. All terms above have the meanings given to them in the Uniform Commercial Code in effect in the State of New York, as amended or supplemented from time to time. -------------------------------------------------------------------------------- EXHIBIT B PERFECTION CERTIFICATE

Exhibit 10.1   Appendix A   TORCHMARK CORPORATION Amended and Restated 2005 INCENTIVE PLAN   ARTICLE 1 PURPOSE   1.1.         GENERAL.    The purpose of the Torchmark Corporation Amended and Restated 2005 Incentive Plan (the “Plan”) is to promote the success, and enhance the value, of Torchmark Corporation (the “Company”), by linking the personal interests of employees, officers, directors and consultants of the Company or any Affiliate (as defined below) to those of Company shareholders and by providing such persons with an incentive for outstanding performance. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of employees, officers, directors and consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent. Accordingly, the Plan permits the grant of incentive awards from time to time to selected employees, officers, directors and consultants of the Company and its Affiliates.   ARTICLE 2 DEFINITIONS   2.1.         DEFINITIONS.    When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be given the meaning ascribed to it in this Section or in Section 1.1 unless a clearly different meaning is required by the context. The following words and phrases shall have the following meanings:   (a)    “Affiliate” means (i) any Subsidiary or Parent, or (ii) an entity that directly or through one or more intermediaries controls, is controlled by or is under common control with, the Company, as determined by the Committee.   (b)    “Award” means any Option or Restricted Stock Award granted to a Participant under the Plan.   (c)    “Award Certificate” means a written document, in such form as the Committee prescribes from time to time, setting forth the terms and conditions of an Award. Award Certificates may be in the form of individual award agreements or certificates or a program document describing the terms and provisions of an Awards or series of Awards under the Plan.   (d)    “Board” means the Board of Directors of the Company.   (e)    “Cause” as a reason for a Participant’s termination of employment shall have the meaning assigned such term in the employment, severance or similar agreement, if any, between such Participant and the Company or an Affiliate, provided, however that if there is no such employment, severance or similar agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, “Cause” shall mean any of the following acts by the Participant, as determined by the Committee or the Board: gross neglect of duty, prolonged absence from duty without the consent of the Company, intentionally engaging in any activity that is in conflict with or adverse to the business or other interests of the Company, or willful misconduct, misfeasance or malfeasance of duty which is reasonably determined to be detrimental to the Company. With respect to a Participant’s termination of directorship, “Cause” means a Participant’s willful misconduct or dishonesty, any of which is directly and materially harmful to the business or reputation of the Company or any Subsidiary or Affiliate. -------------------------------------------------------------------------------- (f)    “Change in Control” means and includes the occurrence of any one of the following events:   (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by a Person who is on the Effective Date the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition directly from the Company, (iii) any acquisition by the Company, (iv) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or   (ii) Individuals who, as of the Effective Date, 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 Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or   (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or   (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.   (g)    “Code” means the Internal Revenue Code of 1986, as amended from time to time, and includes a reference to the underlying final regulations.   (h)    “Committee” means the committee of the Board described in Article 4.   (i)    “Company” means Torchmark Corporation, a Delaware corporation, or any successor corporation.   2 -------------------------------------------------------------------------------- (j)    “Continuous Status as a Participant” means the absence of any interruption or termination of service as an employee, officer, director or consultant of the Company or any Affiliate, as applicable; provided, however, that for purposes of an Incentive Stock Option, “Continuous Status as a Participant” means the absence of any interruption or termination of service as an employee of the Company or any Parent or Subsidiary, as applicable, pursuant to applicable tax regulations. Continuous Status as a Participant shall continue to the extent provided in a written severance or employment agreement during any period for which severance compensation payments are made to an employee, officer, director or consultant and shall not be considered interrupted in the case of any short-term disability or leave of absence authorized in writing by the Company prior to its commencement; provided, however, that for purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.   (k)    “Covered Employee” means a covered employee as defined in Code Section 162(m)(3).   (l)    “Disability” or “Disabled” has the same meaning as provided in the long-term disability plan or policy maintained by the Company or if applicable, most recently maintained, by the Company or if applicable, an Affiliate, for the Participant, whether or not such Participant actually receives disability benefits under such plan or policy. If no long-term disability plan or policy was ever maintained on behalf of Participant or if the determination of Disability relates to an Incentive Stock Option, Disability means Permanent and Total Disability as defined in Section 22(e)(3) of the Code. In the event of a dispute, the determination whether a Participant is Disabled will be made by the Committee and may be supported by the advice of a physician competent in the area to which such Disability relates.   (m)     “Effective Date” has the meaning assigned such term in Section 3.1.   (n)    “Eligible Participant” means an employee, officer, director or consultant of the Company or any Affiliate.   (o)    “Exchange” means the New York Stock Exchange or any other national securities exchange or, if applicable, the Nasdaq National Market on which the Stock may from time to time be listed or traded.   (p)    “Fair Market Value”, on any date, means (i) if the Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable.   (q)    “Good Reason” has the meaning assigned such term in the employment, severance or similar agreement, if any, between a Participant and the Company or an Affiliate, provided, however that if there is no such employment, severance or similar agreement in which such term is defined, and unless otherwise defined in the applicable Award Certificate, “Good Reason” shall mean a reduction by the Company or an Affiliate in the Participant’s base salary (other than an overall reduction in salaries that affects substantially all full-time employees of the Company and its Affiliates).   (r)    “Grant Date” of an Award means the first date on which all necessary corporate action has been taken to approve the grant of the Award as provided in the Plan, or such later date as is determined and specified as part of that authorization process. Notice of the grant shall be provided to the grantee within a reasonable time after the Grant Date.   3 -------------------------------------------------------------------------------- (s)    “Incentive Stock Option” means an Option that is intended to be an incentive stock option and meets the requirements of Section 422 of the Code or any successor provision thereto.   (t)    “Non-Employee Director” means a director of the Company who is not a common law employee of the Company or an Affiliate.   (u)    “Nonstatutory Stock Option” means an Option that is not an Incentive Stock Option.   (v)    “Option” means a right granted to a Participant under Article 7 of the Plan to purchase Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.   (w)    “Parent” means a corporation, limited liability company, partnership or other entity which owns or beneficially owns a majority of the outstanding voting stock or voting power of the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Parent shall have the meaning set forth in Section 424(e) of the Code.   (x)    “Participant” means a person who, as an employee, officer, director or consultant of the Company or any Affiliate, has been granted an Award under the Plan; provided that in the case of the death of a Participant, the term “Participant” refers to a beneficiary designated pursuant to Section 9.5 or the legal guardian or other legal representative acting in a fiduciary capacity on behalf of the Participant under applicable state law and court supervision.   (y)    “Person” means any individual, entity or group, within the meaning of Section 3(a)(9) of the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.   (z)    “Plan” means this Torchmark Corporation Amended and Restated 2005 Incentive Plan, as amended or supplemented from time to time.   (aa)    “Restricted Stock Award” means Stock granted to a Participant under Article 8 that is subject to certain restrictions and to risk of forfeiture.   (bb)    “Retirement” means a Participant’s termination of employment with the Company or an Affiliate with the Committee’s approval after attaining any normal or early retirement age specified in any pension, profit sharing or other retirement program sponsored by the Company, or, in the event of the inapplicability thereof with respect to the Participant in question, as determined by the Committee in its reasonable judgment.   (cc)    “Section 162(m) Exemption” means 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) of the Code or any successor provision thereto.   (dd)    “Shares” means shares of the Company’s Stock. If there has been an adjustment or substitution pursuant to Section 10.1, the term “Shares” shall also include any shares of stock or other securities that are substituted for Shares or into which Shares are adjusted pursuant to Section 10.1.   (ee)    “Stock” means the $.1.00 par value common stock of the Company and such other securities of the Company as may be substituted for Stock pursuant to Article 10.   (ff)    “Subsidiary” means any corporation, limited liability company, partnership or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary shall have the meaning set forth in Section 424(f) of the Code.   (gg)    “1933 Act” means the Securities Act of 1933, as amended from time to time.   (hh)    “1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.   4 -------------------------------------------------------------------------------- ARTICLE 3 EFFECTIVE TERM OF PLAN   3.1.         EFFECTIVE DATE.    The Plan shall be effective as of the date it is approved by the shareholders of the Company (the “Effective Date”).   3.2.        TERMINATION OF PLAN.     The Plan shall terminate on the tenth anniversary of the Effective Date unless earlier terminated as provided herein. The termination of the Plan on such date shall not affect the validity of any Award outstanding on the date of termination.   ARTICLE 4 ADMINISTRATION   4.1.        COMMITTEE.    The Plan shall be administered by a Committee appointed by the Board (which Committee shall consist of at least two directors) or, at the discretion of the Board from time to time, the Plan may be administered by the Board. It is intended that at least two of the directors appointed to serve on the Committee shall be “non-employee directors” (within the meaning of Rule 16b-3 promulgated under the 1934 Act) and “outside directors” (within the meaning of Code Section 162(m)) and that any such members of the Committee who do not so qualify shall abstain from participating in any decision to make or administer Awards that are made to Eligible Participants who at the time of consideration for such Award (i) are persons subject to the short-swing profit rules of Section 16 of the 1934 Act, or (ii) are reasonably anticipated to become Covered Employees during the term of the Award. However, the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements or shall fail to abstain from such action shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The members of the Committee shall be appointed by, and may be changed at any time and from time to time in the discretion of, the Board. The Board may reserve to itself any or all of the authority and responsibility of the Committee under the Plan or may act as administrator of the Plan for any and all purposes. To the extent the Board has reserved any authority and responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4.1) shall include the Board. To the extent any action of the Board under the Plan conflicts with actions taken by the Committee, the actions of the Board shall control.   4.2.        ACTION AND INTERPRETATIONS BY THE COMMITTEE.    For purposes of administering the Plan, the Committee may from time to time adopt rules, regulations, guidelines and procedures for carrying out the provisions and purposes of the Plan and make such other determinations, not inconsistent with the Plan, as the Committee may deem appropriate. The Committee’s interpretation of the Plan, any Awards granted under the Plan, any Award Certificate and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s or an Affiliate’s independent certified public accountants, Company counsel or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.   4.3.        AUTHORITY OF COMMITTEE.    Except as provided below, the Committee has the exclusive power, authority and discretion to:   (a)    Grant Awards;   (b)    Designate Participants;   (c)    Determine the type or types of Awards to be granted to each Participant;   5 -------------------------------------------------------------------------------- (d)    Determine the number of Awards to be granted and the number of Shares or dollar amount to which an Award will relate;   (e)    Determine the terms and conditions of any Award granted under the Plan, including but not limited to, the exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, based in each case on such considerations as the Committee in its sole discretion determines;   (f)    Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;   (g)    Prescribe the form of each Award Certificate, which need not be identical for each Participant;   (h)    Decide all other matters that must be determined in connection with an Award;   (i)    Establish, adopt or revise any rules, regulations, guidelines or procedures as it may deem necessary or advisable to administer the Plan;   (j)    Make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan;   (k)    Amend the Plan or any Award Certificate as provided herein; and   (l)    Adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of non-U.S. jurisdictions in which the Company or any Affiliate may operate, in order to assure the viability of the benefits of Awards granted to participants located in such other jurisdictions and to meet the objectives of the Plan.   Notwithstanding the foregoing, grants of Awards to Non-Employee Directors hereunder shall be made only in accordance with the terms, conditions and parameters of a plan, program or policy for the compensation of Non-Employee Directors as in effect from time to time, and the Committee may not make discretionary grants hereunder to Non-Employee Directors.   Notwithstanding the above, the Board or the Committee may, by resolution, expressly delegate to a special committee, consisting of one or more directors who are also officers of the Company, the authority, within specified parameters, to (i) designate Eligible Participants to be recipients of Awards under the Plan, and (ii) to determine the number of such Awards to be granted to any such Participants; provided that a limit on the total number or dollar value of Awards to be granted to any such Participants shall be approved in advance by the Board or the Committee and provided further that such delegation of duties and responsibilities to such special committee may not be made with respect to the grant of Awards to Eligible Participants (a) who are subject to Section 16(a) of the 1934 Act at the Grant Date, or (b) who as of the Grant Date are reasonably anticipated to be become Covered Employees during the term of the Award. The acts of such delegates shall be treated hereunder as acts of the Board and such delegates shall report regularly to the Board and the Compensation Committee regarding the delegated duties and responsibilities and any Awards so granted.   4.4.        AWARD CERTIFICATES.    Each Award shall be evidenced by an Award Certificate. Each Award Certificate shall include such provisions, not inconsistent with the Plan, as may be specified by the Committee.   ARTICLE 5 SHARES SUBJECT TO THE PLAN   5.1.        NUMBER OF SHARES.    Subject to adjustment as provided in Sections 5.2, the aggregate number of Shares reserved and available for issuance pursuant to Awards granted under the Plan shall be   6 -------------------------------------------------------------------------------- 5,789,805. The maximum number of Shares that may be issued upon exercise of Incentive Stock Options granted under the Plan shall be 1,000,000. The maximum number of Shares that may be issued as Restricted Stock under the Plan shall be [50,000].   5.2.        SHARE COUNTING.    To the extent that an Award is canceled, terminates, expires, is forfeited or lapses for any reason, any unissued or forfeited Shares from such Award will again be available for issuance pursuant to Awards granted under the Plan.   5.3.        STOCK DISTRIBUTED.    Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market.   5.4.        LIMITATION ON AWARDS.    Notwithstanding any provision in the Plan to the contrary, the maximum number of Shares with respect to one or more Options that may be granted during any one calendar year under the Plan to any one Participant shall be 800,000. The maximum aggregate grant with respect to Restricted Stock Awards in any one calendar year to any one Participant shall be 7,000.   ARTICLE 6 ELIGIBILITY   6.1.        GENERAL.    Awards may be granted only to Eligible Participants; except that Incentive Stock Options may be granted to only to Eligible Participants who are employees of the Company or a Parent or Subsidiary as defined in Section 424(e) and (f) of the Code.   ARTICLE 7 STOCK OPTIONS   7.1.        GENERAL.    The Committee is authorized to grant Options to Participants on the following terms and conditions:   (a)    EXERCISE PRICE. The exercise price per Share under an Option shall be determined by the Committee; provided, however, that the exercise price of an Option shall not be less than the Fair Market Value as of the Grant Date.   (b)    TIME AND CONDITIONS OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, subject to Section 7.1(d). The Committee shall also determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised or vested. Except under certain circumstances contemplated by Section 9.9 or as may be set forth in an Award Certificate with respect to death, Disability or Retirement of a Participant, Options granted after June 30, 2005 will not be exercisable before the expiration of one year from the Grant Date.   (c)    PAYMENT. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, Shares, or other property (including “cashless exercise” arrangements), and the methods by which Shares shall be delivered or deemed to be delivered to Participants.   (d)    EXERCISE TERM. In no event may any Option be exercisable for more than seven years from the Grant Date.   7.2.        INCENTIVE STOCK OPTIONS.    The terms of any Incentive Stock Options granted under the Plan must comply with the following additional rules:   (a)    EXERCISE PRICE. The exercise price of an Incentive Stock Option shall not be less than the Fair Market Value as of the Grant Date.   7 -------------------------------------------------------------------------------- (b)    LAPSE OF OPTION. Subject to any earlier termination provision contained in the Award Certificate, an Incentive Stock Option shall lapse upon the earliest of the following circumstances; provided, however, that the Committee may, prior to the lapse of the Incentive Stock Option under the circumstances described in subsections (3), (4) or (5) below, provide in writing that the Option will extend until a later date, but if an Option is so extended and is exercised after the dates specified in subsections (3) and (4) below, it will automatically become a Nonstatutory Stock Option:   (1) The expiration date set forth in the Award Certificate.   (2) The seventh anniversary of the Grant Date.   (3) Three months after termination of the Participant’s Continuous Status as a Participant for any reason other than the Participant’s Disability or death.   (4) One year after the Participant’s Continuous Status as a Participant by reason of the Participant’s Disability.   (5) One year after the Participant’s death if the Participant dies while employed, or during the three-month period described in paragraph (3) or during the one-year period described in paragraph (4) and before the Option otherwise lapses.   Unless the exercisability of the Incentive Stock Option is accelerated as provided in Article 9, if a Participant exercises an Option after termination of employment, the Option may be exercised only with respect to the Shares that were otherwise vested on the Participant’s termination of employment. Upon the Participant’s death, any exercisable Incentive Stock Options may be exercised by the Participant’s beneficiary, determined in accordance with Section 9.5.   (c)    INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the Grant Date) of all Shares with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00.   (d)    TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to any individual who, at the Grant Date, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary unless the exercise price per share of such Option is at least 110% of the Fair Market Value per Share at the Grant Date and the Option expires no later than five years after the Grant Date.   (e)    EXPIRATION OF AUTHORITY TO GRANT INCENTIVE STOCK OPTIONS. No Incentive Stock Option may be granted pursuant to the Plan after the day immediately prior to the tenth anniversary of the Effective Date of the Plan, or the termination of the Plan, if earlier.   (f)    RIGHT TO EXERCISE. During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant or, in the case of the Participant’s Disability, by the Participant’s guardian or legal representative.   (g)    ELIGIBLE GRANTEES. The Committee may not grant an Incentive Stock Option to a person who is not at the Grant Date an employee of the Company or a Parent or Subsidiary.   ARTICLE 8 RESTRICTED STOCK AWARDS   8.1        GRANT OF RESTRICTED STOCK.    The Committee is authorized to make Awards of Restricted Stock to Participants in such amounts and subject to such terms and conditions as may be selected by the Committee, subject to Section 5.4   8.2.        ISSUANCE AND RESTRICTIONS.    Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on   8 -------------------------------------------------------------------------------- the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock) covering a period of time specified by the Committee (the “Restricted Period”). These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. Except as otherwise provided in an Award Certificate or any special Plan document governing an Award, the Participant shall have all of the rights of a shareholder with respect to the Restricted Stock.   8.3.        FORFEITURE.    Except for certain limited situations (including the death, Disability or Retirement of the Participant or a Change in Control referred to in Section 9.8), Restricted Stock Awards subject solely to continued employment restrictions shall have a Restriction Period of not less than five years from the Grant Date (but permitting pro-rata vesting over such time). Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, immediately after termination of Continuous Status as a Participant during the applicable Restriction Period or upon failure to satisfy a performance goal during the applicable Restriction Period, Restricted Stock that is at that time subject to restrictions shall be forfeited.   8.4.        DELIVERY OF RESTRICTED STOCK.    Shares of Restricted Stock shall be delivered to the Participant at the time of grant either by book-entry registration or by delivering to the Participant, or a custodian or escrow agent (including, without limitation, the Company or one or more of its employees) designated by the Committee, a stock certificate or certificates registered in the name of the Participant. If physical certificates representing shares of Restricted Stock are registered in the name of the Participant, such certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.   ARTICLE 9 PROVISIONS APPLICABLE TO AWARDS   9.1.        STAND-ALONE AND TANDEM AWARDS.    Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, any other Award granted under the Plan. Subject to Section 9.2, Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.   9.2.        TERM OF AWARD.    The term of each Award shall be for the period as determined by the Committee, provided that in no event shall the term of any Stock Option exceed a period of seven years from its Grant Date (or, if Section 7.2(d) applies, five years from its Grant Date).   9.3.        FORM OF PAYMENT FOR AWARDS.    Subject to the terms of the Plan and any applicable law or Award Certificate, payments or transfers to be made by the Company or an Affiliate on the grant or exercise of an Award may be made in such form as the Committee determines at or after the Grant Date, including without limitation, cash, Stock, or other property, or any combination, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case determined in accordance with rules adopted by, and at the discretion of, the Committee.   9.4.        LIMITS ON TRANSFER.    No right or interest of a Participant in any unexercised or restricted Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or an Affiliate, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or an Affiliate. No unexercised or restricted Award shall be assignable or transferable by a Participant other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such Section applied to an Award under the Plan; provided, however, that the Committee may (but need not) permit other transfers where there is no consideration whatsoever to any party for said transfer and the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Option   9 -------------------------------------------------------------------------------- intended to be an Incentive Stock Option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account any factors deemed relevant, including without limitation, state or federal tax or securities laws applicable to transferable Awards.   9.5.        BENEFICIARIES.    Notwithstanding Section 9.4, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights under the Plan is subject to all terms and conditions of the Plan and any Award Certificate applicable to the Participant, except to the extent the Plan and Award Certificate otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If no beneficiary has been designated or survives the Participant, payment shall be made to the Participant’s estate. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Company.   9.6.        STOCK TRANSFERS.    All Stock issuable under the Plan is subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal or state securities laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate or issue instructions to the transfer agent to reference restrictions applicable to the Stock.   9.7.        ACCELERATION UPON DEATH OR DISABILITY.    Except as otherwise provided in the Award Certificate or any special Plan document governing an Award, upon the Participant’s death or Disability during his or her Continuous Status as a Participant, (i) all of such Participant’s outstanding Options shall become fully exercisable and (ii) all time-based vesting restrictions on the Participant’s outstanding Awards shall lapse. To the extent that this provision causes Incentive Stock Options to exceed the dollar limitation set forth in Section 7.2(c), the excess Options shall be deemed to be Nonstatutory Stock Options.   9.8.        ACCELERATION UPON A CHANGE IN CONTROL.    Except as otherwise provided in the Award Certificate or any special Plan document governing an Award if a Participant’s employment is terminated without Cause or the Participant resigns for Good Reason within one year after the effective date of a Change in Control, (i) all outstanding Options shall become fully exercisable and (ii) all time-based vesting restrictions on outstanding Awards shall lapse.   9.9.        DISCRETIONARY ACCELERATION.    Regardless of whether an event has occurred as described in Section 9.7 or 9.8 above, the Committee may in its sole discretion at any time determine that, upon the death, Disability, Retirement or termination of service of a Participant, all or a portion of such Participant’s Options shall become fully or partially exercisable, and/or that all or a part of the restrictions on all or a portion of the Participant’s outstanding Awards shall lapse as of such date as the Committee may, in its sole discretion, declare. The Committee may discriminate among Participants and among Awards granted to a Participant in exercising its discretion pursuant to this Section 9.9.   9.10.        TERMINATION OF EMPLOYMENT.    Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A Participant’s Continuous Status as a Participant shall not be deemed to terminate (i) in a circumstance in which a Participant transfers from the Company to an Affiliate, transfers from an Affiliate to the Company, or transfers from one Affiliate to another Affiliate, or (ii) in the discretion of the Committee as specified at or prior to such occurrence, in the case of a spin-off, sale or disposition of the Participant’s employer from the Company or any Affiliate. To the extent that this provision causes Incentive Stock Options to extend beyond three months from the date a Participant is deemed to be an employee of the Company, a Parent or Subsidiary for purposes of Sections 424(e) and 424(f) of the Code, the Options held by such Participant shall be deemed to be Nonstatutory Stock Options.   10 -------------------------------------------------------------------------------- 9.11.        FORFEITURE EVENTS.    The Committee may specify in an Award Certificate that the Participant’s rights and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but are not limited to, termination of employment for cause, violation of material Company or Affiliate policies, breach of non-competition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company or any Affiliate.   9.12.        SUBSTITUTE AWARDS.    The Committee may grant Awards under the Plan in substitution for stock and stock-based awards held by employees of another entity who become employees of the Company or an Affiliate as a result of a merger or consolidation of the former employing entity with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or stock of the former employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances.   ARTICLE 10 CHANGES IN CAPITAL STRUCTURE   10.1.        GENERAL.    In the event of a corporate event or transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the authorization limits under Section 5.1 and 5.4 shall be adjusted proportionately, and the Committee may adjust the Plan and Awards to preserve the benefits or potential benefits of the Awards. Action by the Committee may include: (i) adjustment of the number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Awards; and (iv) any other adjustments that the Committee determines to be equitable. In addition, the Committee may, in its sole discretion, provide (i) that Awards will be settled in cash rather than Stock, (ii) that Awards will become immediately vested and exercisable and will expire after a designated period of time to the extent not then exercised, (iii) that Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding Awards may be settled by payment in cash or cash equivalents equal to the excess of the Fair Market Value of the underlying Stock, as of a specified date associated with the transaction, over the exercise price of the Award, or (v) any combination of the foregoing. The Committee’s determination need not be uniform and may be different for different Participants whether or not such Participants are similarly situated. Without limiting the foregoing, in the event of a subdivision of the outstanding Stock (stock-split), a declaration of a dividend payable in Shares, or a combination or consolidation of the outstanding Stock into a lesser number of Shares, the authorization limits under Section 5.1 and 5.4 shall automatically be adjusted proportionately, and the Shares then subject to each Award shall automatically be adjusted proportionately without any change in the aggregate purchase price therefor. To the extent that any adjustments made pursuant to this Article 10 cause Incentive Stock Options to cease to qualify as Incentive Stock Options, such Options shall be deemed to be Nonstatutory Stock Options.   ARTICLE 11 AMENDMENT, MODIFICATION AND TERMINATION   11.1.        AMENDMENT, MODIFICATION AND TERMINATION.   (a)    The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without shareholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board or the Committee, either (i) materially increase the benefits accruing to Participants, (ii) materially increase the number of Shares available under the Plan, (iii) expand the types of   11 -------------------------------------------------------------------------------- awards under the Plan, (iv) materially expand the class of participants eligible to participate in the Plan, (v) materially extend the term of the Plan, or (vi) otherwise constitute a material change requiring shareholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of an Exchange, then such amendment shall be subject to shareholder approval; and provided, further, that the Board or Committee may condition any other amendment or modification on the approval of shareholders of the Company for any reason, including by reason of such approval being necessary or deemed advisable to (i) permit Awards made hereunder to be exempt from liability under Section 16(b) of the 1934 Act, (ii) to comply with the listing or other requirements of an Exchange, or (iii) to satisfy any other tax, securities or other applicable laws, policies or regulations.   (b)    No termination, amendment, or modification of the Plan shall adversely affect any Award previously granted under the Plan, without the written consent of the Participant affected thereby. An outstanding Award shall not be deemed to be “adversely affected” by a Plan amendment if such amendment would not reduce or diminish the value of such Award determined as if the Award had been exercised, vested or otherwise settled on the date of such amendment (with the per-share value of an Option for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment over the exercise or base price of such Award).   11.2.        AWARDS PREVIOUSLY GRANTED.    At any time and from time to time, the Committee may amend, modify or terminate any outstanding Award without approval of the Participant; provided, however:   (a)    Subject to the terms of the applicable Award Certificate, such amendment, modification or termination shall not, without the Participant’s consent, reduce or diminish the value of such Award determined as if the Award had been exercised, vested or otherwise settled on the date of such amendment or termination (with the per-share value of an Option for this purpose being calculated as the excess, if any, of the Fair Market Value as of the date of such amendment or termination over the exercise or base price of such Award);   (b)    The original term of an Option may not be extended without the prior approval of the shareholders of the Company; and   (c)    Except as otherwise provided in Article 10, the exercise price of an Option may not be reduced, directly or indirectly, without the prior approval of the shareholders of the Company.   ARTICLE 12 GENERAL PROVISIONS   12.1        SPECIAL PROVISIONS RELATED TO SECTION 409A OF THE CODE.   (a) Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the extent that any amount or benefit that would constitute “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable under the Plan or any Award Certificate by reason the occurrence of a Change in Control or the Participant’s Disability or separation from service, such amount or benefit will not be payable or distributable to the Participant by reason of such circumstance unless (i) the circumstances giving rise to such Change in Control, Disability or separation from service meet the description or definition of “change in control event”, “disability” or “separation from service”, as the case may be, in Section 409A of the Code and applicable proposed or final regulations, or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any Award or the vesting of any right to eventual payment or distribution of any amount or benefit under the Plan or any Award Certificate.   (b) Notwithstanding anything in the Plan or in any Award Certificate to the contrary, to the extent necessary to avoid the application of Section 409A of the Code, (i) the Committee may not amend an outstanding Option, SAR or similar Award to extend the time to exercise such Award beyond the later of the   12 -------------------------------------------------------------------------------- 15th day of the third month following the date at which, or December 31 of the calendar year in which, the Award would otherwise have expired if the Award had not been extended, based on the terms of the Award at the original Grant Date (the “Safe Harbor Extension Period”), and (ii) any purported extension of the exercise period of an outstanding Award beyond the Safe Harbor Extension Period shall be deemed to be an amendment to the last day of the Safe Harbor Extension Period and no later.   12.2.        NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS.    No Participant or any Eligible Participant shall have any claim to be granted any Award under the Plan. Neither the Company, its Affiliates nor the Committee is obligated to treat Participants or Eligible Participants uniformly, and determinations made under the Plan may be made by the Committee selectively among Eligible Participants who receive, or are eligible to receive, Awards (whether or not such Eligible Participants are similarly situated).   12.3.        NO SHAREHOLDER RIGHTS.    No Award gives a Participant any of the rights of a shareholder of the Company unless and until Shares are in fact issued to such person in connection with such Award.   12.4.        WITHHOLDING.    The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of the Plan or an Award. If Shares are permitted to be surrendered to the Company to satisfy tax obligations in excess of the minimum tax withholding obligation, such Shares must have been held by the Participant as fully vested shares for such period of time, if any, as necessary to avoid the recognition of an expense under generally accepted accounting principles. The Company shall have the authority to require a Participant to remit cash to the Company in lieu of the surrender of Shares for tax withholding obligations if the surrender of Shares in satisfaction of such withholding obligations would result in the Company’s recognition of expense under generally accepted accounting principles. With respect to withholding required upon any taxable event under the Plan, the Committee may, at the time the Award is granted or thereafter, require or permit that any such withholding requirement be satisfied, in whole or in part, by withholding from the Award Shares having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.   12.5.        NO RIGHT TO CONTINUED SERVICE.    Nothing in the Plan, any Award Certificate or any other document or statement made with respect to the Plan, shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or status as an officer, director or consultant at any time, nor confer upon any Participant any right to continue as an employee, officer, director or consultant of the Company or any Affiliate, whether for the duration of a Participant’s Award or otherwise.   12.6.        UNFUNDED STATUS OF AWARDS.    The Plan is intended to be an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Certificate shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate. This Plan is not intended to be subject to ERISA.   12.7.        RELATIONSHIP TO OTHER BENEFITS.    No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or benefit plan of the Company or any Affiliate unless provided otherwise in such other plan.   12.8.        EXPENSES.    The expenses of administering the Plan shall be borne by the Company and its Affiliates.   12.9.        TITLES AND HEADINGS.    The titles and headings of the Sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.   13 -------------------------------------------------------------------------------- 12.10.        GENDER AND NUMBER.    Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.   12.11.        FRACTIONAL SHARES.    No fractional Shares shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down.   12.12.        GOVERNMENT AND OTHER REGULATIONS.   (a)    Notwithstanding any other provision of the Plan, no Participant who acquires Shares pursuant to the Plan may, during any period of time that such Participant is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the 1933 Act), sell such Shares, unless such offer and sale is made (i) pursuant to an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act.   (b)    Notwithstanding any other provision of the Plan, if at any time the Committee shall determine that the registration, listing or qualification of the Shares covered by an Award upon any Exchange or under any foreign, federal, state or local law or practice, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the purchase or receipt of Shares thereunder, no Shares may be purchased, delivered or received pursuant to such Award unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Committee. Any Participant receiving or purchasing Shares pursuant to an Award shall make such representations and agreements and furnish such information as the Committee may request to assure compliance with the foregoing or any other applicable legal requirements. The Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to the Committee’s determination that all related requirements have been fulfilled. The Company shall in no event be obligated to register any securities pursuant to the 1933 Act or applicable state or foreign law or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement.   12.13.        GOVERNING LAW.    To the extent not governed by federal law, the Plan and all Award Certificates shall be construed in accordance with and governed by the laws of the State of Delaware.   12.14.        ADDITIONAL PROVISIONS.    Each Award Certificate may contain such other terms and conditions as the Committee may determine; provided that such other terms and conditions are not inconsistent with the provisions of the Plan.   12.15.        NO LIMITATIONS ON RIGHTS OF COMPANY.    The grant of any Award shall not in any way affect the right or power of the Company to make adjustments, reclassification or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The Plan shall not restrict the authority of the Company, for proper corporate purposes, to draft or assume awards, other than under the Plan, to or with respect to any person. If the Committee so directs, the Company may issue or transfer Shares to an Affiliate, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Affiliate will transfer such Shares to a Participant in accordance with the terms of an Award granted to such Participant and specified by the Committee pursuant to the provisions of the Plan.   12.16.        INDEMNIFICATION.    Each person who is or shall have been a member of the Committee, or of the Board, or an officer of the Company to whom authority was delegated in accordance with Article 4 shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may   14 -------------------------------------------------------------------------------- be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she 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 him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability, or expense is a result of his or her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s charter or bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.   12.17.        FOREIGN PARTICIPANTS.    In order to facilitate the granting of Awards to Eligible Participants who are foreign nationals or who are employed outside of the United States of America, the Committee may provide for such special terms and conditions, including without limitation substitutes for Awards, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. The Committee may approve any supplements to, or amendments, restatements or alternative versions of this Plan as it may consider necessary or appropriate for the purposes of this Section 12.16 without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such documents as having been approved and adopted pursuant to properly delegated authority; provided, that no such supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the spirit of this Plan, as then in effect. Participants subject to the laws of a foreign jurisdiction may request copies of, or the right to view, any materials that are required to be provided by the Company pursuant to the laws of such jurisdiction.   12.18.        NOTICE.    Except as otherwise provided in this Plan, all notices or other communications required or permitted to be given under this Plan to the Company shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, postage pre-paid, as follows: (i) if to the Company, at its principal business address to the attention of the Secretary; and (ii) if to any Participant, at the last address of the Participant known to the sender at the time the notice or other communication is sent.   12.19.        INUREMENT OF RIGHTS AND OBLIGATIONS.    The rights and obligations under this Plan and any related documents shall inure to the benefit of, and shall be binding upon, the Company, its successors and assigns, and the Participants and their beneficiaries.   12.20.        COSTS AND EXPENSES.    Except as otherwise provided herein, the costs and expenses of administering this Plan shall be borne by the Company, and shall not be charged to any Award nor to any Participant receiving an Award. Costs and expenses associated with the redemption or exercise of any Award under this Plan, including, but not limited to, commissions charged by any agent of the Company, may be charged to the Participant.   The foregoing is hereby acknowledged as being the Torchmark Corporation 2005 Amended and Restated Incentive Plan as adopted by the Board on                          , 2006 and approved by the shareholders on                          , 2006.   TORCHMARK CORPORATION   By:                                                                                     Its:   15

EXHIBIT 10.3 MORGAN STANLEY PERFORMANCE FORMULA AND PROVISIONS The following sets forth the performance formula (the “Performance Formula”) that was approved by the shareholders of Morgan Stanley at the annual meeting of shareholders on March 22, 2001. The Performance Formula governs annual bonuses for certain executive officers of the Company under Section 162(m) of the Code. The Performance Formula was originally set forth in the Morgan Stanley 1995 Equity Incentive Compensation Plan (the “EICP”). No awards may be made under the EICP after May 10, 2006; however, the Performance Formula continues to be effective as a valid shareholder-approved performance formula for annual bonus awards paid other than under the EICP. Accordingly, the Performance Formula and related provisions (the “Performance Formula and Provisions”) are set forth below as a stand-alone document for ease of administration.   1. Definitions As used herein, the following capitalized words shall have the meanings set forth below: “Award” means an award, including without limitation, an award of restricted stock, stock units, stock options, or stock appreciation rights or another equity-based or equity-related award, granted under a Company equity compensation plan and subject to the terms and provisions of such plan. “Board” means the Board of Directors of Morgan Stanley. “Code” means the Internal Revenue Code of 1986, as amended, and the applicable rulings and regulations thereunder. “Committee” means the Compensation, Management Development and Succession Committee of the Board, any successor committee thereto, or any subcommittee thereof consisting solely of at least two “outside directors” as defined under Section 162(m) of the Code. “Company” means Morgan Stanley and all of its Subsidiaries. “Date of the Award” means the effective date of an Award as specified by the Committee. “Fair Market Value” means, with respect to a Share, the fair market value thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Committee. “Maximum Annual Bonus” has the meaning set forth in Section 2. “Morgan Stanley” means Morgan Stanley, a Delaware corporation.   1 -------------------------------------------------------------------------------- “Pre-Tax Earnings” means Morgan Stanley’s income before income taxes as reported in its consolidated financial statements adjusted to eliminate: (1) the cumulative effect of changes in accounting policy (which include changes in generally accepted accounting principles) adopted by Morgan Stanley, for the relevant fiscal year; (2) expenses classified as “Provisions for Restructuring”; (3) expenses related to “Goodwill Amortization”; (4) gains and/or losses classified as “Discontinued Operations”; and (5) gains or losses classified as “Extraordinary Items,” which may include: (A) profits or losses on disposal of assets or segments of the previously separate companies of a business combination within two years of the date of such combination; (B) gains on restructuring payables; (C) gains or losses on the extinguishment of debt; (D) gains or losses from the expropriation of property; (E) gains or losses that are the direct result of a major casualty; (F) losses resulting from a newly enacted law or regulation; and (G) other expenses or losses or income or gains that are unusual in nature or infrequent in occurrence. In each instance, the above-referenced adjustment to Pre-Tax Earnings must be in accordance with generally accepted accounting principles and appear on the face of Morgan Stanley’s Consolidated Statements of Income contained in Morgan Stanley’s Consolidated Financial Statements for such fiscal year. “Section 162(m) Participant” means, for a given fiscal year of Morgan Stanley, any individual designated by the Committee by not later than 90 days following the start of such year (or such other time as may be required or permitted by Section 162(m) of the Code) as an individual whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. “Share” means a share of common stock, par value $0.01 per share, of Morgan Stanley. “Subsidiary” means (i) a corporation or other entity with respect to which Morgan Stanley, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity in which Morgan Stanley, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for purposes of the Performance Formula and Provisions.   2. Annual Bonus Commencing with the fiscal year of Morgan Stanley beginning December 1, 2000 and for each fiscal year of Morgan Stanley thereafter, each Section 162(m) Participant will be eligible to earn under the Performance Formula and Provisions an annual bonus for each fiscal year in a maximum amount equal to 0.5% of Morgan Stanley’s Pre-Tax Earnings for that fiscal year (the “Maximum Annual Bonus”). In determining the annual bonus amounts payable under the Performance Formula and Provisions, the Committee may not pay a Section 162(m) Participant more than the Maximum Annual Bonus, but the Committee shall have the right to reduce the bonus amount payable to such Section 162(m) Participant to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the year. Following the completion of each fiscal year, the Committee shall certify in writing the Maximum Annual Bonus and the bonus amounts, if any, payable to Section 162(m) Participants   2 -------------------------------------------------------------------------------- for such fiscal year. The bonus amounts payable to a Section 162(m) Participant will be paid annually following the end of the applicable fiscal year after such certification by the Committee in the form of (i) cash, (ii) Awards with a value as of the Date of the Award, determined in accordance with Section 3 below, equal to the value of the annual bonus amount earned by the Section 162(m) Participant for such fiscal year, or (iii) a combination of cash and such Awards.   3. Valuation If the Committee determines that all or a portion of an annual bonus awarded to a Section 162(m) Participant for a given fiscal year is paid in whole or in part in the form of Awards, then for purposes of determining the number of Shares subject to such Awards, the Committee may value the Shares at a discount to Fair Market Value to reflect the various restrictions, conditions and limitations applicable to the Shares, but such discount shall not exceed 50% of the Fair Market Value as of the Date of the Award. Notwithstanding the foregoing, the Fair Market Value of any Awards plus any cash paid as an annual bonus pursuant to the Performance Formula and Provisions shall not exceed the Maximum Annual Bonus.   4. Repeal of Section 162(m) of the Code Without further action by the Board, the Performance Formula and Provisions shall cease to apply on the effective date of the repeal of Section 162(m) of the Code (and any successor provision thereto).   3

EXHIBIT 10.45   COMPENSATION INFORMATION FOR NAMED EXECUTIVE OFFICERS   The table below provides information regarding the 2006 base salary and target cash bonus amount for each “named executive officer” of Exelixis, Inc. All other compensation arrangements between Exelixis and each of its named executive officers are referenced in the Exhibit Index to this Annual Report on Form 10-K.   Named Executive Officer --------------------------------------------------------------------------------   2006 Annual Base Salary --------------------------------------------------------------------------------   2006 Target Cash Bonus (percentage of 2006 base salary)1 -------------------------------------------------------------------------------- George Scangos   $750,000   60% Michael Morrissey   $400,520   45% Jeffrey Latts   $399,376   45% Frank Karbe   $345,030   45% Pamela Simonton   $322,189   35% -------------------------------------------------------------------------------- 1 Actual bonus amounts awarded by Exelixis’ compensation committee may exceed or be less than the target amounts.

MONMOUTH REAL ESTATE INVESTMENT CORPORATION Employment Agreement – Maureen E. Vecere AGREEMENT EFFECTIVE JANUARY 1, 2006 BY AND BETWEEN: Monmouth Real Estate Investment Corporation, a Maryland Corporation (“Corporation”) AND: Maureen E. Vecere (“Employee”) Corporation desires to employ Employee and Employee agrees to be so employed.  The parties agree as follows: 1. Employment. Unless sooner terminated in accordance with the provisions hereof, Corporation agrees to employ Employee and Employee agrees to be employed in the capacity of Controller and Treasurer for a term of three (3) years, effective January 1, 2006 and terminating December 31, 2008.  Thereafter, the term of this Agreement shall be automatically renewed and extended for successive one-year periods except that either party may, at least ninety (90) days prior to such expiration date or any anniversary thereof, give written notice to the other party electing that this Agreement not be renewed or extended, in which event this Agreement shall expire as of the expiration date or anniversary date, respectively. In the event of a merger of the Corporation, sale or change of control, Employee shall have the right to extend and renew this Agreement so that the expiration date will be one year from December 31, 2008.  If there is a termination of employment for any reason, either involuntary or voluntary, Employee shall be entitled to receive one year’s compensation at the date of termination.  The compensation is to be at the greater of current compensation or that at the date of merger or change in control. 2. Time and Efforts. Employee shall diligently and conscientiously devote her time and attention and use her best efforts in the discharge of her duties as Controller and Treasurer of the Company.  It is agreed that Employee will also serve as an officer of Monmouth Capital Corporation. -------------------------------------------------------------------------------- 3. Place of Employment. Employee’s principal place of employment shall be located at such offices of the Corporation in central New Jersey as the Board of Directors may, from time to time, determine.  Employee may work from Employee’s office at home due to personal situations related to child care. 4. Compensation. Corporation shall pay to Employee as compensation for her services, a base salary, which shall be paid in equal intervals (as least monthly), as salaries are paid generally to other executive officers of the Corporation, as follows: a. For the year beginning January 1, 2006 and ending on December 31, 2006, the base salary shall be $107,500. b. For the year beginning January 1, 2007 and ending on December 31, 2007, the base salary shall be $118,250. c. For the year beginning January 1, 2008 and ending on December 31, 2008, the base salary shall be $130,075. The Employee shall purchase a disability insurance policy so that in the event of a disability exceeding 90 days, during which period employee’s salary will continue, the employee will receive lost wages from the disability policy.  The Corporation will reimburse the employee for the cost of such insurance.    5. Bonuses. Bonuses shall be paid at the discretion of the President and Executive Vice President. 6. Expenses. Corporation will reimburse Employee for reasonable and necessary expenses incurred by her in carrying out her duties under this Agreement.  Employee shall present to the Corporation from time to time an itemized account of such expenses in such form as may be required by the Corporation. 7. Vacation. Employee shall be entitled to take four (4) paid weeks vacation per year. -------------------------------------------------------------------------------- 8. Pension. Employee, at her option, may participate in the 401-K plan of United Mobile Homes, Inc. according to its terms. 9. Life and Health Insurance Benefits. Employee shall be entitled during the term of this Agreement to participate in all health insurance and group life insurance benefit plans providing benefits generally applicable to the employees of United Mobile Homes, Inc. as may be modified from time to time. 10. Notices. All notices required or permitted to be given under this Agreement shall be given by certified mail, return receipt requested, to the parties at the following addresses or such other addresses as either may designate in writing to the other party: Corporation: MREIC Juniper Business Plaza 3499 Route 9N, Suite 3C Freehold, NJ  07728 Employee: Maureen E. Vecere 1 Timothy Lane Burlington Twp, NJ  08016 11. Governing Law. This agreement shall be construed and governed in accordance with the laws of the State of New Jersey. 12. Entire Contract. This Agreement constitutes the entire understanding and agreement between the Corporation and Employee with regard to all matters herein.  There are no other agreements, conditions or representations, oral or written, express or implied, with regard thereto.  This agreement may be amended only in writing signed by both parties hereto. 13. Successors. This Agreement shall be binding on the Company and any successor to any of its businesses or assets. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Corporation has by its appropriate officers signed and affixed its seal and Employee has signed and sealed this Agreement. MONMOUTH REAL ESTATE CORPORATION By:  /S/Eugene W. Landy              Eugene W. Landy        President (SEAL)              By:  /S/Cynthia J. Morgenstern    Cynthia J. Morgenstern   Executive Vice President                                                  By:  /S/ Maureen E. Vecere                                                     Maureen E. Vecere,     Employee               Dated: ___________________________

Exhibit 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the “Employment Agreement” or the “Agreement”) is made and entered into as of the 8th day of June, 2005 by and between CARDINAL FINANCIAL CORPORATION, a Virginia corporation, hereinafter called the “Corporation” or “Cardinal”, and JOHN W. FISHER, hereinafter called the “Employee”, and provides as follows: RECITALS WHEREAS, the Corporation desires to retain the services of Employee on the terms and conditions set forth herein and, for purpose of effecting the same, the Board of Directors of the Corporation (the “Board of Directors”) has approved this Employment Agreement and authorized its execution and delivery on the Corporation’s behalf to the Employee; and WHEREAS, the Employee is presently the duly elected President and Chief Executive Officer of the Corporation and, as such, is a key Employee officer of the Corporation whose continued dedication, availability, advice and counsel to the Corporation is deemed important to the Board of Directors, the Corporation and its stockholders; and WHEREAS, the services of the Employee, his experience and knowledge of the affairs of the Corporation, and his reputation and contacts in the industry are valuable to the Corporation; and WHEREAS, the Corporation wishes to attract and retain such well-qualified Employees and it is in the best interests of the Corporation and of the Employee to secure the continued services of the Employee; and WHEREAS, The Employee owns 90% of the Corporation’s issued and outstanding common stock; and WHEREAS, contemporaneously with the execution of this Employment Agreement the Corporation is entering into an Amended and Restated Agreement and Plan of Share Exchange, dated May 26, 2005, (the “Share Exchange Agreement”) with Cardinal Financial Corporation, a Virginia corporation (“Cardinal”) pursuant to which the Corporation will become a wholly-owned subsidiary of Cardinal (the “Share Exchange”); and WHEREAS, if the Share Exchange is consummated, Employee, in his capacity as a shareholder of the Corporation, shall receive consideration with a value of $5,940,000.00; and WHEREAS,   the Corporation and Employee understand and acknowledge that the execution of this Agreement is a material inducement for Cardinal to enter into the Share Exchange Agreement; NOW, THEREFORE, to assure the Corporation of the Employee’s continued dedication, the availability of his advice and counsel to the Board of Directors, and to induce the Employee to remain and continue in the employ of the Corporation and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, the Corporation and the Employee hereby agree as follows: -------------------------------------------------------------------------------- TERMS OF AGREEMENT Section 1. Employment. (a)  The Corporation and Employee agree that Employee shall be employed to perform such services for the Corporation as may be assigned to Employee by the Corporation from time to time upon the terms and conditions herein provided. Employee’s services shall be rendered in an executive capacity and shall be of a type for which Employee is suited by background and training; provided that Employee shall serve as the President and Chief Executive Officer of Wilson/Bennett Capital Management, Inc., a wholly-owned subsidiary of the Corporation. (b)   References in this Agreement to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for and compensation and benefits payable or provided by any Affiliate. References in this Agreement to the “Corporation” also shall mean and refer to each Affiliate for which Employee performs services. References in this Agreement to “Affiliate” shall mean any business entity that, directly or indirectly, through one or more intermediaries, is controlled by the Corporation. (c)    Employee acknowledges that he is entering into this Agreement on his own free will and that he has had the benefit of the advice of, and is relying solely upon, independent counsel of his own choice. Section 2. Term.   The term of this Agreement shall commence on the date hereof and continue until April 30, 2008 (the “Employment Period”) unless sooner terminated under the terms of this Agreement. Beginning on April 30, 2008 and each April 30 thereafter, the Employment Period and this Agreement and all its terms and provisions shall be automatically extended for one additional year, unless prior notice of non-renewal is provided by the Corporation or Employee or employment under this Agreement is otherwise terminated in accordance with the provisions of Section 9. Section 3. Exclusive Service.   Employee shall devote his best efforts and full time to rendering services on behalf of the Corporation in furtherance of its best interests. Employee shall comply with all policies, standards and regulations of the Corporation now or hereafter promulgated, and shall perform his duties under this Agreement to the best of his abilities and in accordance with standards of conduct appropriate for the chief executive officer of a registered investment adviser. Section 4. Cash Compensation.   (a)  As compensation while employed hereunder, Employee shall receive a salary at the rate of  $200,000 per year, payable twice monthly. (b)   For each calendar year, or part thereof, Employee shall be entitled to a bonus equal to 10% of the net income of Wilson/Bennett Capital Management, Inc. if such net income does not exceed $1,000,000. If such net income exceeds $1,000,000, Employee’s bonus shall be $100,000, plus 20% of the amount by which net income exceeds $1,000,000. For 2005 the bonus formula will be annualized. For example, if the Effective Date is July 1, 2005, the bonus will be 10% of the net income of the Corporation for the period from July 1, 2005 to December 31, 2005 if such net income doe not exceed $500,000. If such net income exceeds $500,000, the bonus shall be $50,000, plus 20% of the amount by which net income exceeds $500,000. If this Agreement terminates during a year for any reason other than Cause or resignation without Good Reason, the bonus for the year will be annualized. For example, if this Agreement terminates on July 1 of a year, the bonus will be 10% of the net income of the Corporation for the period from January 1, through June 30 if such net income does not exceed $500,000. If such net income exceeds $500,000, the bonus shall be $50,000, plus 20% of the amount by which net income exceeds $500,000. In 2005 annualization shall be based on the ratio of the number of days from the Effective Date to the end of the year to the number of days in the year. In the year Employee’s employment terminates, 2 -------------------------------------------------------------------------------- annualization shall be based on the ratio of the number of days in the year before the Date of Termination to the number of days in the year. For purposes of this Section 4(b), net income shall be computed according to generally accepted accounting principles, consistently applied, but without deduction for income taxes, amortization of intangible assets or allocations of indirect overhead. For purposes of the Agreement, “indirect overhead” will include expenses paid or incurred by Cardinal or its Affiliates that are allocated to the income statement of the Corporation by Cardinal and that did not cause Cardinal to incur any incremental cost. This includes, but is not limited to, advertising costs, insurance costs, and officers’ salaries that are allocated to the Corporation but which would have been incurred irrespective of whether Cardinal owned the Corporation. However, if a Cardinal expense is greater in amount due to its ownership of the Corporation, then such incremental cost may be deemed direct overhead for purposes of the Agreement. (c)    The Corporation shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law or agreed upon in writing by Employee and the Corporation. The Corporation shall also withhold and remit to the proper party any amounts agreed to in writing by the Corporation and the Employee for participation in any corporate sponsored benefit plans in which Employee is a participant and for which a contribution is required. (d)   Except as otherwise expressly set forth hereunder, no compensation shall be paid pursuant to this Agreement in respect of any month or portion thereof subsequent to any termination of Employee’s employment by the Corporation. Section 5. Corporate Benefit Plans.   Employee shall be entitled to participate in or become a participant in any employee benefit plan maintained by the Corporation for which he is or will become eligible on such terms as the Board of Directors may, in its discretion, establish, modify or otherwise change. On and after the effective date of the Share Exchange, Employee shall be entitled to participate in the Cardinal plans, as set forth in Section 5.1 of the Share Exchange Agreement. Notwithstanding the above, Employee will not be eligible to participate in the Cardinal Bank Deferred Compensation Plan. However on or after the Effective Date, he will be eligible to participate in an executive deferred compensation plan that is materially equivalent to the George Mason Mortgage, LLC Executive Deferred Compensation Plan. Section 6. Expense Account.   The Corporation shall reimburse Employee for reasonable and customary business expenses incurred in the conduct of the Corporation’s business. Such expenses will include business meals, out-of-town lodging and travel expenses. In no event will there be reimbursement for items which are not reimbursable under Corporation policy. Employee agrees to timely submit records and receipts of reimbursable items and agrees that the Corporation can adopt reasonable rules and policies regarding such reimbursement. The Corporation agrees to make prompt payment to the Employee following receipt and verification of such reports. Section 7. Personal and Sick Leave.   Employee shall be entitled to the same personal and sick leave as the Board of Directors may from time to time designate for all full-time employees of the Corporation. Section 8. Vacations.   Employee shall be entitled to four (4) weeks of vacation leave each year, which shall be taken at such time or times as may be approved by the Corporation and during which Employee’s compensation hereunder shall continue to be paid. Section 9. Termination.   (a)  Notwithstanding the termination of Employee’s employment pursuant to any provision of this Agreement, the parties shall be required to carry out any provisions of this Agreement which contemplate performance by them subsequent to such termination, including the Corporation’s obligations under Section 10 and the Employee’s obligations under Section 11. In addition, no termination shall affect any liability or other obligation of either party which shall have accrued prior to such 3 -------------------------------------------------------------------------------- termination, including, but not limited to, any liability, loss or damage on account of breach. No termination of employment shall terminate the obligation of the Corporation to make payments of any vested benefits provided hereunder or the obligations of the Employee under Sections 11 and 12. (b)   This Agreement shall terminate upon death of the Employee. The Corporation may terminate Employee’s employment under this Agreement, after having established the Employee’s disability by giving to the Employee written notice of its intention to terminate his employment for disability, and his employment with the Corporation shall terminate effective on the 90th day after receipt of such notice (the “Disability Effective Date”) if within 90 days after such receipt the Employee shall fail to return to the full-time performance of the essential functions of his position (and if the Employee’s disability has been established pursuant to the definition of “disability” set forth below). For purposes of this Agreement, “disability” means either (i) disability which after the expiration of more than 13 consecutive weeks after its commencement is determined to be total and permanent by a physician selected and paid for by the Corporation or its insurers, and acceptable to the Employee or his legal representative, which consent shall not be unreasonably withheld, or (ii) disability as defined in the policy of disability insurance maintained by the Corporation for the benefit of the Employee, whichever shall be more favorable to the Employee. Notwithstanding any other provision of this Agreement, the Corporation shall comply with all requirements of the Americans with Disabilities Act, 42 U.S.C. § 12101 et. seq. (c)    The Corporation may terminate the Employee’s employment, in its sole discretion at any time during the Employment Period, with or without “Cause.” (d)   The Employee’s employment may be terminated by the Employee, in the Employee’s sole discretion at any time during the Employment Period, with or without “Good Reason.” (e)    For purposes of this Agreement, (i)    “Cause” shall mean the Employee’s: (A)  continued willful failure, without Cure (as defined below), to perform substantially the Employee’s duties with the Corporation (other than any such failure resulting from incapacity due to physical or mental illness); (B)  acts or conduct involving embezzlement, theft, larceny, fraud, or any other material acts of dishonesty by the Employee in the performance of the Employee’s duties; (C)  conviction of, or entrance of a plea of guilty or nolo contendere to, a felony or any crime by the Employee involving moral turpitude which crime of moral turpitude is demonstrably injurious to the Corporation or client relationships; (D)  acts or conduct which result in the Employee becoming subject to an order of a governmental agency or other regulatory body which prevents or materially restricts the Employee in performing the Employee’s duties hereunder; (E)  reporting to work under the influence of alcohol, narcotics or unlawful controlled substances, or any other material violation, without Cure (to the extent such other material violation is capable of Cure), of any Corporation employment policy or procedure or any other material violation of the Corporation’s employment policy or procedure which has the potential to subject the Corporation to legal liability; (F)   conduct that is demonstrably and materially injurious to the Corporation without Cure (to the extent such conduct is capable of Cure); or (G)  breach of any of the provisions of Section 11 of this Agreement. 4 -------------------------------------------------------------------------------- (ii)   “Cure” shall mean, following the giving of notice of Cause or Good Reason, the Employee or the Corporation, as the case may be, shall have cured the Cause or Good Reason within thirty (30) days of such notice having been given. (iii)  “Good Reason” shall mean a termination by Employee resulting from a material breach by the Corporation of a material obligation of the Corporation under this Agreement without Cure. A breach described in this clause shall include, but not be limited to: (A)  a detrimental alteration or failure to comply with the terms of the Employee’s employment as they relate to the Employee’s position, responsibilities, reporting and duties, or the compensation and benefit arrangements applicable to the Employee; (B)  the failure of the Corporation to obtain an agreement reasonably satisfactory to the Employee from any successor of the Corporation to assume and agree to perform this Agreement, as contemplated in Section 13(b) hereof; or (C)  any termination of the Employee’s employment which is not effected pursuant to the terms of this Agreement. (f)    Any termination by the Corporation with or without Cause, or by the Employee with or without Good Reason, shall be communicated by Notice of Termination to the other party hereto in accordance with this Section and Section 16 of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, and (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated. The failure by the Employee or the Corporation to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Corporation hereunder or preclude the Employee or the Corporation from asserting such fact or circumstance in enforcing the Employee’s or the Corporation’s rights hereunder. (g)    “Date of Termination” means if the Employee’s employment is terminated (i) by the Corporation for Cause or by the Employee for Good Reason, the date that is one day after the last day of the cure period, if any, (ii) by the Corporation other than for Cause or Disability, or by the Employee without Good Reason, the date that is 30 days after the date on which the Corporation or the Employee notifies the Employee or the Corporation, as applicable, of such termination, and (iii) by reason of death or disability, the date of death of the Employee or the Disability Effective Date, as the case may be. Section 10.   Obligations of the Corporation upon Termination. (a)    If, during the Employment Period, the Corporation shall terminate the Employee’s employment other than for Cause, death or disability or the Employee shall terminate employment for Good Reason, then the Corporation shall pay to the Employee each month for 12 months one-twelfth of the Employee’s annual salary, and the amounts set forth below: (i)    To the extent not theretofore paid, the Employee’s accrued salary through the Date of Termination, any bonus for a prior year that remains unpaid; and (ii)   The Employee’s bonus for the year in which his employment terminates calculated according to Section 4(b). (b)   If, during the Employment Period, the Corporation shall terminate the Employee’s employment for Cause or the Employee shall terminate his employment without Good Reason, then the Corporation shall have no further obligation to the Employee; provided the Corporation shall pay 5 -------------------------------------------------------------------------------- to the Employee, to the extent not theretofore paid, the Employee’s accrued salary through the Date of Termination and any bonus for the prior year that remains unpaid; and, provided further, in order that Section 11(c) shall apply for twelve (12) months following a termination of employment for cause or a resignation by Employee without Good Reason, the Corporation may, at its option, pay to the Employee the same amounts at the same times as set forth in Section 10(a). (c)    If, during the Employment Period, the Employee is terminated due to disability, as defined in Section 9(b) hereof, then the Corporation shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination to the extent not theretofore paid, the Employee’s accrued salary through the Date of Termination and any bonus for a prior year that remains unpaid. (d)   If, during the Employment Period, the Employee shall die, then the Corporation shall pay to the Employee’s personal representative in a lump sum in cash within 30 days after the Date of Termination to the extent not theretofore paid, the Employee’s accrued salary through the Date of Termination and any bonus for a prior year that remains unpaid. (e)    Notwithstanding anything in this Agreement to the contrary, if Employee breaches Section 11, Employee will not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 10. All payments to Employee pursuant to Sections 10(a)(ii) and 10(b)(ii) shall be solely in exchange for Employee’s covenants and agreements set forth in Section 11 and shall not be deemed to be severance payments. (f)(1)    If Employee resigns for any reason within three months after a Change of Control shall have occurred, or within three months of the date that Bernard H. Clineburg ceases to serve as the Corporation’s chief executive officer, then on or before Employee’s last day of employment with the Corporation, the Corporation shall pay to Employee as compensation for services rendered to the Corporation a cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to one hundred fifty percent (150%) of the sum of the payments received by him under Sections 4(a) and 4(b) in the 12 months that precede the Date of Termination. The cash amount required to be paid hereby shall be paid by the Corporation in equal monthly installments over the eighteen (18) months succeeding the date of termination, payable on the first day of each such month. Payment under this Section 8(f)(1) shall be in lieu of any amount that is or might be due under Section 10(a). (2)   For purposes of this Agreement, a Change of Control occurs if, after the date of this Agreement, (i) any person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Corporation or Cardinal securities having 50% or more of the combined voting power of the then outstanding Corporation or Cardinal securities that may be cast for the election of the Corporation’s or Cardinal’s directors other than as a result of an issuance of securities initiated by the Corporation’s or Cardinal’s directors, or open market purchases approved by the Board of Directors, as long as the majority of the Board of Directors approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a share exchange or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Corporation or Cardinal  before such events cease to constitute a majority of the Corporation’s or Cardinal’s Board, or any successor’s board, within two years of the last of such transactions. For purposes of this Agreement, a Change of Control occurs on the date on which an event described in (i) or (ii) occurs. If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events. (3)   It is the intention of the parties that no payment be made or benefit provided to Employee pursuant to this Agreement that would constitute an “excess parachute payment” within the meaning of Section 280G of the Code and any regulations thereunder, thereby resulting in a loss of an income 6 -------------------------------------------------------------------------------- tax deduction by the Corporation or the imposition of an excise tax on Employee under Section 4999 of the Code. If the independent accountants serving as auditors of the Corporation on the date of a Change of Control (or any other accounting firm designated by the Corporation) determine that some or all of the payments or benefits scheduled under this Agreement, as well as any other payments or benefits on a Change of Control, would be nondeductible by the Company under Section 280G of the Code, then the payments scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid without causing any such payment or benefit to be nondeductible. The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties. Employee shall have the right to designate within a reasonable period, which payments or benefits will be reduced; provided, however that if no direction is received from Employee, the Corporation shall implement the reductions in its discretion. Section 11.   Confidentiality/Nondisclosure/Noncompetition/Nonsolicitation. (a)(i)  The Employee acknowledges: (A)  The Corporation’s business has been built over a period of  eleven (11) years through the efforts of Employee; and (B)   That all or substantially all relationships with the Corporation’s customers are personal to Employee; and (C)   That it is his intent, if the Share Exchange is consummated, that the Corporation’s goodwill, including the value of the long term relationships he has developed with the Corporation’s customers, shall, indirectly through its ownership of the Corporation, become the property of Cardinal. (ii)   By entering into this Agreement, the Employee intends: (A)  To induce the Corporation and Cardinal to enter into the Share Exchange Agreement; and (B)   To induce Cardinal to consummate the Share Exchange. (b)   Employee covenants and agrees that any and all information concerning the customers, businesses and services of the Corporation of which he has knowledge or access as a result of his association with the Corporation in any capacity shall be deemed confidential in nature and shall not, without the prior written consent of the Corporation, be directly or indirectly used, disseminated, disclosed or published by Employee to third parties other than in connection with the usual conduct of the business of the Corporation. Such information shall expressly include, but shall not be limited to, information concerning the Corporation’s asset management methods, other trade secrets, business operations, business records, customer lists or other customer information. Upon termination of employment the Employee shall deliver to the Corporation all originals and copies of documents, forms, records or other information, in whatever form it may exist, concerning the Corporation or its business, customers, products or services. In construing this provision it is agreed that it shall be interpreted broadly so as to provide the Corporation with the maximum protection. This Section 11(b) shall not be applicable to any information which, through no misconduct or negligence of Employee, is disclosed to the public by anyone other than Employee or that Employee, after notifying the Corporation, is compelled to disclose by legal process. (c)   During the term of this Agreement and throughout any further period that he is an officer or employee of the Corporation, and for a period of eighteen (18) months from and after the date that Employee is (for any reason) no longer employed by the Corporation or 7 -------------------------------------------------------------------------------- for a period of eighteen (18) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach of Employee, whichever is later, Employee covenants and agrees that he will not, directly or indirectly, either for himself or as a principal, agent, employee, employer, stockholder, co-partner or in any other individual or representative capacity whatsoever provide Competitive Services (as defined in Section 11(e)) in any state in which Employee has been licensed or registered as an investment adviser representative or agent of the Corporation at any time within nine (9) months of the date Employee ceases to be employed by the Corporation. Notwithstanding the foregoing, this Section 11(c) shall not apply during any period after a termination of Employee’s employment in which or for which he is not receiving compensation under Section 10. This Section 11(c) shall not preclude Employee from merely becoming the holder of any publicly traded stock, provided Employee does not acquire a stock interest in excess of 5%. (d)   While employed by the Corporation and for eighteen (18) months after the Employee’s termination of employment with the Corporation for any reason, the Employee will not, directly or indirectly, on behalf of the Employee or any other person or entity, solicit or induce, or attempt to solicit or induce, any person employed by the Corporation during the two-year period immediately prior to the Employee’s termination, to terminate his or her relationship with the Corporation and/or to enter into an employment or agency relationship with the Employee or with any other person or entity with whom the Employee is affiliated. (e)   While employed by the Corporation and for eighteen (18) months after the Employee’s termination of employment with the Corporation for any reason, the Employee will not, except to the extent necessary to carry out his duties as an employee of the Corporation, directly or indirectly provide Competitive Services (as defined below) to any Customer (as defined below), directly or indirectly, on behalf of the Employee or any other person or entity, or solicit or divert away or attempt to solicit or divert away any Customer of the Corporation for the purpose of selling or providing Competitive Services, provided the Corporation is then still engaged in the sale or provision of Competitive Services. (f)(1)  For purposes of this Agreement, the term “Customer” means any individual or entity to whom or to which the Corporation provided Competitive Services within two years of Employee’s Date of Termination (or, within one year of the Date of Termination, the Corporation had identified as a prospect for the provision of Competitive Services, and with whom or with which the Employee had, alone or in conjunction with others, material contact) during the year immediately prior to the Date of Termination. (2)   For purposes of this Agreement, the Employee shall have had material contact with a person or entity if (i) the Employee had direct business dealings with the person or entity on behalf of the Corporation; (ii) the Employee was responsible for supervising or coordinating the business dealings between the person or entity and the Corporation; (iii) the Employee was responsible for supervising or coordinating the identification of such person or entity as a prospective Customer of the Corporation; or (iv) the Employee obtained trade secrets or confidential information about the person or entity as a direct result of the Employee’s business involvement with the person or entity on behalf of the Corporation. (3)   For purposes of this Agreement, “Competitive Services” shall mean acting as an investment adviser, investment adviser agent or representative, trust officer or employee or in any other capacity advising others, directly or indirectly, for compensation, as to the value of securities or as to the advisability of investing in, purchasing or selling securities. 8 -------------------------------------------------------------------------------- Notwithstanding the foregoing, the word “securities” as used in this Section 11(f)(3) shall not include equity securities that are not registered under the Securities Exchange Act of 1934, unless on or within nine (9) months prior to the Date of Termination, the Corporation has advised others, directly or indirectly, for compensation, as to the value of such securities or as to the advisability of investing in, purchasing or selling such securities as part of a portfolio of investments. (g)   The Employee agrees that the covenants in this Section 11 are reasonably necessary to protect the legitimate interests of the Corporation, are reasonable with respect to time and territory and do not interfere with the interests of the public. The Employee further agrees that the descriptions of the covenants contained in this Section 11 are sufficiently accurate and definite to inform the Employee of the scope of the covenants. Finally, the Employee agrees that the consideration set forth in the Share Exchange Agreement and in this Agreement is full, fair and adequate to support the Employee’s obligations hereunder and the Corporation’s rights hereunder before and after the effective date of the Share Exchange. The Employee acknowledges that in the event the Employee’s employment with the Corporation is terminated for any reason, the Employee will be able to earn a livelihood without violating such covenants. (h)   The parties have attempted to limit the Employee’s right to compete only to the extent necessary to protect the Corporation from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Accordingly, the parties intend that the covenants contained in this Section 11 and the subparts thereof to be completely severable and independent, and any invalidity or unenforceability of any one or more such covenants will not render invalid or unenforceable any one or more of the other covenants. The parties further agree that, if the scope or enforceability of a covenant contained in this Section 11 or a subpart thereof is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the Corporation’s legitimate business interests. (i)    In the event Employee shall desire to engage in any activity which Employee believes could breach the covenants in this Section 11, Employee may give notice of such desired activity to the Corporation, and the Corporation shall advise Employee in writing, within thirty (30) days following receipt of such notice, of its determination as to whether the proposed activity is permissible hereunder, or whether the Corporation is willing to permit such activity even if the Corporation believes such activity is not permissible hereunder. (j)    The parties intend that the covenants and restrictions in this Section 11 be enforceable against Employee regardless of the reason that his employment by the Corporation may terminate and that such covenants and restrictions shall be enforceable against Employee even if this Agreement expires after a notice of non-renewal given by Employee or the Corporation under Section 2. Section 12.   Injunctive Relief, Damages, Etc. The Employee agrees that, given the nature of the positions held by Employee with the Corporation, each and every one of the covenants and restrictions set forth in Section 11 above are reasonable in scope, length of time and geographic area and are necessary for the protection of the significant investment of the Corporation in developing, maintaining and expanding its business. Accordingly, the parties hereto agree that in the event of any breach by Employee of any of the provisions of Section 11 that monetary damages alone will not adequately compensate the Corporation for its losses and, therefore, that it shall be entitled to any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and the Employee shall be liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and actual attorneys’ 9 -------------------------------------------------------------------------------- fees, incurred by the Corporation as a result of taking action to enforce, or recover for any breach of, Section 11, or incidental to a declaratory judgment action filed by Employee in which the Company is the prevailing party. The covenants contained in Section 11 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law. Section 13.   Binding Effect/Successors.   (a)  This Employment Agreement shall be binding upon and inure to the benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns. Neither this Agreement, nor any of the rights hereunder, shall be assignable by the Employee or any beneficiary or beneficiaries designated by the Employee. (b)   The Corporation will require any successor (whether direct or indirect, by purchase, Share Exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation, or either one of them, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in its entirety. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to the compensation described in Section 10(a). Section 14.   Governing Law.   This Employment Agreement shall be subject to and construed in accordance with the laws of Virginia. Section 15.   Invalid Provisions. 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. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be valid and enforceable to the fullest extent permitted by law without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 16.   Notices.   Any and all notices, designations, consents, offers, acceptance or other communications provided for herein shall be given in writing and shall be deemed properly delivered if delivered in person or by registered or certified mail, return receipt requested, addressed in the case of the Corporation to its registered office or in the case of Employee to his last known address. Section 17.   Litigation.   If litigation shall be brought to challenge, enforce or interpret any provision of this Agreement, and such litigation ends with judgment against a party, that party shall indemnify the other for one-half of its reasonable attorneys’ fees and disbursements incurred in such litigation. Section 18.   Entire Agreement. (a)    This Employment Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof. (b)   This Employment Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement, but all of which together shall evidence only one agreement. Section 19.   Amendment and Waiver.   This Employment Agreement may not be amended except in accordance with the Shareholder Agreement  by an instrument in writing signed by or on behalf of each of the parties hereto. No provision of this Agreement may be waived, except in accordance with the Shareholder Agreement. Any such waiver shall be in writing, signed by the Employee and on behalf of the Corporation by such officer as may be specifically designated by the Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any 10 -------------------------------------------------------------------------------- condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar provision or conditions at the same or at any prior or subsequent time Section 20.   Captions.   The captions used in this Employment Agreement are intended for descriptive and reference purposes only and are not intended to affect the meaning of any Section hereunder. IN WITNESS WHEREOF, the Corporation has caused this Employment Agreement to be signed by its duly authorized officer and Employee has hereunto set his hand and seal on the day and year first above written. CARDINAL FINANCIAL CORPORATION       By:     Title: Executive Vice President ATTEST:             EMPLOYEE     (SEAL)   John W. Fisher   11 --------------------------------------------------------------------------------

Exhibit 10.2 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT (the “Amendment”), is made as of May 1, 2006, by and between Impac Funding Corporation, a California Corporation (“Employer”), and Richard J. Johnson, an individual (“Employee”).  Capitalized terms used herein and not defined shall have the meanings given to them in the Employment Agreement, as amended (the “Employment Agreement”), dated as of April 1, 2003, between Employer and Employee. Intending to be legally bound hereby, the parties hereto agree to amend the Employment Agreement as follows: 1.             Section 1.1 of the Employment Agreement is hereby amended and restated in its entirety as follows: “1.1  Employer hereby employs Employee and Employee hereby accepts such employment full-time (subject to those exceptions, if any, set forth below) as Executive Vice President and Chief Operating Officer to perform the duties set forth in Exhibit A, attached hereto and, subject to Section 2.2(i), to perform such other duties or functions as are reasonably required or may be prescribed from time to time or as otherwise agreed.  Employee shall render his services by and subject to the instructions and under the direction of Employer’s Chief Executive Officer to whom Employee shall directly report.” 2.             Exhibit A is hereby amended and replaced in its entirety with Exhibit A2 attached hereto. IN WITNESS WHEREOF, this Amendment No. 2 to Employment Agreement is executed as of the day and year first above written.   “EMPLOYER”     IMPAC FUNDING CORPORATION,     a California corporation     By: /s/ William S. Ashmore       Name: William S. Ashmore       Title: President       “EMPLOYEE”       By: /s/ Richard J. Johnson         Richard J. Johnson     -------------------------------------------------------------------------------- Exhibit A2 JOB DESCRIPTION AND RELATED ENTITIES Responsible for planning, coordinating and directing in the operational and financial affairs of the Organization,.  For purposes of this Exhibit A2, “Organization” means Employer and any affiliates or related entities of Employer for whom Employee is requested to provide services pursuant to the Employment Agreement, as amended by and between Employer and Employee dated as of April 1, 2003 (the “Agreement”).  Provide management and the Board of Directors of Employer and all of the entities within the Organization with meaningful and timely information regarding the Organization’s operations  performance.  Monitor compliance with applicable laws, rules, and regulations related to performance of the Organization, and implement and oversee programs designed to ensure such compliance.  Serve on the Asset Liability Committee of Impac Mortgage Holdings, Inc. (“IMH”) and administer and oversee its interest rate risk management of IMH’s balance sheet.  Recommend and implement asset/liability and tax strategies to improve financial performance.   Provide appropriate financial analysis of investment, merger and acquisition alternatives. Manage the staff of exempt and non-exempt employees.  Perform supervisory duties to include: hiring, corrective action, performance appraisals, salary reviews, counseling, work scheduling, training, and budgeting.  Oversee and manage the Organization’s information technology (“IT”) department.  Oversee and approve IT projects and allocation of resources and approval of all IT related capital expenditures.    In addition he shall be responsible to perform those duties and functions that are normally consistent with this position. In consultation and coordination with the Chief Executive Officer and the Board of Directors of Employer and, as the case may be, the Chief Executive Officer and the Board of Directors of other entities within the Organization, the COO’s responsibilities include participating in the oversight, management and administration of the following areas for the Organization, either directly or through supervision of senior managers charged with primary responsibility for such areas: finance; personnel; organization and administration; legal compliance; development, promotion and delivery of the Organization’s products and services; planning and budgeting; policy development; evaluate and report on the Organization’s performance. Employee acknowledges, understands and agrees that Employee will be requested by Employer to devote some or all of Employee’s time and effort during the term of employment pursuant to the Agreement (and consistent with the above job description) to the business of Employer’s affiliates or related entities pursuant to certain agreements and relationships between and among Employer and such affiliates or related entities.  Such affiliates and related entities include, but are not limited to, the following: Impac Mortgage Holdings, Inc., Impac Commercial Capital Corp., Impac Warehouse Lending Group, IMH Assets Corp., Impac Lending Group, Impac Secured Assets Corp., Impac Mortgage Acceptance Corp., Impac Commercial Capital Corporation, and Impac Foundation. Employee further understands and acknowledges that, pursuant to the Agreement, Employee may be directed by Employer to provide services consistent with the above job descriptions to additional real estate investment trusts or other entities which Employer establishes or with which Employer affiliates or becomes related and for which there exists an agreement with Employer or any of the above entities to provide such services.   --------------------------------------------------------------------------------

Exhibit 10.56 GEMSTAR-TV GUIDE INTERNATIONAL, INC. NONQUALIFIED STOCK OPTION AGREEMENT         THIS NONQUALIFIED STOCK OPTION AGREEMENT is dated as of the _____ day of ______, 20___, by and between Gemstar-TV Guide International, Inc., a Delaware corporation (the “Corporation”), and ___________ (the “Optionee”). W I T N E S S E T H         WHEREAS, pursuant to the Gemstar-TV Guide International, Inc. 1994 Stock Incentive Plan, as amended and restated (the “Plan”), the Corporation has granted to the Optionee effective as of the ____ day of __________, 20___, (the “Award Date”) a nonqualified stock option to purchase all or any part of _________ authorized but unissued or treasury shares of the Corporation’s Ordinary Shares, $.01 par value (the “Common Stock”) of the Corporation upon and subject to the terms and conditions set forth herein and in the Plan.         NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties agree as follows:     1.        Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Plan.     2.        Grant of Option. This Agreement evidences the Corporation’s grant to the Optionee of the right and option to purchase, on the terms and conditions set forth herein and in the Plan, all or any part of an aggregate of _______ shares of the Common Stock at a per share price of $______ (the “Option”), exercisable from time to time only to the extent provided below and prior to the close of business on the day before the tenth anniversary of the Grant Date (the “Expiration Date”), subject to the provisions of this Agreement and the Plan. The Option is intended to be a Non-Qualified Stock Option and not an incentive stock option under Section 422 of the Code.     3.        Exercisability of Option. The Option shall first become exercisable in installments for a number of shares (subject to adjustment) as follows:                             Date on or after which Option                     installment may be exercised                     _________________________________                        Number of Shares (subject                     to adjustment) as to which                     Option is exercisable                     _________________________________                       First Anniversary of Award Date                            «25% of grant»                      Second Anniversary of Award Date                            «25% of grant»                      Third Anniversary of Award Date                            «25% of grant»                      Fourth Anniversary of Award Date                            «25% of grant»  To the extent the Optionee does not purchase all or any part of the shares as to which the Option is exercisable and to which the Optionee is entitled, the Optionee has the right cumulatively thereafter to purchase any shares not so purchased and such right shall continue until the Option terminates or expires. Fractional share interests shall be disregarded, but may be cumulated. No fewer than 50 shares may be purchased at any one time, unless the number purchased is the total number at the time available for purchase under the Option. --------------------------------------------------------------------------------     4.        Method of Exercise of Option. The Option shall be exercisable by the delivery to each Corporation of a written exercise notice in the form attached as Exhibit A (the “Exercise Agreement”), which shall state the number of shares to be purchased pursuant to the Option and be accompanied by payment in money in accordance with Section 2.2 of the Plan of the full purchase price of the shares to be purchased (unless the Committee hereafter authorizes and approves a non-cash payment consistent with Section 2.2 and 4.4 of the Plan) and for the amount of any tax withholding obligation under Section 4.5 of the Plan. In addition, the Optionee (or the Optionee’s Beneficiary or Personal Representative) shall furnish any written statements required pursuant to Section 4.4 of the Plan.     5.        Continuance of Employment Required; No Employment Commitment. The vesting schedule requires continued service through each applicable vesting date as a condition to the vesting of the applicable installment of the Option and the rights and benefits under this Agreement. Partial service, even if substantial, during any vesting period will not entitle the Optionee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 6 below or under the Plan. Nothing contained in this Agreement or the Plan constitutes an employment commitment by the Corporation, affects the Optionee’s status as an employee at will who is subject to termination without cause, confers upon the Optionee any right to remain employed by the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or any Subsidiary at any time to terminate such employment, or affects the right of the Corporation or any Subsidiary to increase or decrease the Optionee’s other compensation.     6.        Effect of Termination of Employment or Services or Death; Change in Subsidiary Status. The Option and all other rights hereunder, to the extent not previously exercised, shall terminate and become null and void at such time as the Optionee ceases to be employed by or otherwise provide services to either the Corporation or any Subsidiary, except that:     (a)        if the Optionee’s employment or services terminate other than because of death, Total Disability or for cause (as determined by the Committee in its sole discretion), the Optionee may at any time within a period of three months after such termination exercise the Option to the extent the Option was exercisable at the date of such termination;     (b)        if such employment or services terminate by reason of Total Disability while in the employ of or rendering services to the Corporation or any Subsidiary, or if the Optionee suffers a Total Disability within three months after a termination described in subsection (a) of this Section 6, then the Option may be exercised within a period of six months after the date of termination of Optionee’s employment or services to the extent that the Option was exercisable on such date; and     (c)        if the Optionee dies while in such service, or within three months after a termination of employment or services under subsection (a) or (b) above, then Optionee’s Beneficiary may exercise the Option at any time within six months after the date of termination of Optionee’s employment or services to the extent that it was exercisable on such date; -2- -------------------------------------------------------------------------------- provided,however, that in no event may the Option be exercised by anyone under this Section 6 or otherwise after the Expiration Date. If the Optionee’s employment or services are terminated by the Corporation or any Subsidiary for cause (as determined by the Committee in its sole discretion), the Option and all other rights hereunder, to the extent not previously exercised, shall terminate and become null and void at such time. If the Optionee is employed by or provides services to an entity which ceases to be a Subsidiary, such event shall be deemed for purposes of this Section 6 to be a termination of employment or services described in subsection (a) in respect of the Optionee, unless after giving effect thereto, the Optionee remains an Eligible Person under the Plan. If the Optionee remains an Eligible Person following a change of position, such change shall not be deemed a termination of services unless the Committee otherwise determines. A determination evidenced by a notice of termination executed by or on behalf of the Corporation and delivered to the Optionee shall be conclusive evidence of a termination of services and/or employment, as the case may be, for these purposes. If the Optionee is a full-time employee of the Corporation or a Subsidiary on the Award Date and the Optionee subsequently ceases to be a full-time employee of the Corporation or a Subsidiary (full-time status to be determined in accordance with the Corporation’s general policies), the Option, to the extent not exercisable on the date the Optionee ceases to be a full-time employee, shall thereupon terminate and become null and void. If the Optionee engages in any Detrimental Activity (as such term is defined below), whether before or after his or her employment or services with the Company terminate, the Option, to the extent not previously exercised, and all other rights hereunder, whether vested and exercisable or not, shall thereupon terminate and become null and void. “Detrimental Activity” means activity in which the Optionee, as determined by the Company, acting in good faith and based on its reasonable belief at the time,   (1) has been negligent in the discharge of his or her duties to the Company, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable of performing those duties; or   (2) has directly or indirectly engaged in any business for his or her own account that competes with the business of any entity within the Company Group (“Company Group” means the Corporation, its Subsidiaries, and any affiliate of the Corporation or a Subsidiary) (a business in competition with any entity within the Company Group includes, without limitation, any business in an industry which any business in the Company Group may conduct business from time to time and any business in an industry which any entity within the Corporate Group has specific plans to enter in the future and as to which the Optionee is aware of such planning); or   (3) has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, trade secrets or other confidential information, or an unauthorized use of trade names, trademarks, or other proprietary business designations owned or used in connection with the business of any entity within the Company Group; has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of any entity within the Company Group; or has been convicted of a felony or misdemeanor (other than minor traffic violations or similar offenses); has failed to timely return to the Company in accordance with Company policy all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of any entity within the Company Group; or -3- --------------------------------------------------------------------------------   (4) has materially breached any of the provisions of any agreement with any entity within the Company Group; or   (5) has entered the employ of, renders services to, or has acquired a financial interest in any person engaged in any business that competes with the business of any entity within the Corporate Group; has acted intentionally in a manner injurious to the reputation, business or assets of, any entity within the Company Group; has interfered with business relationships (whether formed before or after the date hereof) between the Corporation, any Subsidiary, any of their respective affiliates, and any customers, suppliers, officers, employees, partners, members or investors; has influenced or attempted to influence a vendor or customer of any entity within the Company Group, either directly or indirectly, to divert their business away from the Company Group, induced a principal for whom an entity within the Company Group acts as agent to terminate such agency relationship, or induced an employee of any entity within the Company Group who earned annually $25,000 or more during the last six months of his or her employment to work for any business, individual, partnership, firm, corporation, or other entity then in competition with the business of any entity within the Company Group. Optionee shall not be deemed to have engaged in Detrimental Activity merely because the Optionee owns or acquires, directly or indirectly, solely as an investment, securities of any person engaged in the business of the Company Group; provided that such securities are publicly traded on a national or regional stock exchange or on an over-the-counter market and the Optionee (a) is not a controlling person of, or a member of a group which controls, such person and (b) does not, directly or indirectly, own more than 1% of any class of securities of such person. Optionee agrees that the foregoing Detrimental Activity provisions are reasonable (including, without limitation, reasonable as to time, geographical area and scope) and that the Option has been granted by the Corporation as a particular incentive and, as such, it does not constitute wages.     7.        Termination of Option Under Certain Events. As contemplated by Sections 4.2, 4.3 and 4.4 of the Plan, this Option may be terminated or rendered non-exercisable (to the extent it was not previously exercised) in certain circumstances, as described therein.     8.        Non-Transferability of Option. This Option and any other rights of the Optionee under this Agreement or the Plan are nontransferable and subject to extensive restrictions under Section 1.9 of the Plan. The shares issuable on exercise of this Option are also subject to restrictions on transfer under Section 1.10 of the Plan and to any and all repurchase or redemption rights of the Corporation that may be provided under its Memorandum of Association and Articles of Association, as amended from time to time.     9.        Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office and to the Optionee at the addresses given beneath their respective signatures hereon, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be given only when received, but if the Optionee is no longer an Eligible Person, any notice to the Optionee shall be -4- -------------------------------------------------------------------------------- deemed to have been duly given when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government.     10.        Plan. The Option and all rights of the Optionee thereunder are subject to, and the Optionee agrees to be bound by, all of the terms and conditions of the provisions of the Plan, incorporated herein by this reference. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall govern. The Optionee acknowledges receipt of a copy of the Plan, which is made a part hereof by this reference, and agrees to be bound by the terms thereof. Unless otherwise expressly provided in other Sections of this Agreement, provisions of the Plan that confer discretionary authority on the Committee do not (and shall not be deemed to) create any rights in the Optionee, unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Committee so conferred by appropriate action of the Committee under the Plan after the date hereof.     11.        Entire Agreement. The Plan and this Agreement may be amended pursuant to Section 4.6 of the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Optionee, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. This Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. Notwithstanding the foregoing, to the extent any term or provision in this Agreement is inconsistent with or is in conflict with any term(s) or provision(s) in any written services, employment and/or related agreement(s) with Employee, the terms and provisions of any such employment, service and/or related agreement(s) shall control.     12.        Severability. If a court of competent jurisdiction determines that any portion of this Option Agreement is in violation of any statute or public policy, then only the portions of this Option Agreement which violate such statute or public policy shall be stricken, and all portions of this Option Agreement which do not violate any statute or public policy shall continue in full force and effect. Further, it is the parties’ intent that any court order striking any portion of this Agreement should modify the terms as narrowly as possible to give as much effect as possible to the intentions of the parties’ under this Agreement. Further, it is the parties’ intent that any court order striking any portion of this Agreement should modify the terms as narrowly as possible to give as much effect as possible to the intentions of the parties’ under this Agreement.     13.        Governing Law; Limited Rights.     13.1.        California Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California.     13.2.        Privileges of Stock Ownership. Except as otherwise expressly authorized by the Committee or the Plan, the Optionee will not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Optionee. No adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.     13.3.        No Restriction on Corporate Powers. The existence of the Plan and/or the Option shall not affect or restrict in any way the right or power of the Board or the stockholders of the -5- -------------------------------------------------------------------------------- Corporation to make or authorize any adjustment, recapitalization, reorganization or other change in the Corporation’s capital structure or its business, any merger or consolidation of the Corporation, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Corporation’s capital stock or the rights thereof, the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding.         IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Optionee has hereunto set his or her hand.                                                                                                                                                    GEMSTAR-TV GUIDE INTERNATIONAL, INC.                                                                                                                                                    By: ________________________________                                                                                                                                                    Title: ______________________________                                                                                                                                                    OPTIONEE                                                                                                                                                    ___________________________________                                                                                                                                                    Name                                                                                                                                                    ___________________________________                                                                                                                                                    (Address)                                                                                                                                                    ___________________________________                                                                                                                                                    (City, State, Zip Code) -6- --------------------------------------------------------------------------------

  Exhibit 10.01 VALERO GP HOLDINGS, LLC LONG-TERM INCENTIVE PLAN 1. Purpose of the Plan.      The Valero GP Holdings, LLC Long-Term Incentive Plan (the “Plan”) is intended to promote the interests of Valero GP Holdings, LLC, a Delaware limited liability company (the “Company”), by providing to employees, consultants, and directors of the Company and its Affiliates 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 Company and to encourage them to devote their best efforts to advancing the business of the Company and its subsidiaries. 2. Definitions.      As used in the Plan, the following terms shall have the meanings set forth below:      “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. Notwithstanding the immediately preceding two sentences, to the extent that Section 409A of the Code applies to Options or Unit Appreciation Rights granted under the Plan, the term “Affiliate” means all Persons with whom the Company could be considered a single employer under Section 414(b) or Section 414(c) of the Code substituting “50 percent” in place of “80 percent” in determining a controlled group of corporations under Section 414(b) of the Code and in determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code.      “Award” means an Option, Performance Unit, Restricted Unit, Unit Grant, Phantom Unit or Unit Appreciation Right granted under the Plan, and shall include tandem DERs granted with respect to an Option, Phantom Unit or Unit Appreciation Right.      “Award Agreement” means the written agreement by which an Award shall be evidenced.      “Board” means the Board of Directors of the Company.      “Change of Control” means the occurrence of any of the following events:      (i) the acquisition by any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company or an Affiliate of the Company, of “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 35% of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors; or      (ii) the consummation of a reorganization, merger, consolidation or other form of business transaction or series of business transactions, in each case, with respect to which more than 50% of the voting power of the outstanding equity interests in the Company cease to be owned by the Persons who own such interests as of the effective date of the initial offering of Units; or   --------------------------------------------------------------------------------        (iii) the sale, lease or disposition (in one or a series of related transactions) by the Company of all or substantially all of the Company’s assets to any Person other than its Affiliates; or      (iv) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of the effective date of the initial offering of Units, or (B) are elected, or nominated for election, thereafter to the Board with the affirmative votes of at least a majority in interest of the members of the Company at the time of such election or nomination, but “Incumbent Director” shall not include an individual whose election or nomination is in connection with (i) an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) a plan or agreement to replace a majority of the then Incumbent Directors; or      (v) the approval by the Board or the members of the Company of a complete or substantially complete liquidation or dissolution of the Partnership.      Solely with respect to any Award that is subject to Section 409A of the Code and to the extent that the definition of change of control under Section 409A applies to limited liability companies, this definition is intended to comply with the definition of change of control under Section 409A of the Code and, to the extent that the above definition does not so comply, such definition shall be void and of no effect and, to the extent required to ensure that this definition complies with the requirements of Section 409A of the Code, the definition of such term set forth in regulations or other regulatory guidance issued under Section 409A of the Code by the appropriate governmental authority is hereby incorporated by reference into and shall form part of this Plan as fully as if set forth herein verbatim and the Plan shall be operated in accordance with the above definition of Change of Control as modified to the extent necessary to ensure that the above definition complies with the definition prescribed in such regulations or other regulatory guidance insofar as the definition relates to any Award that is subject to Section 409A of the Code.      “Code” means the Internal Revenue Code of 1986, as amended.      “Committee” means the Compensation Committee of the Board or such other committee of the Board as may be appointed by the Board to administer the Plan.      “Company Agreement” means the Amended and Restated Limited Liability Company Agreement of Valero GP Holdings, LLC, as it may be subsequently amended or restated from time to time.      “Consultant” means an individual, other than an Employee or a Director, providing bona fide services to the Company or any of its Affiliates as a consultant or advisor, as applicable, provided that (i) such individual is a natural person, (ii) such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for any securities of the Company, and (iii) the grant of an Award to such Person could not reasonably be expected to result in adverse federal income tax consequences under Section 409A of the Code.      “Covered Participants” means a Participant who is a “covered employee” as defined in Section 162(m)(3) of the Code, and the regulations promulgated thereunder, and any individual the Committee determines should be treated like such a covered employee      “DER” or “Distribution Equivalent Right” means a contingent right, granted in tandem with a specific Option, Unit Appreciation Right or Phantom Unit, to receive an amount in cash equal to the cash distributions made by the Company with respect to a Unit during the period such tandem Award is outstanding.      “Director” means a member of the Board who is not an Employee. -2- --------------------------------------------------------------------------------        “Employee” means any employee of the Company or an Affiliate who performs services for the Company and its Affiliates.      “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, Consultant or Director granted an Award under the Plan.      “Performance Award” means an Award made pursuant to this Plan to a Participant which Award is subject to the attainment of one or more Performance Goals. Performance Awards may be in the form of either Performance Units, Performance Cash or DERs.      “Performance Cash” means an Award, designated as Performance Cash and denominated in cash, granted to a Participant pursuant to Section 6(f) hereof, the value of which is conditioned, in whole or in part, by the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Award agreement.      “Performance Criteria” or “Performance Goals” or “Performance Measures” mean the objectives established by the Committee for a Performance Period, for the purpose of determining when an Award subject to such objectives is earned.      “Performance Period” means the time period designated by the Committee during which performance goals must be met.      “Performance Unit” means an Award, designated as a Performance Unit in the form of Units or other securities of the Company, granted to a Participant pursuant to Section 6(f) hereof, the value of which is determined, in whole or in part, by the value of Units and/or conditioned on the attainment of Performance Goals in a manner deemed appropriate by the Committee and described in the Award agreement.      “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. Whether cash or Units are received for Phantom Units shall be determined in the sole discretion of the Committee and shall be set forth in the Award Agreement.      “Restricted Period” means the period established by the Committee with respect to an Award during which the Award remains subject to forfeiture or is either not exercisable by or payable to the Participant, as the case may be.      “Restricted Unit” means a Unit granted under the Plan that is subject to a Restricted Period.      “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.      “UAR” of “Unit Appreciation Right” means an Award that, upon exercise, entitles the holder to receive the excess of the Fair Market Value of a Unit on the exercise date over the exercise price established for such Unit Appreciation Right. Such excess may be paid in cash and/or in Units as determined in the sole discretion of the Committee and set forth in the Award Agreement.      “UDR” or “Unit Distribution Right” means a distribution made by the Company with respect to a Restricted Unit.      “Unit” means a Unit of the Company.      “Unit Grant” means an Award of an unrestricted Unit. 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 -3- --------------------------------------------------------------------------------   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 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 (including but not limited to performance requirements for such 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, any Affiliate, any Participant, and any beneficiary of any Award. 4. Units.      (a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c), the maximum number of Units that may be delivered or reserved for delivery or underlying any Award with respect to the Plan is 2,000,000. If any Award expires, is canceled, exercised, paid or otherwise terminates without the delivery of Units, then the Units covered by such Award, to the extent of such expiration, cancellation, exercise, payment or termination, shall again be Units with respect to which Awards may be granted. Units that cease to be subject to an Award because of the exercise of the Award, or the vesting of Restricted Units or similar Awards, shall no longer be subject to or available for any further grant under this Plan. Notwithstanding the foregoing, there shall not be any limitation on the number of Awards that may be granted under the Plan and paid in cash.      (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, or any other Person, or any combination of the foregoing as determined by the Committee in its sole 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 Company, issuance of warrants or other rights to purchase Units or other securities of the Company, 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 and, provided further, that the Committee shall not take any action otherwise authorized under this subparagraph (c) to the extent that (i) such action would cause (A) the application of Section 409A of the Code to the Award or (B) create adverse tax consequences under Section 409A of the Code should that Code section apply to the Award or (ii) except as permitted in Section 7(c), materially reduce the benefit to the Participant without the consent of the Participant. 5. Eligibility.      Any Employee, Consultant or Director shall be eligible to be designated a Participant and receive an Award under the Plan. -4- --------------------------------------------------------------------------------   6. Awards.      (a) Options. The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Options shall be granted, the number of Units to be covered by each Option, whether DERs are granted with respect to such 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, provided such purchase price may not be less than 100% of its Fair Market Value as of the date of grant.      (ii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, which may include, without limitation, accelerated vesting upon 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, with the consent of the Committee, the withholding of Units that would otherwise be delivered to the Participant upon the exercise of the Option, other securities or other property, or any combination thereof, having a fair market value (as determined by the Committee) on the exercise date equal to the relevant exercise price.      (iii) Forfeiture. Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason prior to the date an Option becomes exercisable, 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.      (iv) DERs. To the extent provided by the Committee, in its discretion, a grant of Options may include a tandem DER grant, which may provide that such DERs shall 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.      (b) Restricted Units and Unit Grants. The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Restricted Units and Unit Grants shall be granted, the number of Restricted Units and/or Unit Grants to be granted to each such Participant, the Restricted Period, the conditions under which the Restricted Units may become vested or forfeited, and such other terms and conditions as the Committee may establish with respect to such Awards.      (i) UDRs. To the extent provided by the Committee, in its discretion, a grant of Restricted Units may provide that distributions made by the Company with respect to the Restricted Units shall be subject to the same forfeiture and other restrictions as the Restricted Unit and, if restricted, such distributions shall be held, without interest, until the Restricted Unit vests or is forfeited with the UDR being paid or forfeited at the same time, as the case may be. Absent such a restriction on the UDRs in the grant agreement, UDRs shall be paid to the holder of the Restricted Unit without restriction.      (ii) Forfeitures. Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding Restricted Units awarded the Participant shall be -5- --------------------------------------------------------------------------------   automatically forfeited on such termination. The Committee may in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Restricted Units.      (iii) Lapse of Restrictions. Upon or as soon as reasonably practical following the vesting of each Restricted Unit, subject to the provisions of Section 8(b), the Participant shall be entitled to have the restrictions removed from his or her Unit certificate so that the Participant then holds an unrestricted Unit.      (c) Phantom Units. The Committee shall have the authority to determine the Employees, Consultants 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 time or 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 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.      (ii) Forfeitures. Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding Phantom Units awarded the Participant shall be automatically forfeited on such termination. 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, subject to the provisions of Section 8(b), 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.      (d) Unit Appreciation Rights. The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Unit Appreciation Rights shall be granted, the number of Units to be covered by each grant and the conditions and limitations applicable to the exercise of the Unit Appreciation Right, 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 exercise price per Unit Appreciation Right shall be not less than 100% of its Fair Market Value as of the date of grant.      (ii) Vesting/Time of Payment. The Committee shall determine the time or times at which a Unit Appreciation Right shall become vested and exercisable and the time or times at which a Unit Appreciation Right shall be paid in whole or in part.      (iii) Forfeitures. Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason prior to vesting, all unvested Unit Appreciation Rights awarded the Participant shall be automatically forfeited on such termination. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Unit Appreciation Rights, in which case, such Unit Appreciation Rights shall be deemed vested upon termination of employment or service and paid as soon as administratively practical thereafter. -6- --------------------------------------------------------------------------------        (iv) Unit Appreciation Right DERs. To the extent provided by the Committee, in its discretion, a grant of Unit Appreciation Rights may include a tandem DER grant, which may provide that such DERs shall 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 Unit Appreciation Rights Award, or be subject to such other provisions or restrictions as determined by the Committee in its discretion.      (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. No Award shall be issued in tandem with another Award if the tandem Awards would result in adverse tax consequences under Section 409A of the Code. 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 Section 6(e)(ii)(C) below, each Award shall be exercisable or payable only to the Participant during the Participant’s lifetime, or to the person to whom the Participant’s rights shall pass by will or the laws of descent and distribution.      (B) Except as provided in Section 6(e)(ii)(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 Award, an Award 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.      (iii) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee, but shall not exceed 10 years.      (iv) Unit Certificates. All certificates for Units or other securities of the Company 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 -7- --------------------------------------------------------------------------------   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.      (vii) Change of Control. Unless specifically provided otherwise in the Award Agreement, upon a Change of Control or such time prior thereto as established by the Committee, all outstanding Awards shall automatically vest or become exercisable in full, as the case may be. 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 or UAR is not exercised, or a Phantom Unit or Restricted Unit does not vest, upon the Change of Control, the Committee may, in its discretion, cancel such Award or provide for an assumption of such Award or a replacement grant on substantially the same terms; provided, however, upon any cancellation of an Option or UAR that has a positive “spread” or a Phantom Unit or Restricted Unit, the holder shall be paid an amount in cash and/or other property, as determined by the Committee, equal to such “spread” if an Option or UAR or equal to the Fair Market Value of a Unit, if a Phantom Unit or Restricted Unit.      (viii) Section 409A of the Code. Notwithstanding any other provision of the Plan to the contrary, any Award granted under the Plan shall contain terms that (i) are designed to avoid application of Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under Section 409A should that Code section apply to the Award.      (f) Performance Based Awards.      (i) Grant of Performance Awards. The Committee may issue Performance Awards in the form of Performance Units, Performance Cash, or DERs to Participants subject to the Performance Goals and Performance Period as it shall determine. The terms and conditions of each Performance Award will be set forth in the related Award agreement. The Committee shall have complete discretion in determining the number and/or value of Performance Awards granted to each Participant. Any Performance Units granted under the Plan shall have a minimum Restricted Period of one year from the Date of Grant, provided that the Committee may provide for earlier vesting following a Change in Control or upon an Employee’s termination of employment by reason of death, disability or retirement. Participants receiving Performance Awards are not required to pay the Company therefor (except for applicable tax withholding) other than the rendering of services.      (ii) Value of Performance Awards. The Committee shall set Performance Goals in its discretion for each Participant who is granted a Performance Award. Such Performance Goals may be particular to a Participant, may relate to the performance of the Affiliate which employs him or her, may be based on the division which employs him or her, may be based on the performance of the Partnership generally, or a combination of the foregoing. The Performance Goals may be based on achievement of balance sheet or income statement objectives, or any other objectives established by the Committee. The Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The extent to which such Performance Goals are met will determine the number and/or value of the Performance Award to the Participant.      (iii) Form of Payment. Payment of the amount to which a Participant shall be entitled upon the settlement of a Performance Award shall be made in a lump sum or installments in cash, Units, or a combination thereof as determined by the Committee. 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 member, Participant, other holder or beneficiary of an Award, or other Person.      (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.      (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 Company or the financial statements of the Company, 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 to Participants under the Plan or such Award. 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) Tax 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 -8- --------------------------------------------------------------------------------   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 or Services. 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, to continue as a consultant, or to remain on the Board, as applicable. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or terminate a consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan, any Award agreement or other 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 Texas without regard to its conflict of laws principles.      (e) Section 409A of the Code. Notwithstanding anything in this Plan to the contrary, any Award granted under the Plan shall contain terms that (i) are designed to avoid application of Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under Section 409A of the Code should that section apply to the Award. If any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Section 409A of the Code and related regulations and pronouncements, that Plan provision or Award will be reformed to the extent reformation would avoid imposition of the applicable tax and no action taken to comply with Section 409A of the Code shall be deemed to adversely affect the Participant’s rights to an Award or to require the Participant’s consent.      (f) 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.      (g) 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 of 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 Company 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.      (h) 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.      (i) 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. -9- --------------------------------------------------------------------------------        (j) 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.      (k) 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 and its Affiliates shall be relieved of any further liability for payment of such amounts.      (l) Participation by Affiliates. In making Awards to Consultants and Employees employed by an Affiliate, the Committee shall be acting on behalf of the Affiliate, and to the extent the Company has an obligation to reimburse the such Affiliate for compensation paid to Consultants and Employees for services rendered for the benefit of the Company, such payments or reimbursement payments may be made by the Company directly to the Affiliate.      (m) 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.      (n) No Guarantee of Tax Consequences. None of the Board, the Company, nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder. 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. 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. 10. Special Provisions Applicable to Covered Participants.      Awards subject to Performance Criteria paid to Covered Participants under this Plan shall be governed by the conditions of this Section 10 in addition to the requirements of Section 6(f), above. Should conditions set forth under this Section 10 conflict with the requirements of Section 6(f), the conditions of this Section 10 shall prevail.      (a) Establishment of Performance Measures, Goals or Criteria. All Performance Measures, Goals, or Criteria relating to Covered Participants for a relevant Performance Period shall be established by the Committee in writing prior to the beginning of the Performance Period, or by such other later date for the Performance Period as may be permitted under Section 162(m) of the Code. The Performance Goals may be identical for all Participants or, at the discretion of the Committee, may be different to reflect more appropriate measures of individual performance.      (b) Performance Goals. The Committee shall establish the Performance Goals relating to Covered Participants for a Performance Period in writing. Performance Goals may include alternative and multiple Performance Goals and may be based on one or more business and/or financial criteria.      (c) Compliance with Section 162(m). The Performance Goals must be objective and must satisfy third party “objectivity” standards under Section 162(m) of the Code, and the regulations promulgated thereunder. In interpreting Plan provisions relating to Awards subject to Performance Goals paid to Covered Participants, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation §1.162-27(e)(2)(i), and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions.      (d) Adjustments. The Committee is authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or non-recurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting principles, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company’s financial statements. Notwithstanding the foregoing, the Committee may, at its sole discretion, reduce the performance results upon which Awards are based under the Plan, to offset any unintended result(s) arising from events not anticipated when the Performance Goals were established, or for any other purpose, provided that such adjustment is permitted by Section 162(m) of the Code.      (e) Discretionary Adjustments. The Performance Goals shall not allow for any discretion by the Committee as to an increase in any Award, but discretion to lower an Award is permissible.      (f) Certification. The Award and payment of any Award under this Plan to a Covered Participant with respect to a relevant Performance Period shall be contingent upon the attainment of the Performance Goals that are applicable to such Covered Participant. The Committee shall certify in writing prior to payment of any such Award that such applicable Performance Goals relating to the Award are satisfied. Approved minutes of the Committee may be used for this purpose.      (g) Other Considerations. All Awards to Covered Participants under this Plan shall be further subject to such other conditions, restrictions, and requirements as the Committee may determine to be necessary to carry out the purpose of this Section 10. -10-

Exhibit 10.8   2004 STOCK INCENTIVE PLAN OF DESERT CAPITAL REIT, INC.   1.  Purpose.   The purpose of this Plan is to benefit the Company’s stockholders by encouraging high levels of performance by individuals who are key to the success of the Company and to enable the Company to attract, motivate and retain talented and experienced individuals essential to its continued success. This is to be accomplished by providing such individuals an opportunity to obtain or increase their proprietary interest in the Company’s performance and by providing such individuals with additional incentives to remain with the Company.   2.  Definitions.   The following terms, as used herein, shall have the meaning specified:   (a)  “Affiliate” means any corporation or other entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or by another Affiliate of the Company within the meaning of Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended.   (b)  “Award” means an award granted pursuant to Section 6.   (c)  “Board” means the Board of Directors of the Company, as it may be comprised from time to time.   (d)  “Change in Control” means the occurrence of any of the following:   (1)  at any time during any 12-month period, the Board of Directors of the Company in office at the beginning of such period shall have ceased to constitute a majority of the Board without the approval of the nomination of such directors by a majority of the Board consisting of directors who were serving at the beginning of such period;   (2)  any person (as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries or any trustee, fiduciary or other person holding securities under any employee share ownership plan or any other employee benefit plan of the Company or any of its subsidiaries), together with its affiliates and associates (as such terms are defined in Rule 12b-2 under the Exchange Act) shall have become the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of securities representing 25% or more of the combined voting power of the Voting Shares;   (3)  the Company shall have filed a schedule, report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing that a change in control of the Company has occurred;   (4)  a merger or consolidation of the Company shall have been consummated, other than (x) a merger or consolidation that would result in the Voting Shares outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the surviving entity or (y) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the Voting Shares;   (5)  any person, other than a subsidiary of the Company, shall have acquired more than 50% of the combined assets of the Company and its subsidiaries; or   (6)  the stockholders of the Company shall have approved the complete liquidation or dissolution of the Company.   (e)  “Code” means the Internal Revenue Code of 1986, as amended from time to time.   (f)  “Committee” means a committee appointed pursuant to Section 3(a) or, if no such Committee is appointed, the Board.   (g)  “Common Stock” means the common stock of the Company, par value $0.01 per share.   (h)  “Company” means Desert Capital REIT, Inc.   (i)  “Director” means any person who shall from time to time serve as a member of the Board of Directors of the Company or any Affiliate.   (j)  “Dividend Equivalent Right” means an Award granted pursuant to Section 6(c).   (k)  “Effective Date” means the date this Plan was originally adopted by the Board, unless otherwise specified by the Board.   (l)  “Election Date” means the date an Independent Director is first elected to the Board.   (m)  “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.   (n)  “Fair Market Value” means the closing price of the relevant security as reported on the composite tape of New York Stock Exchange issues (or such other reporting system as shall be selected by the Committee) on the relevant date, or if no sale of the security is reported for such date, the next following day for which there is a reported sale. The Committee shall determine the Fair Market Value of any security that is not publicly traded, using such criteria as it shall determine, in its sole discretion, to be appropriate for such valuation; provided, however, that the Fair Market Value of the Common Stock for a period of six months from the Effective Date shall not be less than $10.00 per share.   (o)  “Independent Director” means any Director who is (i) (A) a “non-employee director” within the meaning of Rule 16b3(b)(3)(i) of the Exchange Act, and (B) an “outside director” within the meaning of Code Section 162(m) and the regulations promulgated thereunder, and (ii) who is not an employee of the Company or any Affiliate; provided, that a Director who is (x) a Director or (y) a consultant, or both, but is not an employee, also may be an Independent Director.   (p)  “Insider” means any person who is subject to Section 16.   (q)  “ISO” means an incentive stock option within the meaning of Code Section 422.   (r)  “Maryland Act” means the Maryland General Corporation Law, as amended from time to time.   (s)  “NQO” means a stock option that is not within the meaning of Code Section 422.   (t)  “Option” means any option granted pursuant to Section 6(a)(1).   (u)  “Outstanding Shares” means, with respect to any date, the total of the number of Shares outstanding, plus (ii) the number of Shares reserved for issuance upon conversion of securities convertible into or exchangeable for Shares, plus (iii) the number of Shares, if any, held as “treasury stock” by the Company, each as on such date.   (v)  “Participant” means any person who has been granted an Award pursuant to this Plan.   (w)  “Restricted Shares” means the Shares issued as a result of a Restricted Share Award.   (x)  “Restricted Share Award” means a grant of the right to purchase Shares pursuant to Section 6(b). Such Shares, when and if issued, shall be subject to such transfer restrictions and risk of forfeiture as the Committee shall determine at the time the Award is granted, until such specific conditions are met. Such conditions may be based on continuing employment or achievement of pre-established performance objectives, or both.   (y)  “Rights” means an Award granted pursuant to Section 6.   (z)  “Section 16” means Section 16 of the Exchange Act or any successor regulation and the rules promulgated thereunder by the Securities and Exchange Commission, as they may be amended from time to time.   (aa)  “Securities Act” means the Securities Act of 1933, as amended from time to time.   (bb)  “Shares” means the shares of Common Stock.   3.  Administration and Interpretation.   (a)  Administration. This Plan shall be administered by a Committee, which shall consist of three or more Independent Directors. The Board may from time to time remove and appoint members of the Committee in substitution for, or in addition to, members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may prescribe, amend and rescind rules and regulations for administration of this Plan and shall have full power and authority to construe and interpret this Plan. A majority of the members of the Committee shall constitute a quorum, and the act of a majority of the members present at a meeting or the acts of a majority of the members evidenced in writing shall be the acts of the Committee. The Committee may correct any defect or any omission or reconcile any inconsistency in this Plan or in any Award or grant made hereunder in the manner and to the extent it shall deem desirable.   The Committee shall have the full and exclusive right to grant all Awards under this Plan, which may be Options, Restricted Share Awards and Dividend Equivalent Rights. In granting Awards, the Committee shall take into consideration the contribution the individual has made or may make to the success of the Company or its Affiliates and such other factors as the Committee shall determine. The Committee shall periodically determine the Participants in this Plan and the nature, amount, pricing, time and other terms of Awards to be made to such individuals, subject to the other terms and provisions of this Plan. The Committee shall also have the authority to consult with and receive recommendations from officers of and other individuals associated with the Company and its Affiliates with regard to these matters. In no event shall any individual, his or her legal representative, heirs, legatees, distributees or successors have any right to participate in this Plan except to such extent, if any, as the Committee shall determine.   The Committee may from time to time in granting Awards under this Plan prescribe such other terms and conditions concerning such Awards as it deems appropriate, including, without limitation, the achievement of specific goals established by the Committee, provided that such terms and conditions are not more favorable to any individual than those expressly set forth in this Plan.   The Committee may delegate to the officers of or individuals associated with the Company the authority to execute and deliver such instruments and documents, to do all such acts and things, and to take all such other steps deemed necessary, advisable or convenient for the effective administration of this Plan in accordance with its terms and purpose, except that the Committee may not delegate any discretionary authority with respect to substantive decisions or functions regarding this Plan or Awards hereunder as these relate to Insiders, including, without limitation, decisions regarding the timing, eligibility, pricing, amount or other material term of such Awards.   (b)  Interpretation. The Committee shall have the power to interpret and administer this Plan. All questions of interpretation with respect to this Plan, the number of Shares or other securities granted hereunder, and the terms of any Award shall be determined by the Committee and its determination shall be final and conclusive upon all parties in interest. In the event of any conflict between an Award and this Plan, the terms of this Plan shall govern. It is the intent of the Company that this Plan and Awards hereunder satisfy and be interpreted in a manner that, in the case of Participants who are or may be Insiders, satisfies the applicable requirements of Rule 16b-3 of the Exchange Act, so that such persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16 and will not be subjected to liability thereunder. If any provision of this Plan or of any Award would otherwise frustrate or conflict with the intent expressed in this Section 3(b), that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent, the provision shall be deemed void as applicable to Insiders.   (c)  Limitation on Liability. Neither the Committee nor any member thereof shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including counsel fees) arising therefrom to the full extent permitted by law. The members of the Committee shall be named as insureds under any directors and officers (or similar) liability insurance coverage which the Company may have in effect from time to time.   4.  Eligibility.   (a)  Eligible Persons. The class of persons who are potential recipients of Awards granted under this Plan consist of the (i) Independent Directors, (ii) Directors, (iii) officers of the Company or any Affiliate and (iv) an individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Company in a capital-raising transaction or as a market maker or promoter of the Company’s securities) to the Company and who is selected to participate in this Plan by the Committee; provided, however, that a person who is otherwise an eligible Participant under clause (iv) above may participate in this Plan only if such participation would not adversely affect either the Corporation’s eligibility to use Form S-8 to register under the Securities Act, the offering of Shares issuable under this Plan by the Company or the Company’s compliance with any other applicable laws. The Independent Directors, Directors, officers and consultants to whom Awards are granted under this Plan, and the number of Shares subject to each such Award, shall be determined by the Committee in its sole discretion, subject, however, to the terms and conditions of this Plan.   (b)  Ownership Limit. Notwithstanding anything else contained herein or in any Award hereunder to the contrary, no Person may receive Shares upon the grant, exercise or payment of an Award to the extent that it will cause such Person to Beneficially Own or Constructively Own Capital Stock in excess of the Aggregate Stock Ownership Limit. If a Person would be entitled to receive or acquire Shares but for the limitation of the preceding sentence, the Company shall have the right to deliver to the person, in lieu of Shares, a check or cash in the amount equal to the Fair Market Value of the Shares otherwise deliverable, subject to any applicable tax withholding or other authorized deductions. For purposes of this limitation, the terms “Person,” “Beneficially Own,” “Constructively Own,” “Capital Stock,” and “Aggregate Stock Ownership Limit” are used as defined in the Company’s Articles of Incorporation.   5.  Shares Subject to Grants Under this Plan.   (a)  Limitation on Number of Shares. The Shares subject to grants of Awards shall be authorized but unissued Shares, Shares purchased in the open market or privately and such Shares, if any, held as “treasury stock” by the Company. Subject to adjustment as hereinafter provided, the aggregate number of Shares with respect to which Awards may be granted under this Plan shall not exceed the greater of 1,000,000 or 4.9% of the then outstanding shares of Common Stock; provided, however, that the maximum number of Shares issuable pursuant to ISOs granted under the Plan shall be 1,000,000.   (b)  Shares No Longer Subject to Awards. Shares ceasing to be subject to an Award because of the exercise of an Option or Right or the vesting of an Award shall no longer be subject to any further grant under this Plan. However, if any outstanding Option or Right, in whole or in part, expires or terminates unexercised or is canceled or if any Award, in whole or in part, expires or is terminated or forfeited, for any reason prior to the expiration of ten (10) years from the Effective Date, the Shares allocable to the unexercised, terminated, canceled or forfeited portion of such Award may again be made the subject of grants under this Plan; provided, however, that, with respect to any Option or Rights granted to any Participant who is a “covered person” as defined in Code Section 162(m) and the regulations promulgated thereunder that is canceled, the number of Shares subject to such Option and/or Rights shall continue to count against the maximum number of Shares which may be the subject of Options and for Rights granted to such Participant.   For the purposes of computing the total number of Shares granted under this Plan, the following rules shall apply to Awards payable in Shares:   (1)  each Option shall be deemed to be the equivalent of the maximum number of Shares that may be issued upon exercise of the particular Option; and   (2)  where the number of Shares available under the Award is variable on the date it is granted, the number of Shares shall be deemed to be the maximum number of Shares that could be received under that particular Award.   (c)  Adjustments of Aggregate Number of Shares. The aggregate number of Shares stated in Section 5(a) shall be subject to appropriate adjustment, from time to time, in accordance with the provisions of Section 7 hereof.   6.  Awards.   (a)  Options and Rights.   (1)  Grants of Options. Options granted under this Plan may be either ISOs or NQOs. At the time an Option is granted, the Committee may, in its discretion, designate whether an Option shall be an ISO. No Option which is intended to qualify as an ISO shall be granted under this Plan to any individual who, at the time of such grant, is not an officer of the Company or an Affiliate.   Notwithstanding any other provision of this Plan to the contrary, to the extent that the aggregate Fair Market Value (determined at the date an Option is granted) of the Shares with respect to which an Option intended to be an ISO (and any other ISO granted to the holder under this Plan or any other plans of the Company or an Affiliate) first becomes exercisable during any calendar year exceeds $100,000, the portion of such Option which would exceed the $100,000 limitation shall be treated as an NQO. Options with respect to which no designation is made by the Committee shall be deemed to be ISOs to the extent that the $100,000 limitation described in the preceding sentence is met. This paragraph shall be applied by taking Options into account in the order in which they are granted.   No ISO shall be granted to any person who, at the time of the grant, owns Shares possessing more than 10% of the total combined voting power of the Company or any Affiliate, unless (i) on the date such ISO is granted, the Option price is at least 110% of the Fair Market Value per Share subject to the ISO and (ii) such ISO by its terms is not exercisable after the expiration of five years from the date such ISO is granted.   The purchase price per Share pursuant to the exercise of any Option shall be fixed by the Committee at the time of grant; provided, however, that the purchase price per Share (regardless of whether such Option is an ISO or an NQO) shall not be less than the Fair Market Value of a Share on the date on which the Option is granted. In addition, the Committee shall designate the number of Shares, the terms and conditions (which may include, without limitation, the achievement of specific goals), with respect to Options granted under this Plan. Options may be granted by the Committee to any eligible person at any time and from time to time.   As a condition to the grant of an Option, the Participant shall enter into an Option Agreement with the Company upon such terms as the Committee may, in its discretion, require.   (2)  Payment of Option Exercise Price. Upon exercise of an Option, the full Option exercise price for the Shares with respect to which the Option is being exercised shall be payable to the Company, by means of any lawful consideration as determined by the Committee, including, without limitation, one or a combination of the following methods:   ·   services rendered by the recipient of such Award; ·   cash, check payable to the order of the Company, or electronic funds transfer; ·   notice and third party payment in such manner as may be authorized by the Committee; ·   the delivery of previously owned shares of Common Stock; ·   by a reduction in the number of Shares otherwise deliverable pursuant to the Award; ·   by delivery of one or more promissory notes from the Participant, provided that any such note shall be subject to terms and conditions established by the Committee and the requirements of applicable law; or ·   subject to such procedures as the Committee may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.   In no event shall any Shares newly-issued by the Company be issued for less than the minimum lawful consideration for such Shares or for consideration other than consideration permitted by applicable state law. In the event that the Committee allows a Participant to exercise an Award by delivering shares of Common Stock previously owned by such Participant and unless otherwise expressly provided by the Committee, any Shares delivered which were initially acquired by the Participant from the Company (upon exercise of an Option or otherwise) must have been owned by the Participant at least six months as of the date of delivery. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. The Company will not be obligated to deliver any Shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 11 hereof and any other conditions to exercise or purchase have been satisfied. Unless otherwise expressly provided in the applicable Award agreement, the Committee may at any time eliminate or limit a Participant’s ability to pay the purchase or exercise price of any Award or Shares by any method other than cash payment to the Company. In addition to the foregoing methods of payment, the full Option purchase price for Shares with respect to which the Option is being exercised may be payable to the Company by such other methods as the Committee may permit from time to time.   (3)  Term. The term of each Option and Right shall be determined by the Committee at the date of grant; provided, however, that each Option that is an ISO shall, notwithstanding anything in this Plan to the contrary, expire not more than ten years from the date the Option is granted (or five years from the date of grant to the extent required under Section 6(a)(1)) or, if earlier, the date specified in the certificate evidencing the grant of such Option. An Option that is an NQO shall expire not more than ten years from the date the Option is granted, or if earlier, the date specified in the Option Agreement.   (4)  Termination of Employment or Relationship. In the event that a Participant’s employment or relationship with the Company and its Affiliates shall terminate, for reasons other than (i) retirement pursuant to a retirement plan or policy of the Company or one of its Affiliates (“retirement”), (ii) permanent disability as determined by the Committee based on the opinion of a physician selected or approved by the Committee (“permanent disability”) or (iii) death, the Participant’s Options and Rights shall be exercisable by him or her, subject to subsection (3) above, only within 90 business days after such termination, but only to the extent the Option or Right was exercisable immediately prior to such termination.   If a Participant shall retire, become permanently disabled or die while entitled to exercise an Option or Rights, the Participant or, if applicable, the Participant’s estate, personal representative or beneficiary, as the case may be, shall have the right, subject to the provisions of subsection (3) above, to exercise the Option or Rights at any time within one year from the date of the Participant’s retirement, permanent disability or death.   Whether any termination is due to retirement or permanent disability, and whether an authorized leave of absence on military or government service or for other reasons shall constitute a termination for the purpose of this Plan, shall be determined by the Committee.   If the employment, consulting arrangement or service of any Participant with the Company or an Affiliate shall be terminated because of the Participant’s violation of the duties of such employment, consulting arrangement or service with the Company or an Affiliate as he or she may from time to time have, the existence of which violation shall be determined by the Committee in its sole discretion (which determination by the Committee shall be conclusive), all unexercised Options and Rights of such Participant shall terminate immediately upon such termination of such Participant’s employment, consulting arrangement or service with the Company and all Affiliates, and a Participant whose employment, consulting arrangement or service with the Company and Affiliates is so terminated, shall have no right after such termination to exercise any unexercised Option or Rights he or she might have exercised prior to termination of his or her employment, consulting arrangement or service with the Company and Affiliates.   (5)  Options Granted by Other Corporations. Options may be granted under this Plan from time to time in substitution for stock options held by employees and directors of corporations who become key employees or Directors or directors of the Company or of any Affiliate as a result of any “corporate transaction” as defined in the Treasury Regulations promulgated under Code Section 424.   (b)  Restricted Share Awards.   (1)  Awards of Restricted Shares. Restricted Share Awards may be awarded by the Committee to any individual eligible to receive the same, at any time and from time to time before the expiration of ten years from the Effective Date. In addition, and without limiting the generality of the foregoing, the Committee may grant to any individual who is entitled to receive a bonus, a Restricted Share Award with respect to Shares having a Fair Market Value on the date of the grant of such Restricted Share Award equal to a specified percentage determined by the Committee of the amount of such individual’s bonus, provided that such individual has made an irrevocable election, at least six months prior to the date of the grant of such Restricted Share Award, to receive such Restricted Share Award in lieu of such bonus.   (2)  Purchase Price under Restricted Share Awards. The purchase price of Restricted Shares to be purchased pursuant to a Restricted Share Award shall be fixed by the Committee at the time of the grant of the Restricted Share Award; provided, however, that such purchase price shall not be less than the par value per share of the Shares subject to the Restricted Share Award. The Committee shall specify, within its discretion, the time and manner in which payment of such purchase price shall be paid.   (3)  Description of Restricted Shares. All Restricted Shares purchased by an eligible person shall be subject to the following conditions:   (A)  Restricted Shares shall be subject to such restrictions, terms and conditions as the Committee may establish, which may include, without limitation, “lapse” and “non-lapse” restrictions (as such terms are defined in regulations promulgated under Code Section 83) and the achievement of specific goals;   (B)  the Restricted Shares may not be sold, exchanged, pledged, transferred, assigned or otherwise encumbered or disposed of until the terms and conditions set by the Committee at the time of the grant of the Restricted Share Award have been satisfied;   (C)  each certificate representing Restricted Shares issued pursuant to this Plan shall bear a legend making appropriate reference to the following:   “The Shares represented by this certificate have been issued pursuant to the terms of the 2004 Stock Incentive Plan of Desert Capital REIT, Inc. and may not be sold, pledged, transferred, assigned or otherwise encumbered in any manner except as is set forth in the terms of such award dated    .” ; and (D)  except as permitted by the Committee, no Restricted Shares granted pursuant to this Plan shall be subject to vesting requirements over a period of less than three years.   If a certificate representing Restricted Shares is issued to an individual (whether or not escrowed as provided below), the individual shall be the record owner of such Shares and shall have all the rights of a stockholder with respect to such Shares (unless the Restricted Share Award specifically provides otherwise), including the right to vote and the right to receive dividends made or paid with respect to such Shares.   In order to enforce the restrictions, terms and conditions that may be applicable to a Participant’s Restricted Shares, the Committee may require the Participant, upon the receipt of a certificate or certificates representing such Shares, or at any time thereafter, to deposit such certificate or certificates, together with stock powers and other instruments of transfer, appropriately endorsed in blank, with the Company or an escrow agent designated by the Company under an escrow agreement, which may be a part of a Restricted Share Award, in such form as shall be determined by the Committee.   After the satisfaction of the terms and conditions set by the Committee with respect to Restricted Shares issued to an individual, and provided the Restricted Shares are not subject to a non-lapse restriction, a new certificate, without the legend set forth above, for the number of Shares that are no longer subject to such restrictions, terms and conditions shall be delivered to the individual. If such terms and conditions are satisfied as to a portion, but fewer than all, of such Shares, the remaining Shares issued with respect to such Award shall either be reacquired by the Company or, if appropriate under the terms of the award applicable to such Shares, shall continue to be subject to the restrictions, terms and conditions set by the Committee at the time of Award.   (4)  Termination of Employment or Relationship. If the employment or relationship with the Company and its Affiliates of a holder of a Restricted Share Award is terminated for any reason before satisfaction of the terms and conditions for the vesting (within the meaning of Code Section 83) of all Shares subject to the Restricted Share Award, the number of Restricted Shares not theretofore vested shall be reacquired by the Company and forfeited, and the purchase price paid for such forfeited Shares by the holder shall be returned to the holder. If Restricted Shares issued shall be reacquired by the Company and forfeited as provided above, the individual, or in the event of his or her death, his or her personal representative, shall forthwith deliver to the Secretary of the Company the certificates representing such Shares, accompanied by such instrument of transfer, if any, as may reasonably be required by the Company.   (c)  Dividends and Dividend Equivalents.   (1)  General. The Committee shall have the authority to grant Dividend Equivalent Rights to Participants upon such terms and conditions as it shall establish, subject in all events to the following limitations and provisions of general application set forth in this Plan. Each Dividend Equivalent Right shall entitle a holder to receive, for a period of time to be determined by the Committee, a payment equal to the quarterly dividend declared and paid by the Company on one Share. If the right relates to a specific Option, the period shall not extend beyond the earliest of the date the Option is exercised, or the expiration date set forth in the Option.   (2)  Rights and Options. Each right may relate to a specific Option granted under this Plan and may be granted to the Participant either concurrently with the grant of such Option or at such later time as determined by the Committee, or each right may be granted independent of any Option.   (3)  Payments. The Committee shall determine at the time of grant whether payment pursuant to a right shall be immediate or deferred and if immediate, the Company shall make payments pursuant to each right concurrently with the payment of the quarterly dividend to holders of Common Shares. If deferred, the payments shall not be made until a date or the occurrence of an event specified by the Committee and then shall be made within 30 days after the occurrence of the specified date or event, unless the right is forfeited under the terms of the Plan or applicable Award Agreement.   (4)  Termination of Employment. In the event of Employment Termination, any Dividend Equivalent Right held by such Participant on the date of Employment Termination shall be forfeited, unless otherwise expressly provided in the Award Agreement.   (d)  Consideration for Awards. Subject to the requirements of the Maryland Act, the Company shall obtain such consideration for the grant of an Award under this Section 6 as the Committee in its discretion may determine.   7.  Adjustment Provisions.   If, prior to the complete exercise of any Option, or prior to the expiration or lapse of all of the restrictions and conditions imposed pursuant to a Restricted Share Award, there shall be declared and paid a dividend upon the Shares or if the Shares shall be split up, converted, exchanged, reclassified or in any way substituted for, then (i) in the case of an Option, the Option, to the extent that it has not been exercised, shall entitle the holder thereof upon the future exercise of the Option to such number and kind of securities or cash or other property subject to the terms of the Option to which he or she would have been entitled had he or she actually owned the Shares subject to the unexercised portion of the Option at the time of the occurrence of such dividend, split-up, conversion, exchange, reclassification or substitution, and the aggregate purchase price upon the future exercise of the Option shall be the same as if the originally optioned Shares were being purchased thereunder; (ii) in the case of Restricted Shares issued pursuant to a Restricted Share Award, the holder of such Award shall receive, subject to the same restrictions and other conditions of such Award as determined pursuant to the provisions of Section 6(b), the same securities or other property as are received by the holders of Shares pursuant to such dividend, split-up, conversion, exchange, reclassification or substitution; and (iii) in the case of a Dividend Equivalent Right, the holder of such Dividend Equivalent Right shall receive, the same securities or other property as are received by the holders of Shares pursuant to such dividend, and in the case of a split-up, conversion, exchange, reclassification or substitution, the Dividend Equivalent Right shall be adjusted, as the Committee determines consistent with the terms of such split-up, conversion, exchange, reclassification or substitution. Any fractional Shares or securities payable upon the exercise of the Option as a result of such adjustment shall be payable in cash based upon the Fair Market Value of such Shares or securities at the time of such exercise. If any such event should occur, the number of Shares with respect to which Awards remain to be issued, or with respect to which Awards may be reissued, shall be adjusted in a similar manner.   Notwithstanding any other provision of this Plan, in the event of a recapitalization, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or outstanding Shares, the Committee may make such equitable adjustments to the number of Shares and the class of shares available hereunder or to any outstanding Awards as it shall deem appropriate to prevent dilution or enlargement of rights.   8.  Acceleration.   Notwithstanding any other provision of this Plan to the contrary, all or any part of any remaining unexercised Options granted to any person may be exercised in the following circumstances (but in no event during the six month period commencing on the date granted) and all or any part of any other Award not theretofore vested shall vest: (i) with respect to Options only, immediately upon (but prior to the expiration of the term of the Option) retirement, (ii) subject to the provisions of Section 6, upon the permanent disability or death of the holder, or (iii) upon a Change in Control.   9.  Change in Control.   Should a Change in Control occur, then at the discretion of the Committee, all or any part of any remaining unexercised Options granted to any person hereunder may be repurchased. The repurchase price shall be an amount equal to the excess of (i) the Fair Market Value of the Share(s) subject to the Option(s) over (ii) the purchase price per Share, as set forth in the Option Agreement. The repurchase of such Options is specifically approved by the Board and, if necessary to exempt such surrender from Section 16(b) of the Exchange Act, the Board shall take any additional action necessary for such approval to comply with the requirements of Rule 16b-3(e) promulgated under the Exchange Act.   10.  Participant’s Agreement.   If, at the time of the exercise of any Option or the granting or vesting of an Award, in the opinion of counsel for the Company, it is necessary or desirable, in order to comply with any then applicable laws or regulations relating to the sale of securities, that the individual exercising the Option or receiving the Award shall agree to hold any Shares issued to the individual for investment and without any present intention to resell or distribute the same and that the individual will dispose of such Shares only in compliance with such laws and regulations, the individual will, upon the request of the Company, execute and deliver to the Company a further agreement to such effect.   11.  Withholding Taxes.   No Award may be exercised and no distribution of Shares or cash pursuant to an Award may be made under this Plan until appropriate arrangements have been made by the holder with the Company for the payment of any amounts that the Company may be required to withhold with respect thereto, which arrangements may include the tender of previously owned Shares or the withholding of Shares issuable pursuant to such Award.   12.  Termination of Authority to Make Grant.   No Awards will be granted pursuant to this Plan after the expiration of ten years from the Effective Date.   13.  Amendment and Termination.   The Board may from time to time and at any time alter, amend, suspend, discontinue or terminate this Plan or, with the consent of an affected holder, any outstanding Awards hereunder, provided, however, that no such action of the Board may, without the approval of the shareholders of the Company, alter the provisions of this Plan or outstanding Awards so as to (i) increase the maximum number of Shares which may be subject to Awards under this Plan (except as provided in Section 5(b)); or (ii) change the class of persons eligible to receive Awards; or (iii) amend this Plan in any manner that would require stockholder approval under Rule 16b-3 of the Exchange Act or under Code Section 162(m); or (iv) reduce the purchase price on an outstanding Option.   14.  Preemption by Applicable Laws and Regulations.   Notwithstanding anything in this Plan to the contrary, if, at any time specified herein for the making of any determination or payment, or the issuance or other distribution of Shares, any law, regulation or requirement of any governmental authority having jurisdiction in the premises shall require either the Company or the Participant (or the Participant’s beneficiary), as the case may be, to take any action in connection with any such determination, payment, issuance or distribution, the issuance or distribution of such Shares or the making of such determination or payment, as the case may be, shall be deferred until such action shall have been taken.   15.  Miscellaneous.   (a)  No Employment Contract. Nothing contained in this Plan shall be construed as conferring upon any Participant the right to continue in the employ, or as a Director or officer of or consultant to, of the Company or any Affiliate.   (b)  Employment or Service with Affiliates. Employment by, or service for, the Company for the purpose of this Plan shall be deemed to include employment by, or service for, any Affiliate.   (c)  No Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to Shares covered by the Participant’s Award until the date of the issuance of such Shares to the Participant pursuant thereto. No adjustment will be made for dividends or other distributions or rights for which the record date is prior to the date of such issuance.   (d)  Transfer Restrictions.   (1)  Limitations on Exercise and Transfer. Unless otherwise expressly provided in (or pursuant to) this Section 15(d), by applicable law and by the Award agreement, as the same may be amended, (A) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (B) Awards shall be exercised only by the Participant; and (C) amounts payable or Shares issuable pursuant to any Award shall be delivered only to (or for the account of) the Participant.   (2)  Exceptions to Limits on Transfer. The exercise and transfer restrictions in Section 15(d) shall not apply to:   (A)   transfers to the Company,   (B)   the designation of a beneficiary to receive benefits in the event of the participant’s death or, if the participant has died, transfers to or exercise by the participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution,   (C)   transfers by gift to “immediate family” as that term is defined in Rule 16a-1(e) promulgated under the Exchange Act or trusts for the benefit thereof,   (D)   if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative, or   (E)   the authorization by the Committee of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the express authorization of the Committee.   Notwithstanding the foregoing or anything in Section 15(d), ISOs and Restricted Stock Awards shall be subject to any and all additional transfer restrictions under the Code to the extent necessary to maintain the intended tax consequences of such awards. Notwithstanding clause (C) above but subject to compliance with all applicable laws, any contemplated transfer by gift to “immediate family” as referenced in clause (C) above is subject to the condition precedent that the transfer be approved by the Committee in order for it to be effective.   (e)  Governing Law; Construction. All rights and obligations under this Plan shall be governed by, and this Plan shall be construed in accordance with, the laws of the State of Maryland, without regard to the principles of conflicts of laws. Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any provisions of this Plan.  

  Exhibit 10.28 THE PAN PACIFIC HOTEL SAN FRANCISCO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS BETWEEN W2001 PAC REALTY, L.L.C., a Delaware limited liability company, AS SELLER AND ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a Delaware limited partnership, AS PURCHASER As of February 16, 2006   --------------------------------------------------------------------------------   PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS      THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this “Agreement”) is made as of February 16, 2006 (the “Effective Date”), by and between W2001 PAC REALTY, L.L.C., a Delaware limited liability company (“Seller”), and ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a Delaware limited partnership (“Purchaser”). W I T N E S S E T H:      A. Seller is the owner of the Property (defined below). The Property is located in the County of San Francisco, State of California.      B. Seller desires to sell the Property and Purchaser desires to purchase the Property, on the terms and conditions set forth in this Agreement.      NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Purchaser and Seller agree as follows: ARTICLE I PURCHASE AND SALE 1.1   Agreement of Purchase and Sale. Subject to the terms and conditions hereinafter set forth, Seller agrees to sell and convey and Purchaser agrees to purchase, all of Seller’s right, title and interest in and to the following: (a) Seller’s leasehold interest in the real property commonly known as 500 Post Street, San Francisco, California, as more particularly described on Schedule 1.1(a)(i) attached hereto, which leasehold interest is governed by that certain Indenture of Lease described on Schedule 1.1(a)(ii) attached hereto (as defined thereon, the “Ground Lease”), together with all of the right, title and interest of Seller pertaining to such leased real property, including without limitation all appurtenant rights, rights of way, easements, water or littoral rights, all rights to any minerals, oil, gas and other hydrocarbon substances, or any portion thereof and Seller’s right, title and interest in and to all streets, alleys, strips and gores abutting the real property (the property described in this clause (a) of Section 1.1 being herein referred to collectively as the “Land”); (b) the buildings, structures, fixtures and other improvements on the Land, including specifically, without limitation, that certain hotel commonly known as “The Pan Pacific Hotel San Francisco” (the “Hotel”), including without limitation any and all hotel rooms, meeting facilities, conference rooms, parking facilities, 2 --------------------------------------------------------------------------------   restaurants, spa and pool facilities (the property described in this clause (b) of this Section 1.1 being herein referred to collectively as the “Improvements”); (c) all tangible personal property owned by Seller and located upon the Land or within the Improvements and used solely in connection with the operation of the Land and Improvements, including, without limitation, appliances, furniture, furnishings, equipment, carpeting, draperies and curtains, tools and supplies, decorations, china, glassware, linens, silver, utensils, all vehicles (if any), and other items of personal property (excluding cash and deposit accounts) in all cases subject to (i) depletion, resupply, substitution, replacement and disposition in the ordinary course of business and (ii) the provision of subparagraph (g) below and the provisions of Section 4.4.7 regarding unopened inventories, but specifically excluding all personal property listed on Schedule 1.1(c) attached hereto, if any (the “Excluded Personal Property”) (the included property set forth in this Section 1.1(c) being herein referred to collectively as the “Personal Property”); (d) subject to Section 4.4 below, all contracts or reservations for the use of guest rooms, ballroom and banquet facilities, conference facilities, meeting rooms or other facilities of the Hotel or located within the Improvements (“Bookings”); (e) all assignable contracts and agreements (collectively, the “Service Contracts”) relating to the upkeep, repair, maintenance or operation of the Land, the Improvements or the Personal Property or other property used in connection with the operation of the Hotel which are (i) listed on Schedule 1.1(e)-1 attached hereto but excluding the Management Agreement (defined below) and any Service Contracts that are terminated on or before Closing pursuant to the terms of this Agreement, (ii) listed on Schedule 1.1(e)-2 (the “Equipment Leases”) and (iii) entered into after the Effective Date, which Seller is permitted to enter into under the terms of this Agreement. (f) (i) all assignable existing warranties and guaranties (expressed or implied) issued to Seller in connection with the Improvements or the Personal Property; (ii) all transferable names, marks, logos and designs, used in the operation or ownership of the Land, the Improvements or the Personal Property or any part thereof, if any, but specifically excluding the name “Pan Pacific” and all derivatives and cognates thereof and any logos or other identification or trade marks relating thereto; (iii) all transferable licenses, franchises and permits owned by Seller and used in or relating to the ownership, occupancy or operation of the Land, the Improvements or the Personal Property or any part thereof, subject to Purchaser’s compliance with any limitations or restrictions on transfer or assignment of any computer-related materials or software which are contained in any license or similar agreement; (iv) all assignable telephone numbers, TWX numbers, post office boxes, signage rights, utility and development rights and privileges, general intangibles, business records, site plans, surveys, 3 --------------------------------------------------------------------------------   environmental and other physical reports, plans and specifications pertaining to the Land and the Personal Property; and (v) all assignable websites and domains used exclusively for the Hotel, including access to the FTP files of the websites to obtain website information and content pertaining to the Hotel (the property described in this clause (f) of this Section 1.1 being herein referred to collectively as the “Intangibles”); (g) subject to Section 4.4.7 below, (i) all food and beverages (subject to any legal restrictions pertaining to the sale or transfer of alcoholic beverages); (ii) inventory held for sale to Hotel guests and others in the ordinary course of business including all opened and unopened retail inventory in any area at the Hotel conducting retail sales (collectively, “Retail Inventory”); (iii) engineering, maintenance and housekeeping supplies, including soap and cleaning materials, fuel and materials; stationery and printing items and supplies; and (iv) other supplies of all kinds, whether used, unused or held in reserve storage for future use in connection with the maintenance and operation of the Land, the Improvements or the Personal Property, in each case wherever located, together with any additions thereto prior to Closing (defined below) and subject to depletion, resupply, substitution, replacement and disposition in the ordinary course of business (all of the foregoing being referred to herein as the “Consumable Inventory” and, to the extent contained in unopened boxes, bottles, jars or containers of any type as of the Closing Date, shall collectively be referred to, together with unopened packages of china, glass, silver and linens, as the “Unopened Inventory”); (h) all leases for the lease and occupancy of space at the Hotel (collectively, the “Leases”) listed and described on Schedule 1.1(h) attached hereto and made a part hereof, including any deposits relating to such Leases held by Seller and not applied to the tenant’s obligations as of the Closing Date. For purposes of this Agreement, “Leases” do not include Bookings; (i) all accounts receivable of the Hotel and all related operations which are outstanding as of the Closing Date for not more than ninety (90) days (collectively, the “Receivables”) (with such receivables to be purchased by Purchaser at Closing for an amount equal to 100% of the amount of those accounts receivable as set forth on the Hotel’s most current balance sheet and are not included in the Purchase Price) (and Seller shall retain ownership of all receivables which are outstanding for more than ninety (90) days as of the Closing Date); (j) subject to Section 4.4.9 hereof, Seller’s interest in the funds contained in “house banks” for the Hotel as of the Cut-Off Time (defined in Section 4.4.10 below), whether held in the name of Seller, the Hotel or Manager and owned by Seller (collectively, the “House Bank Funds”). Purchaser expressly acknowledges 4 --------------------------------------------------------------------------------   and agrees that the Property to be transferred to Purchaser pursuant to this Agreement does not include any reserve or other accounts created or maintained by Seller or Manager in connection with the ownership or operation of the Hotel; and (k) files and records (including but not limited to all files and records relating to the Hotel and the development, operation, management, maintenance, repair, marketing and promotion thereof, such as financial records and statements, maintenance records, building plans, specifications and drawings, group and individual guest history records and all reservation and booking records for rooms and meeting space, regardless of whether such files and records are stored in paper form, on computer hard drive, computer disk, CD Rom, DVD or other medium). 1.2   Property Defined. (a) The Land and the Improvements are sometimes collectively referred to herein as the “Real Property” and the Real Property, the Personal Property, the Bookings, the Service Contracts, the Intangibles, the Consumable Inventory, the Leases, the Receivables and the House Bank Funds are hereinafter sometimes referred to collectively as the “Property”; provided that, the Purchase Price does not include, and shall be adjusted with respect to, the Receivables, the House Bank Funds, the Unopened Inventory and the other adjustment items described in Section 4.4 below. (b) Notwithstanding anything to the contrary in Section 1.1 or Section 1.2(a) above, the following items are expressly excluded from the Property: (i) All cash on hand or on deposit in any operating account or other account or reserve, except for security deposits held by Seller as landlord with respect to any Lease and the House Bank Funds which are to be transferred at Closing subject to the terms of this Agreement; (ii) The Excluded Personal Property; and (iii) Any tangible or intangible property (including, without limitations, fixtures, personal property or intellectual property) owned by (A) the supplier, vendor, licensor, lessor or other party under any Service Contracts, (B) the tenant under any Leases, (C) Manager, (D) any employees, (E) any guests or customers of the Hotel, or (F) any other third party. 1.3   Permitted Exceptions. The Property shall be conveyed subject to all matters which are, or are deemed to be, Permitted Exceptions pursuant to Article II hereof (collectively, the “Permitted Exceptions”). 5 --------------------------------------------------------------------------------   1.4   Purchase Price. Seller is to sell and Purchaser is to purchase the Property for a total of NINETY-FIVE MILLION AND NO/100 DOLLARS ($95,000,000) (the “Purchase Price”). 1.5   Payment of Purchase Price. (a) On the scheduled Closing Date (but in no event later than the Outside Closing Date (defined below), Purchaser shall deliver to Escrow Agent (defined below) by wire transfer an amount equal to the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, less the Earnest Money (as such term is defined below) previously delivered to Escrow Agent. (b) The Purchase Price, as increased or decreased by prorations and adjustments as herein provided, shall be payable in full at Closing in cash by wire transfer of immediately available federal funds to a bank account designated by Seller in writing to Purchaser and Escrow Agent prior to the Closing. 1.6   Earnest Money. (a) Within two (2) business days following the full execution of this Agreement by Seller and Purchaser, Purchaser shall deposit with Chicago Title Insurance Company (“Escrow Agent”) having its office at 700 South Flower, Suite 3305, Los Angeles, CA 90017, Attention: Marley Harrill, the sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000) (the “Earnest Money”) in good funds, either by certified bank or cashier’s check or by federal wire transfer. The full amount of the Earnest Money is deemed earned by Seller when delivered pursuant hereto by Purchaser and is fully non-refundable to Purchaser except in the event (A) of the Ground Lessor’s exercise of the right of first refusal set forth in Section 3.4, if applicable, or (B) that this Agreement is timely terminated as a result of Purchaser’s election to terminate strictly in accordance with and pursuant to Section 2.3(b), Section 4.6, Section 4.8, Section 6.2, or Section 7.2 below, in which case the full amount of the Earnest Money shall be refunded to Purchaser within two (2) business days after receipt of the notice of exercise of such right or notice of such termination. (b) [Intentionally Omitted]. (c) Escrow Agent shall hold the Earnest Money in an interest-bearing account in accordance with the terms and conditions of this Agreement. All interest accruing on such sums shall become a part of the Earnest Money and shall be distributed as Earnest Money in accordance with the terms of this Agreement. Notwithstanding any provision of this Agreement to the contrary, in no event shall Seller have any responsibility or liability to Purchaser in connection with the accrual or payment of interest on any portion of the Earnest Money. 6 --------------------------------------------------------------------------------   (d) Time is of the essence for the delivery of Earnest Money under this Agreement and the failure of Purchaser to timely deliver any portion of the same shall be a material default, and shall entitle Seller, at Seller’s sole option, to terminate this Agreement immediately and to pursue all remedies available to Seller under this Agreement and applicable law. 1.7   Escrow Instructions. The terms and conditions set forth in this Agreement shall constitute both an agreement between Seller and Purchaser and escrow instructions for Escrow Agent. Seller and Purchaser shall promptly execute and deliver to Escrow Agent any separate or additional escrow instructions requested by Escrow Agent that are consistent with the terms of this Agreement. Any separate or additional instructions shall not modify or amend this Agreement unless expressly set forth by the mutual consent of Seller and Purchaser and to the extent of any conflict between this Agreement and any such separate/additional instructions, the provisions of this Agreement shall control. 1.8   Management Agreement. Purchaser acknowledges that (i) the Hotel is being operated and managed by Pan Pacific Hotels and Resorts America Inc., a California corporation (the “Manager”) pursuant to that certain Management Agreement dated as of May 18, 2003, by and between Seller and Manager, as amended by that certain First Amendment to Management Agreement dated as of June 25, 2003 (collectively, as amended, the “Management Agreement”), and (ii) the Management Agreement will be terminated by Seller at Closing, at Seller’s sole cost and expense. 1.9   Assumed Liabilities. At Closing, to the extent and only to the extent either (a) arising or accruing after the Closing or (b) Purchaser receives a credit to the Purchase Price with respect to such Liabilities (as defined below) at Closing, Purchaser shall assume all liability, obligation, damage, loss, diminution in value, cost or expense of any kind or nature whatsoever, whether accrued or unaccrued, actual or contingent, known or unknown, foreseen or unforeseen (collectively, “Liabilities”) arising from, relating to, or in connection with the Property or the Hotel, including, without limitation, all Liabilities with respect to the condition of the Property (including, without limitation, the design, construction, engineering, maintenance and repair or environmental condition of the Property (collectively, the “Assumed Obligations”), but subject to Seller’s express representations and warranties in Section 5.1). In addition, at Closing Purchaser shall assume all obligations to pay for, and no proration shall be made or credit given for, any Consumable Inventory ordered by Seller or Manager in the ordinary course of business, but which has not been delivered to the Hotel or paid for as of the Closing Date. Seller and Purchaser agree that Purchaser is not assuming (and Seller shall remain responsible for) any other Liabilities arising or accruing during the period prior to the Effective Date arising from, relating to, or in connection 7 --------------------------------------------------------------------------------       with the Property or this Hotel, other than the Assumed Obligations. The parties’ rights and obligations under this Section 1.9 shall survive the Closing. ARTICLE II TITLE AND SURVEY 2.1   Title Report. Seller has obtained and delivered to Purchaser, a title report dated February 6, 2006 (Order No. 06-36902134-MB) (the “Title Report”) covering the Land and the Improvements from Chicago Title Company (the “Title Company”) (to be coordinated with both Seller and Purchaser’s title representatives) and, promptly following execution of this Agreement, shall deliver a copy of each document referenced in the Title Report as an exception to title to the Real Property. Purchaser shall deliver to Seller, within five (5) days after receipt by Purchaser, a copy of any updates (each a “Title Update”) to the Title Report. 2.2   Survey. Seller has obtained and delivered to Purchaser and the Title Company, at Purchaser’s expense, an ALTA survey of the Real Property prepared by Martin M. Ron Associates dated October 23, 2002 (Job No. S-5161) (the “Survey”). Purchaser may cause a licensed surveyor to update the Survey or prepare a new ALTA survey of the Real Property (“Updated Survey”), which Updated Survey shall be prepared at Purchaser’s expense. 2.3   Title and Survey Updates. (a) Except for Monetary Encumbrances (defined below), Purchaser has approved all matters disclosed by the Title Report and the Survey and all title exceptions and survey matters so disclosed shall constitute “Permitted Exceptions”. (b) Purchaser shall have five (5) days after receipt of a Title Update, if any, or Updated Survey to notify Seller, in writing, of such objections as Purchaser may have to anything contained in such Title Update or the Updated Survey. In the event Purchaser shall notify Seller, in writing, of objections to title or to matters shown on a Title Update or the Updated Survey, Seller shall have the right, but not the obligation, to cure such objections. Within five (5) days after receipt of Purchaser’s notice of objections, Seller shall notify Purchaser in writing whether Seller elects to attempt to cure any or all of such objections. If Seller elects to attempt to cure, Seller shall have the right to attempt to remove, satisfy or cure the same and for this purpose Seller shall, at Seller’s election, be entitled to a reasonable adjournment of the Closing if additional time is required, but in no event shall the adjournment exceed sixty (60) days after the Outside Closing Date. If Seller elects not to cure any objections specified in Purchaser’s notice, or if Seller is unable to effect a cure of those objections which it elected to cure prior to the Closing (or any date to which the Closing has been adjourned) and so notifies Purchaser in writing, or if Seller fails to respond to Purchaser’s notice within said 8 --------------------------------------------------------------------------------   ten (10) day period, Purchaser shall have the following options: (i) to accept a conveyance of the Property subject to the Permitted Exceptions and any matter objected to by Purchaser which Seller is unwilling or unable to cure (each of which shall also be deemed to be Permitted Exceptions), and without reduction of the Purchase Price; or (ii) only if the title exception is materially adverse to the ownership or operation of the Real Property, to terminate this Agreement by sending written notice thereof to Seller, and upon delivery of such notice of termination, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser, and thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If Seller notifies Purchaser that Seller does not intend to attempt to cure any title objection or fails to respond to Purchaser’s notice within said ten (10) day period; or if, having commenced attempts to cure any objection, Seller later notifies Purchaser in writing that Seller will be unable to effect a cure thereof; Purchaser shall, within five (5) days after such notice has been given, notify Seller in writing whether Purchaser shall elect to accept the conveyance under clause (i) or to terminate this Agreement under clause (ii). Purchaser’s failure to notify Seller of termination of this Agreement within such 5-day period shall be deemed to be an irrevocable election under clause (i) to accept conveyance of the Property. Notwithstanding any provision of this Agreement to the contrary, in no event shall Seller have any obligation to cure any title matter objected to by Purchaser; provided, however, if any of the objections (a) consist of delinquent taxes, mortgages, deeds of trust, security agreements, construction or mechanics’ liens, tax liens or other liens or charges in a fixed sum or capable of computation as a fixed sum and (b) were caused, assumed or created by Seller (collectively, “Monetary Encumbrances”), then, to that extent, Seller shall be obligated to pay and discharge (or cause the Title Company to insure over such objections) any such objections and Escrow Agent is authorized to pay and discharge at Closing such objections. 2.4   Conveyance of Title. At Closing, Seller shall convey and transfer to Purchaser its leasehold interest in the Land and fee title to the Improvements subject to the Permitted Exceptions. Notwithstanding anything contained herein to the contrary, the Real Property shall be conveyed subject to the following matters, all of which shall be deemed to be Permitted Exceptions: (a) the lien of all ad valorem real estate taxes and assessments not yet due and payable as of the Closing Date, subject to adjustment as herein provided; (b) local, state and federal laws, ordinances or governmental regulations, including but not limited to, building and zoning laws, ordinances and regulations, now or hereafter in effect relating to the Real Property; 9 --------------------------------------------------------------------------------   (c) items appearing of record or shown on the Survey and, in either case, not objected to by Purchaser or waived or deemed waived by Purchaser in accordance with Section 2.3 hereof; (d) the rights and interest of Ground Lessor (as defined below) under the Ground Lease; (e) the rights of Hotel guests which occupy the Hotel or have a reservation for rooms, food and beverages, meetings and other customary Hotel uses relating to periods subsequent to the Closing Date; (f) the 0.28 feet gap between the two parcels of the Property as disclosed on the Survey, if any such gap exists; and (g) the rights of the tenants under the Leases. 2.5   Title Policy. At Closing, Seller and Purchaser shall request that Title Company issue an ALTA owner’s title insurance policy Form B 1970 (“Title Policy”) to Purchaser in accordance with the Title Report, insuring Purchaser’s leasehold interest in and to the Real Property as of the Closing Date (with appropriate gap coverage to date of recordation, if applicable), subject only to the Permitted Exceptions. Purchaser may request the deletion of standard exceptions and issuance of endorsements to the Title Policy as may required by Purchaser, at Purchaser’s expense, but deletion of such matters and issuance of such endorsements (except with respect to Seller’s delivery of an owner’s affidavit in the form attached hereto as Exhibit J hereto, which delivery is an obligation of Seller hereunder) (the “Owner’s Affidavit”), shall not be a condition to Purchaser’s obligation to purchase the Property under this Agreement. ARTICLE III INSPECTION 3.1   Right of Inspection. Purchaser acknowledges that it (a) has completed its due diligence review of the Property, (b) is satisfied with such review in all respects, and (c) has no right to terminate this Agreement (or obtain a refund of the Earnest Money) in connection with any further diligence review or inspection. Notwithstanding the foregoing, beginning on the Effective Date, Purchaser shall, subject to the rights of the Manager under the Management Agreement, guests of the Hotel and the tenants under the Leases, have the right to make a physical inspection of the Real Property and to examine at such place or places at the Hotel or elsewhere as the same may be located, any operating files maintained by or for the benefit of Seller in connection with the leasing, operation, current maintenance and/or management of the Property (“Property Information”), including, without limitation, the Leases, the Service Contracts, insurance 10 --------------------------------------------------------------------------------       policies, bills, invoices, receipts and other general records relating to the income and expenses of the Hotel, correspondence, surveys, plans and specifications, warranties for services and materials provided to the Hotel, environmental audits and similar materials and any other documents relating to the Property in Seller’s or Manager’s possession or control, but excluding materials not directly related to the current maintenance and/or management of the Property such as, without limitation, Seller’s financial projections, forecasts, budgets, appraisals, accounting and tax records, internal memoranda, correspondence and reports and similar proprietary, elective or confidential information. Purchaser shall keep all Property Information strictly confidential, provided that Purchaser may deliver copies of Property Information to its attorneys, accountants and other advisors in connection with the acquisition of the Property and to current and prospective lenders and partners provided that such parties agree to maintain the confidentiality of such Property Information. Purchaser understands and agrees that any on-site inspections of the Property shall be conducted upon at least twenty-four (24) hours’ prior written notice to Seller. Seller may have its respective representatives attend any such inspections. Such physical inspection shall not disturb Hotel guests or tenants under the Leases nor unreasonably interfere with the use of the Property by Seller or Manager. Such physical inspection shall not be invasive in any respect (unless Purchaser obtains Seller’s prior written consent, which shall not be unreasonably withheld), and in any event shall be conducted in accordance with standards customarily employed in the industry and in compliance with all governmental laws, rules and regulations. Following each entry by Purchaser with respect to inspections and/or tests on the Real Property, Purchaser shall restore the Property to a condition which is as near to its original condition as existed prior to any such inspections and/or tests, at Purchaser’s sole cost and expense. Seller shall reasonably cooperate with Purchaser in its due diligence but shall not be obligated to incur any liability or expense in connection therewith. Purchaser shall not disrupt Seller’s or Manager’s or any tenant’s or guest’s activities on the Real Property and shall not contact Manager, any of its employees, or any other employees working at the Hotel, any guests of the Property, any party to an Operating Agreement, any tenants under the Leases or any governmental authority without (a) providing reasonable advance notice in writing to Seller describing the timing, nature, subject and means of any desired communication, (b) in each instance obtaining Seller’s prior written consent, and (iii) irrespective of whether Purchaser delivers such notice, providing Seller with the option to either attend or participate in any meetings, conversations or communications between Purchaser and such party or expressly waiving its right to do so in writing and Purchaser shall not communicate in any manner with any such party without satisfying the foregoing. Purchaser agrees to indemnify against, defend, protect and hold Seller harmless from and against any claim for liabilities, losses, costs, expenses (including reasonable attorneys’ fees actually incurred), damages or injuries arising out of or resulting from or in connection with the inspection of the Property by Purchaser 11 --------------------------------------------------------------------------------   or its agents, employees, representatives, consultants or contractors and notwithstanding anything to the contrary in this Agreement, such obligation to indemnify, defend, protect and hold harmless Seller shall survive Closing or any termination of this Agreement. All inspections shall occur at reasonable times agreed upon by Seller and Purchaser. Purchaser agrees (i) that prior to entering the Property to conduct any inspection, Purchaser shall obtain and maintain, and shall cause each of its contractors and agents to maintain (and shall deliver evidence satisfactory to Seller thereof), at no cost or expense to Seller, commercial general liability insurance from an insurer reasonably acceptable to Seller in the amount of One Million Dollars ($1,000,000) with combined single limit for personal injury or property damage per occurrence, such policies to name Seller as an additional insured party, which insurance shall provide coverage against any claim for personal injury or property damage caused by Purchaser or its agents, representatives or consultants in connection with any such tests and investigations, and (ii) to keep the Property free from all liens and encumbrances. Purchaser’s insurance may not be canceled or amended except upon thirty (30) days’ prior written notice to Seller. 3.2   Seller Due Diligence Materials. PURCHASER ACKNOWLEDGES THAT INFORMATION RELATED TO THE PROPERTY CONTAINED IN THE SECURE WEBSITE (THE “E-ROOM”) TO WHICH PURCHASER HAS PREVIOUSLY BEEN GRANTED ACCESS HAS BEEN MADE AVAILABLE TO PURCHASER IN THE E-ROOM BY SELLER. BY EXECUTING THIS AGREEMENT, PURCHASER ACKNOWLEDGES ITS RECEIPT THEREOF OR THE AVAILABILITY OF IT THEREOF AND THAT (1) PURCHASER HAS RECEIVED COPIES OF THE ENVIRONMENTAL, ENGINEERING, SOILS AND OTHER REPORTS REGARDING THE CONDITION OF THE PROPERTY (COLLECTIVELY, THE “REPORTS”) LISTED ON SCHEDULE 3.2 ATTACHED HERETO, (2) IF SELLER DELIVERS ANY ADDITIONAL REPORTS OR OTHER DOCUMENTS TO PURCHASER, PURCHASER WILL ACKNOWLEDGE IN WRITING THAT IT HAS RECEIVED SUCH REPORTS OR OTHER DOCUMENTS PROMPTLY UPON RECEIPT THEREOF, AND (3) ANY REPORTS OR OTHER DOCUMENTS DELIVERED OR TO BE DELIVERED BY SELLER OR ITS AGENTS OR CONSULTANTS TO PURCHASER ARE BEING MADE AVAILABLE SOLELY AS AN ACCOMMODATION TO PURCHASER AND WITHOUT ANY REPRESENTATION OR WARRANTY OF SELLER AS TO THEIR ACCURACY OR COMPLETENESS OF FACTS OR OPINIONS SET FORTH THEREIN EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.1 AND THAT ANY RELIANCE BY PURCHASER ON SUCH REPORTS OR OTHER DOCUMENTS IN CONNECTION WITH THE PURCHASE OF THE PROPERTY IS UNDERTAKEN AT PURCHASER’S SOLE RISK. PURCHASER AGREES THAT SELLER SHALL HAVE NO LIABILITY OR OBLIGATION WHATSOEVER FOR ANY INACCURACY IN OR OMISSION 12 --------------------------------------------------------------------------------   FROM THE OFFERING MATERIALS PREPARED IN CONNECTION WITH THE SALE OF THE PROPERTY OR ANY REPORT OR OTHER DOCUMENTS MADE AVAILABLE TO PURCHASER OR ITS REPRESENTATIVES SUBJECT TO SELLER’S REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 5.1. PURCHASER HAS CONDUCTED ITS OWN INVESTIGATION OF THE CONDITION OF THE PROPERTY TO THE EXTENT PURCHASER DEEMS SUCH AN INVESTIGATION TO BE NECESSARY OR APPROPRIATE. For purposes of this Agreement, the term “Seller Due Diligence Materials” shall mean (i) the Reports, the Property Information and all other documents and materials provided or otherwise made available by Seller to Purchaser pursuant to Section 3.1 and the other provisions of this Agreement or otherwise, together with any copies or reproductions of such documents or materials, or any summaries, abstracts, compilations, or other analyses made by Purchaser based on the information in such documents or materials, and (ii) all information set forth in this Agreement and the exhibits and schedules attached hereto and hereby made a part hereof. 3.3 [Intentionally Deleted.] 3.4   Olympic Club Right of First Refusal. Seller and Purchaser acknowledge that the Closing of this transaction, and the respective rights and obligations of the parties relating to the consummation of the purchase of the Property by Purchaser, may be subject and subordinate to the rights and interests of The Olympic Club, a California nonprofit corporation (“Ground Lessor”), under the right of first refusal provisions set forth in Section 9.3. of the Ground Lease. In the event that Seller is unable to obtain Ground Lessor’s execution of the Fourth Amendment to Lease (as defined below) by such time, Seller shall deliver written notice to Ground Lessor of the potential sale of the Property under this Agreement within two (2) business days following the complete execution and delivery of this Agreement by Seller and Purchaser. Seller has delivered notice of its intent to sell the Property in a written notice to Ground Lessor dated December 2, 2005. Seller believes that the period in which the Ground Lessor could exercise its right of first refusal period has lapsed and Ground Lessor’s rights have been deemed waived pursuant to Section 9.3 of the Ground Lease, but does not make any representations or warranties in regard to any aspect of Ground Lessor’s right of first refusal. ARTICLE IV CLOSING 4.1   Time and Place. Subject to the provisions of Sections 4.6 and 4.7 below, the consummation of the transaction contemplated hereby (“Closing”), as evidenced by the payment and release of the Purchase Price to Seller, shall occur on or 13 --------------------------------------------------------------------------------   before 12:00 p.m. (local time at the Real Property) April 4, 2006 (“Outside Closing Date”) (with the actual date of Closing being referred to herein as the “Closing Date”). The Closing shall occur through an escrow administered by Escrow Agent with the Purchase Price and all documents (unless otherwise mutually agreed) shall be deposited with the Escrow Agent as escrowee. If requested by Seller, a pre-closing shall be held one (1) business day preceding the scheduled Closing Date at the offices of Paul, Hastings, Janofsky & Walker LLP, 515 South Flower Street, 25th Floor, Los Angeles, California 90071. At Closing, Seller and Purchaser shall perform the obligations set forth in, respectively, Section 4.2 and Section 4.3, the performance of which obligations shall be concurrent conditions. Seller and Purchaser acknowledge that, if a “special” recording is not available, the Closing shall occur to pursuant to a “gap closing” whereby the Assignment of Ground Lease (defined below) is recorded after the Closing Date. 4.2   Seller’s Closing Obligations and Deliveries. At Closing, Seller shall through Escrow Agent make the following deliveries and take the following actions (with each item to be delivered to Escrow Agent not later than one (1) business day prior to the scheduled Closing Date or, if applicable, at the pre-closing described in Section 4.1 above): (a) Execute and deliver to Purchaser two (2) original counterparts of an assignment of Seller’s interest in the Ground Lease subject to the Permitted Exceptions (the “Assignment of Ground Lease”) in the form attached hereto as Exhibit A; (b) Execute and deliver to Purchaser one (1) original grant deed in the form attached hereto as Exhibit B and made part hereof, conveying fee title in and to the Improvements subject to the Permitted Exceptions, together with any required real estate transfer tax declarations or any other similar documentation required to evidence the payment of any tax imposed by the State of California, the County of San Francisco or the City of San Francisco on the transaction contemplated hereby; (c) Execute and deliver to Purchaser two (2) original counterparts of a bill of sale in the form attached hereto as Exhibit C and made a part hereof conveying the Personal Property and Consumable Inventory without warranty of title or use and without warranty, expressed or implied, as to merchantability and fitness for any purpose but subject to the representations and warranties of Seller expressly set forth in Section 5.1 of this Agreement; (d) Execute and deliver to Purchaser two (2) original counterparts of an assignment of Seller’s interest in the Service Contracts, the Bookings and the other Intangibles (in each case to the extent assignable) (“Assignment of Contracts”) in the form attached hereto as Exhibit D and made a part hereof; 14 --------------------------------------------------------------------------------   (e) Execute and deliver to Purchaser two (2) original counterparts of an assignment of Seller’s interest in the Leases in the form attached hereto as Exhibit E and made a part hereof; (f) Deliver to Purchaser a certificate, dated as of the Closing Date and executed on behalf of Seller by a duly authorized officer thereof, stating that the representations and warranties of Seller contained in this Agreement are true and correct in all material respects as of the Closing Date (with appropriate modifications of those representations and warranties made in Section 5.1 hereof to reflect any changes therein including without limitation any changes resulting from actions under Section 5.4 hereof) or identifying any representation or warranty which is not, or no longer is, true and correct and explaining the state of facts giving rise to the change. In no event shall Seller be liable to Purchaser for, or be deemed to be in default hereunder by reason of, any breach of representation or warranty which results from any change that (i) occurs between the Effective Date and the Closing Date and (ii) is permitted under the terms of this Agreement or is beyond the reasonable control of Seller to prevent; provided, however, any of the foregoing (other than those that are permitted under the terms of this Agreement) shall, if materially adverse to Purchaser, constitute the non-fulfillment of the condition set forth in Section 4.6(a). If, despite changes or other matters described in such certificate, the Closing occurs, Seller’s representations and warranties set forth in this Agreement shall be deemed to have been modified by all statements made in such certificate; (g) Deliver to Purchaser and the Title Company such evidence as the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Seller; (h) Deliver to Purchaser an affidavit duly executed by Seller stating (i) that Seller is not a “foreign person” as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act, and (ii) satisfying the requirements of California Form 593-W under California law disclosure requirements, in the form attached hereto as Exhibit F and made a part hereof; (i) If not already delivered to Purchaser, deliver to Purchaser, originals of the Leases, the Service Contracts and the licenses and permits, if any, in the possession of Seller or Seller’s agents, together with such leasing and property files and records which are material in connection with the continued operation, leasing and maintenance of the Property and any keys to security deposit boxes. For a period of seven (7) years after Closing in case of Seller’s need in response to any legal requirement, a tax audit, tax return preparation or litigation threatened or brought against Seller, Purchaser shall allow Seller and its agents or representatives access, upon reasonable advance notice (which notice shall identify the nature of the information sought by Seller), at all reasonable times to 15 --------------------------------------------------------------------------------   examine and make copies of any and all instruments, files and records, which right shall survive the Closing; (j) Deliver to the Escrow Agent an executed closing statement consistent with this Agreement and in a customary form; (k) Deliver two (2) original copies of the Designation Agreement (defined below); (l) Deliver such additional documents as shall be reasonably required to consummate the transaction expressly contemplated by this Agreement; (m) Deliver to Manager a notice which has the effect of terminating the Management Agreement and Manager’s management of the Hotel to be effective as of the Closing Date; (n) Deliver the certificate(s)/registration of title for any vehicle owned by Seller and used in connection with the Property; (o) Deliver to Title Company the Owner’s Affidavit; (p) Deliver written notice executed by Seller notifying all interested parties, including, without limitation, all tenants under the Leases, that the Property has been conveyed to Purchaser and directing all payments, inquiries and the like be forwarded to Purchaser at the address to be provided by Purchaser; and (q) Deliver to Purchaser possession and occupancy of the Property subject to the Permitted Exceptions. 4.3   Purchaser’s Closing Obligations and Deliveries. At Closing, Purchaser shall through Escrow Agent make the following deliveries and take the following actions (with each item to be delivered to Escrow Agent on the Closing Date as to the Purchase Price, and not later than one (1) business day prior to the scheduled Closing Date or, if applicable, at the pre-closing described in Section 4.1 above as to all the other items): (a) Pay to the Escrow Agent the full amount of the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, in immediately available wire transferred funds pursuant to Section 1.5 above, it being agreed that at Closing the Earnest Money shall be applied towards payment of the Purchase Price; (b) Join Seller in execution of (or deliver original executed counterparts of) the instruments described in clauses (a), (d), (e), (j), (k), and (l) of Sections 4.2 above; 16 --------------------------------------------------------------------------------   (c) Deliver to Seller a certificate, dated as of the Closing Date and executed on behalf of Purchaser by a duly authorized officer thereof, stating that the representations and warranties of Purchaser contained in this Agreement are true and correct in all material respects as of the Closing Date; (d) Deliver to Seller and Title Company such evidence as Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Purchaser; and (e) Deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement. 4.4   Prorations, Credits and Other Adjustments. At Closing, Purchaser and Seller shall prorate all items of income and expense which are customarily prorated between a purchaser and seller for hotel properties comparable to the Hotel including, without limitation, the prorations and other adjustments provided below, and the net amount consequently owing to Seller or Purchaser shall be added to or subtracted from the proceeds of the Purchase Price payable to Seller at Closing. Beginning as close to the anticipated Closing Date as practicable, Seller shall, in consultation with Purchaser and with Purchaser’s reasonable cooperation, cause to be prepared a prorations and credit statement (the “Preliminary Statement”) which shall reflect all of the prorations, credits and other adjustments to the Purchase Price at Closing required under this Section 4.4 or under any other provision of this Agreement. As soon as Purchaser and Seller have agreed upon the Preliminary Statement, they shall jointly deliver a mutually signed copy thereof to Escrow Agent. To the extent Purchaser and Seller are unable to agree by Closing on any item on the Preliminary Statement, Seller’s estimation of such item shall be used and such item shall be finally resolved on the Final Statement (defined below) pursuant to Section 4.4.14 below.      4.4.1 Proration of Taxes. All real estate ad valorem taxes, general assessments and special assessments and all personal property ad valorem taxes assessed against the Hotel (generically, “Taxes”) and payable during the tax year commencing July 1, 2005 and ending June 30, 2006 shall be prorated between Purchaser and Seller as of the Closing Date. Taxes for all subsequent tax years shall be the responsibility of Purchaser. Seller retains the right to commence, continue and settle any proceeding to contest any taxes for any taxable period which encompasses any period prior to the date of the Closing, and shall be entitled to any refunds or abatements of Taxes awarded in such proceedings.      4.4.2 General Proration of Expenses. (a) The following items of expense with respect to any portion or aspect of the Hotel shall be prorated between Seller and Purchaser as of the Closing Date: 17 --------------------------------------------------------------------------------   (i) All charges and expenses under any Service Contracts. (ii) All utility charges (but excluding any utility deposits). To the extent reasonably practicable, though, in lieu of prorating the charges for any metered utility service, Purchaser and Seller shall endeavor to have the utility read the meter as early as possible on the Closing Date, render a final bill to Seller based on such reading and bill all subsequent service to Purchaser. (iii) Prepaid expenses of the Hotel, excluding insurance and advertising which incorporates the Pan Pacific name but including without limitation, (1) amounts incurred to pay for natural gas held in storage pending use at the Hotel and (2) the expense of all licenses and permits obtained in connection with the operation of the Hotel. (iv) All base, percentage or other rental payable under the Ground Lease for the lease month and/or year in which the Closing occurs. (v) All other Hotel operating expenses, other than employment expenses (which are covered by Section 4.4.3 below). 4.4.3 Employment Expenses. Seller shall pay to all Hotel Employees (as defined below), upon their termination of employment by Seller at or prior to Closing, all salaries and employment benefits for unused vacation, holiday, sick leave, and personal days that are accrued prior to the Date of Closing, and Purchaser shall have no obligation to such Hotel Employees with respect to such accrued salaries and benefits, even if such employees are Rehired Employees (as defined in Section 5.8). Purchaser shall pay the salaries and related benefits that are payable to any Hotel Employees for work performed at the Hotel on the Date of Closing, whether prior to or following the time of Closing, regardless of whether such persons are employees of Seller or Purchaser. 4.4.4 Hotel Revenues. (a) At Closing, Seller and Purchaser shall share equally all revenues from the Hotel guest rooms and facilities occupied on the evening immediately preceding the Closing Date, including any sales taxes, room taxes, occupancy taxes and other taxes charged to guests in such rooms, all parking charges, sales from mini-bars, in-room food and beverage, telephone, facsimile and data communications, in-room movie, laundry, 18 --------------------------------------------------------------------------------   and other service charges allocable to such rooms with respect to the evening immediately preceding the Closing Date. All revenues from restaurants, lounges, vending machines and other service operations conducted at the Property shall be allocated based on whether the same accrued before or after the Cut-Off Time as described in the preceding sentence, and Seller shall cause the Manager to separately record sales occurring before and after the Cut-Off Time at the Property. The foregoing amounts are referred to collectively as “Guest Revenues”. Notwithstanding the foregoing, all revenues from any bars and lounges at the Property shall be prorated based on the actual closing time for such bar or lounge. For example, if such bar or lounge closes at 2 a.m. on the Closing Date, Seller shall retain the revenues from such services and operations even though such revenues were generated two (2) hours after the Cut-Off Time. (b) Revenues from conferences, receptions, meetings, and other functions occurring in any conference, banquet or meeting rooms in the Hotel, or in any adjacent facilities owned or operated by Seller, including usage charges and related taxes, food and beverage sales, valet parking charges, equipment rentals, and telecommunications charges, shall be allocated between Seller and Purchaser, based on when the function therein commenced, with (i) one-day functions commencing prior to the Cut-Off Time being allocable to Seller, (ii) functions commencing after the Cut-Off Time being allocable to Purchaser, and (iii) multi-day functions being allocated between Seller and Purchaser according to when the event commences and is scheduled to end. The foregoing amounts are referred to collectively as “Conference Revenues.” (c) At Closing, all Receivables not actually collected by Seller or Manager prior to the Cut-Off Time shall be assigned to Purchaser and Seller shall receive a proration credit in an amount equal to 100% of face value of such receivables as set forth on Manager’s books including, without limitation, receivables accrued in connection with hotel reservations, the use of guest rooms, banquet and meeting room receivables (including any cancellation fees due to Seller in connection with any of the foregoing) as reflected on the city ledger, guest ledger or any other receivable ledger. Purchaser shall have no right to any adjustment to the prorations with respect to the Receivables on or after Closing, for inability to collect outstanding Receivables or otherwise and Seller shall retain all Receivables which are outstanding more than ninety (90) days as of the Closing Date (a “Delinquent Receivable”) and shall be permitted to take such action to collect any Delinquent Receivables as Seller may determine in its reasonable discretion. In the event that Purchaser or Manager receive any payments made in connection with any 19 --------------------------------------------------------------------------------   Delinquent Receivables, Purchaser shall pay (or cause Manager to pay) such amounts to Seller within thirty (30) days of receipt. (d) Any operating revenues not otherwise provided for in this Section 4.4, shall be prorated between Purchaser and Seller as of Closing.      4.4.5 Rent. Rent and other payments payable by tenants, licensees, concessionaires, and other persons using or occupying the Real Property or any part thereof under a Lease or otherwise, if any, for or in connection with such use or occupancy, including, without limitation, fixed monthly rentals, additional rentals, percentage rentals, escalation rentals, retroactive rentals, operating cost pass-throughs, common area maintenance charges, HVAC charges, payments of taxes and insurance expenses, promotional/marketing charges, construction receivables and other sums and charges payable by the tenants under the Leases (collectively, “Rent”) shall be prorated as of the Closing such that Seller will be entitled to Rent attributable to periods prior to the Closing and Purchaser will be entitled to Rent attributable to periods from and after the Closing, all as more particularly set forth below: (a) All Rent, other than Percentage Rent (as defined below), owed under the Leases for the month in which the Closing occurs (“Current Rent”) shall be prorated as of the Closing Date; provided, however, that Current Rent shall not include Rent for any tenant that is more than thirty (30) days past due in the payment of fixed monthly Rent. (b) All Rent other than Current Rent (“Rent Arrears”) shall not be prorated at Closing. In the event that either Purchaser or Seller receives Rent from a tenant after the Closing Date, such Rent shall be applied in the following order of priority (after deduction of actual out-of-pocket costs of collection paid by Purchaser to third parties): (a) first to current rent due to Purchaser, (b) second to delinquent rent due to Purchaser, and (c) thereafter to Rent Arrears due to Seller from such tenant. Any sums owed to Seller pursuant to the foregoing shall be paid by Purchaser within thirty (30) days following receipt by Purchaser. Seller’s rights to Rent Arrears shall terminate as of the first anniversary of the Closing Date. Purchaser shall pursue all Rent Arrears in the ordinary course of business (but under no circumstances shall have any liability to Seller for its failure to pursue such Rent Arrears) and shall have the right to negotiate settlements with tenants who have Rent Arrears as it may determine in good faith; provided that, at its sole cost and expense (x) Seller shall have the unrestricted right to pursue collection from any tenant not in possession of its space as of the 20 --------------------------------------------------------------------------------   Closing Date in Seller’s sole discretion including, without limitation, initiating and prosecuting a lawsuit against the applicable tenant, and (y) in the event that after Closing Purchaser evicts or otherwise terminates the possession of any tenant with Rent Arrears, if Purchaser has neither released the tenant nor pursued eviction to judgment, Seller shall have the unrestricted right to pursue collection from such tenant in Seller’s sole discretion including, without limitation, initiating and prosecuting a lawsuit against the applicable tenant. Should Seller take the action permitted in either item (x) or (y), Purchaser shall be relieved of and shall have no obligation to pursue the applicable Rent Arrears. (c) Percentage rent or overage rent (referred to herein as “Percentage Rent”) under the Leases shall be prorated between Purchaser and Seller on a Lease by Lease basis with Seller entitled to the portion of total Percentage Rent paid under each Lease for the portion of the current Lease Year (as defined below) in which the Closing occurs (the “Subject Lease Year”) occurring prior to the Closing Date and Purchaser being entitled to the balance of Percentage Rent for the remainder of the Subject Lease Year, based on the monthly accruals of Percentage Rents under the Leases for the period through the month in which the Closing Date occurs, with an adjustment to be made post-closing to account for any Percentage Rent attributable to the month in which the Closing Date occurs. As used herein, the term “Lease Year” means the twelve (12) month period (or, as to tenants for which the Closing occurs during a partial Lease Year, such applicable shorter period) as to which annual Percentage Rent is owed under each Lease.      4.4.6 Hotel Payables. At Closing, Purchaser shall receive a proration credit equal to the excess of (a) the aggregate estimated amount of all outstanding accounts payable for the Hotel as of the Closing Date (“Hotel Payables”) in the Preliminary Statement over (b) Purchaser’s prorated share of such Hotel Payables under Section 4.4.2, and Purchaser shall assume the obligation to satisfy all Hotel Payables. After Closing, before paying any amount invoiced or otherwise claimed by a third party due with respect to the Hotel operations prior to Closing which is not included on such schedule (or is claimed in an amount larger than that shown on such schedule), Purchaser shall first submit such invoice or claim to Seller. Unless Seller, within ten (10) days after receiving such submission, objects to such invoice or claim (thereby making it a “Seller Disputed Payable”), Purchaser may pay the same and take a credit for such payment on the Final Statement. Notwithstanding the foregoing, upon Closing Purchaser shall assume all obligations of Seller to pay for any (i) consumables or other items ordered by 21 --------------------------------------------------------------------------------   or for the benefit of Seller in the ordinary course of business but which are not yet received as of the Closing Date, and (ii) items or services listed on a purchase order log prepared by Manager, which list shall be updated by Manager immediately prior to Closing; provided that, there shall not be any adjustment to the Purchase Price in connection with Purchaser’s assumption of the liabilities described in clauses (i) and (ii) of this sentence.      4.4.7 Credit for Certain Inventories. As of the date immediately prior to the Closing Date, Seller and Purchaser shall jointly conduct or cause the Manager to conduct an inventory of all (a) Unopened Inventory, and (b) all Retail Inventory in the Hotel gift shop, spa, fitness center or any other area at the Hotel conducting retail sales, and shall deliver a written report thereon to Seller and Purchaser. Such report shall reflect the cost of the Unopened Inventory and the Retail Inventory at the acquisition cost thereof. On account of Purchaser’s purchase of the Unopened Inventory and the Retail Inventory, Seller shall receive a credit at Closing in an amount equal to the total cost of the Unopened Inventory and the Retail Inventory, as reflected in such report.      4.4.8 Credit for Reservation Deposits. Purchaser shall receive a proration credit equal to the aggregate amount of advance deposits that shall have been received by Seller prior to the Cut-Off Time on account of reservations for use or occupancy of the Property after the Cut-Off Time.      4.4.9 Credit for Cash Banks. Seller shall receive a credit at Closing in an amount equal to all House Bank Funds.      4.4.10 Regarding Hotel Prorations Generally. Unless this Section 4.4 expressly provides otherwise: (A) all prorations hereunder with respect to the Hotel shall be made as of 12:00:01 a.m., local time (for the Hotel) (“Cut-Off Time”) on the Closing Date, (B) all prorations shall be made on an actual daily basis, and (C) for purposes of such prorations, all items of revenue and expense with respect to the Hotel’s operations shall be classified and determined in accordance with the Uniform System of Accounts for the Lodging Industry, as reasonably modified by Manager for use at the Hotel consistent with past practices and otherwise in accordance with generally accepted accounting principles. Except as otherwise expressly provided herein, in any case in which Purchaser receives a credit at Closing on account of any obligation of Seller hereunder, Seller shall have no further liability for such obligation to the extent of the credit so given, and Purchaser shall pay and discharge the same.      4.4.11 Vouchers. Purchaser shall (a) honor all outstanding unexpired gift certificates, coupons or other writings issued by Seller set forth in Schedule 4.4.11 attached hereto and incorporated herein by this reference that entitles the holder or bearer thereof to a credit (whether in a specified dollar amount as for a specified item, such as room night or meals) to be applied against the usual charge for 22 --------------------------------------------------------------------------------   rooms, meals and/or goods and services at the Hotel (collectively, “Vouchers”) and shall assume all liability, if any, for all outstanding Vouchers as of the Closing Date regardless of any purported expiration, (b) receive a credit against the Purchase Price payable at Closing as set forth in Schedule 4.4.11 attached hereto and incorporated herein by this reference, as updated as of the Closing Date, but Purchaser shall not receive a credit for any complimentary or discounted room nights or Hotel or spa goods or services to the extent issued by either the sale office or the executive office, and (c) indemnify, defend and hold Seller harmless from and against all claims, liabilities, costs and expenses arising out of the Vouchers from and after the Closing Date.      4.4.12 Utility and Other Deposits.           (a) At Closing, Seller shall receive a credit for all refundable cash or other deposits posted with utility companies serving the Property or any governmental agencies or authorities or posted pursuant to any Operating Agreement, or, at Seller’s option, Seller shall be entitled to receive and retain such refundable cash and deposits.           (b) Purchaser shall be entitled to a credit for all unapplied and refundable security and other deposits retained by Seller as of the Closing Date with respect to any Leases at the Hotel.      4.4.13 Final Statement; Post-Closing Adjustments. Except for prorations for real estate taxes and other assessments, which shall be adjusted within fifteen (15) business days of receipt of the tax bill for the tax year in which the Closing occurs, Purchaser and Seller shall make a one-time post-Closing adjustment of any item of income and expense subject to adjustment as provided above which was either incomplete or incorrect (whether as a result of an error in calculation or a lack of complete and accurate information) as of the Closing. Purchaser will prepare and deliver to Seller for its review and approval a statement of prorations (the “Final Statement”) within forty-five (45) days following the Closing Date, and the party in whose favor the original incorrect adjustment or error was made (“Adjusting Party”) shall pay to the other party (“Requesting Party”) the sum necessary to correct such prior incorrect adjustment or error within ten (10) days after completion of the Final Statement. Notwithstanding any provision of this Agreement to the contrary, all items required to be adjusted pursuant to this Section 4.4 shall be adjusted within sixty (60) days of Closing (except real estate taxes, which shall be re-adjusted within the period set forth above), and such adjustment shall be final and no further adjustment to the prorations or the Purchase Price shall be made.      4.4.14 Resolution of Disputes. In the case of a dispute, the parties shall attempt to resolve such dispute, but if for any reason such dispute is not resolved by the date that is thirty (30) days after the delivery of the original notice of the 23 --------------------------------------------------------------------------------   claimed adjustment by Purchaser or Seller, but not to exceed sixty (60) days after Closing, then the parties shall submit such dispute to PricewaterhouseCoopers, LLC (“Outside Accountants”), and the determination of the Outside Accountants, which shall be made within a period of fifteen (15) days after such submittal by the parties, shall be conclusive. The fees and expenses of the Outside Accountants shall be paid equally by Purchaser and Seller. At such time as the amount of any adjustment or dispute shall be determined (either by agreement or by determination of the Outside Accountants), any amount that shall be payable by the Requesting Party to the Adjusting Party as a result of such adjustment or determination shall be paid within ten (10) business days after the date on which such agreement or determination shall have been made.      4.4.15 Seller Tax Appeal. Purchaser acknowledges that Seller has a pending appeal of the real property tax assessment for tax years related to the period of Seller’s ownership of the Real Property, and that Seller may take related action which Seller deems appropriate in connection therewith. Purchaser shall cooperate with Seller in connection with such appeal (at Seller’s expense if requested by Seller) and collection of a refund of real property taxes paid. Seller owns and holds (and shall retain following the Closing) all right, title and interest in and to such appeal and refund, and all amounts payable in connection therewith shall be paid directly to Seller by the applicable authorities. If such refund or any part thereof is received by Purchaser, Purchaser shall promptly pay such amount to Seller. Any refund received by Seller (or Purchaser in connection with any appeal initiated by Seller) shall be distributed as follows (subject, however, to any conflicting provisions of any Lease): first, to reimburse Seller for all costs incurred in connection with the appeal; second, with respect to refunds payable to tenants of the Real Property pursuant to the Leases, to such tenants in accordance with the terms of such Leases; and third, to Seller to the extent such appeal covers the period prior to the Closing Date, and to Purchaser to the extent such appeal covers the period as of the Closing Date and thereafter. Purchaser shall have the right to direct any appeal of the real property tax assessment, if any, for the tax years occurring after the Closing Date.      4.4.16 The provisions of this Section 4.4 shall survive Closing. 4.5   Closing Costs. Seller shall pay (a) the fees of any counsel representing it in connection with this transaction, and (b) the documentary transfer tax or conveyance tax payable by reason of the transfer of the Real Property. Purchaser shall pay (i) the fees of any counsel representing Purchaser in connection with this transaction, (ii) 100% of the (A) premium for the Title Policy, (B) cost of any endorsements to the Title Policy, and (C) cost of any title insurance provided to Purchaser’s lender, (iii) the cost of the Updated Survey (and any update thereto), (iv) all bulk sales taxes, sales tax on the sale of the Personal Property (or any part thereof) and any taxes other than those required to be paid by Seller as set forth 24 --------------------------------------------------------------------------------   above, (v) any escrow fees charged by the Escrow Agent, and (vi) the fees for recording the Assignment of Ground Lease and any other recordable documents. All other costs and expenses incident to this transaction and the closing thereof shall be paid in a manner consistent with custom for similar transactions in San Francisco, California. Notwithstanding the foregoing, in the event that this Agreement is terminated as a result of a party’s default, such defaulting party shall pay all escrow and title cancellation fees charged in connection with such cancellation. 4.6   Conditions Precedent to Obligation of Purchaser. The obligation of Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by Purchaser in its sole discretion: (a) All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date (with appropriate modifications permitted under this Agreement or not materially adverse to Purchaser). (b) Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Seller as of the Closing Date. (c) Ground Lessor shall have executed and delivered that certain Fourth Amendment to Indenture of Lease (“Fourth Amendment to Lease”) in substantially the form attached hereto as Exhibit H. (d) Seller shall have delivered to Purchaser an executed Ground Lease Estoppel (as defined below) which is substantially in the form of Exhibit I, without qualification in any material respect; provided, however, that the exclusion of the estoppel provisions set forth in Paragraphs 3, 7, 9 and 10 of Exhibit I, and shall not be deemed to be material qualifications or otherwise defeat this condition. (e) Title Company shall be irrevocably committed to issue the Title Policy as required in Section 2.5. (f) Seller shall have terminated the Management Agreement at the sole cost and expense of Seller. (g) Seller shall have arranged to pay at Closing (a) the Five Hundred Thousand and No/100 Dollar ($500,000) payment to Ground Lessor required under the Fourth Amendment to Lease, and (b) the payment to Ground Lessor required under that certain Third Amendment to Indenture of Lease dated as of August 3, 2003 (“Third Amendment to Lease”). 25 --------------------------------------------------------------------------------   4.7   Conditions Precedent to Obligation of Seller. The obligation of Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the of Closing Date of all of the following conditions, any or all of which may be waived by Seller in writing in its sole discretion: (a) Seller shall have received the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement. (b) All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date. (c) Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Purchaser as of the Closing Date. (d) Ground Lessor shall have executed and delivered the Fourth Amendment to Lease in substantially the form attached hereto as Exhibit H. (e) Purchaser shall have complied with its covenant in Section 5.7(g) below regarding the requirements of Section 3 of the Third Amendment to Lease. 4.8   Failure or Waiver of Conditions Precedent. In the event any of the conditions set forth in Sections 4.6 or 4.7 are not fulfilled or waived on or before the Outside Closing Date, the party benefited by such conditions may, by written notice to the other party, terminate this Agreement, whereupon all rights and obligations hereunder of each party shall be at an end except those that expressly survive any termination. Either party benefited by a condition set forth in Sections 4.6 and 4.7 above may, at its election, at any time or times on or before the date specified for the satisfaction of the condition, waive in writing the benefit of such condition. Purchaser’s consent to the Closing pursuant to this Agreement shall waive any remaining unfulfilled conditions, and any liability on the part of Seller for breaches of representations and warranties of which Purchaser had knowledge as of the Closing. If Purchaser terminates this Agreement due to the failure of any condition set forth in Section 4.6 not being satisfied (or if Seller terminates this Agreement due to the failure of the condition set forth in Section 4.7(d) not being satisfied), then the Earnest Money shall be refunded to Purchaser.   4.9   Alcoholic Beverage License. (a) Purchaser acknowledges that Oxford SF Beverage Company, LLC, a Delaware limited liability company (“BevCo”), Seller’s affiliate, is the owner of the current alcoholic beverage license(s) for the Hotel (collectively, the “Existing Liquor License”). The Existing Liquor License and the alcoholic beverages on hand at the Hotel, whether issued to the food and beverage departments or held in reserve storage (“Alcoholic Beverages”) shall be transferred pursuant to a 26 --------------------------------------------------------------------------------   separate escrow (“Liquor Escrow”) between Seller, BevCo and Purchaser and the parties shall execute customary escrow instructions in connection therewith and consistent with the terms of this Agreement. (b) The Existing Liquor License shall be included in the Purchase Price, but a value of Twenty Thousand Dollars ($20,000) (“Liquor License Purchase Price”) shall be separately allocated to it for the purposes of the Liquor Escrow. The cost of the Alcoholic Beverages in not included in the Purchase Price. A value shall be separately allocated to it for the purposes of the Liquor Escrow at Closing and, collectively with the Liquor License Purchase Price, shall constitute the “Liquor Purchase Price”. (c) The Liquor Escrow shall be established at Chicago Title Insurance Company (the “Liquor Escrow Holder”), unless the parties mutually agree otherwise. The parties acknowledge that the terms and conditions of the Liquor Escrow shall be conducted under Sections 24049 and 24070-24082 of the California Business & Professions Code (“B & P Code”), and the Liquor Escrow Holder shall be authorized and instructed to publish and record all required notices, handle creditor claims, and to obtain tax releases in accordance therewith. Liquor Escrow Holder shall further be directed to handle funds in the Liquor Escrow in accordance with Section 24049 and 24070-24082 of the B & P Code. The Liquor Escrow shall close and the Liquor License Price shall be paid over and released to Seller, without further claim by Purchaser, on the date that the California Department of Alcoholic Beverage Control (“ABC”) approves the transfer of the Liquor License to Purchaser. The closing of the Liquor Escrow shall not be a condition precedent to Closing. (d) Within fifteen (15) days following the Effective Date, Purchaser shall file all necessary applications and supporting materials with the ABC as may be required to obtain a permanent or temporary liquor license for the Hotel and shall diligently pursue the issuance of such liquor license. Seller agrees to, and shall cause BevCo to, promptly execute and deposit into the Liquor Escrow all other documents and instruments (including, but not limited to, liquor license applications and transfer agreements) that may be required by the Liquor Escrow Holder and/or the ABC. (e) Seller agrees to cause to be prepared a certified schedule of the inventory of Alcoholic Beverages on hand at the Hotel as of 11:59 p.m. of the day before the Closing Date. Such schedule shall list all items of Alcoholic Beverages and shall set forth the amount of each item on hand and the net cost paid by Seller for each item. If the net cost for any item cannot be established, then the current replacement cost for such item shall be used based upon the price lists from the Hotel’s suppliers then in effect. The total cost of the Alcoholic Beverages as 27 --------------------------------------------------------------------------------   established above shall be the portion of the Purchase Price allocated to the Alcoholic Beverages. (f) On the Closing Date, the Escrow Agent shall transfer the Liquor Purchase Price to the Liquor Escrow Holder for deposit into the Liquor Escrow and the Liquor Escrow shall close on the terms and conditions set forth in the separate Liquor Escrow instructions executed by Seller and Purchaser. Purchaser shall pay any sales tax attributable to the sale of the Liquor License and Alcoholic Beverages or any other personal property transferred through the Liquor Escrow. Liquor Escrow fees charged by Liquor Escrow Holder shall be paid equally by Seller and Purchaser. Purchaser shall pay all fees and costs payable to the ABC in connection with transferring the Liquor License and all license and transfer fees, costs of recordation and publication. If (i) the ABC disapproves the transfer of the Liquor License to Purchaser or (ii) Purchaser purchases the Hotel pursuant to this Agreement but the Liquor Escrow does not close by the expiration of eight (8) calendar months from the Closing Date, then, in either case, the Liquor Escrow shall terminate and the Liquor License Purchase Price shall be released to Seller. The value assigned to the Alcoholic Beverages shall be returned to Purchaser. 4.10   Designation Agreement. On or before the Closing Date, Seller and Purchaser shall each execute an original counterpart of a Designation Agreement, substantially in the form of Exhibit G attached hereto, which Designation Agreement names the Title Company as the “Reporting Person” under Section 6045(e) of the Internal Revenue Code (the “Designation Agreement”). 4.11   Disbursements and Other Actions by Escrow Agent. Upon the Closing, Escrow Agent shall promptly undertake all of the following in the following order and manner: (a) Cause the Assignment of Ground Lease and Grant Deed and any other documents which the parties hereto may mutually direct to be recorded in the Official Records of San Francisco County, California in the order directed by the parties; (b) Disburse to Seller from funds deposited by Purchaser with Escrow Agent towards payment of all items (including, without limitation, the Purchase Price) chargeable to the account of Purchaser; (c) Deliver to Seller a fully executed original of the instruments described in clauses (c), (d), (e), (j), (k) and (l) of Section 4.2 above and clauses (c), (d) and (e) of Section 4.3 above and conformed copies of the Assignment of Ground Lease and Grant Deed; 28 --------------------------------------------------------------------------------   (d) Deliver to Purchaser a fully executed original of the instruments described in clauses (c), (d), (e), (f), (h), (j), (k) and (l) of Section 4.2 above and conformed copies of the Assignment of Ground Lease and Grant Deed; (e) Direct the Title Company to issue the Title Policy to Purchaser; and (f) File the Designation Agreement. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS 5.1   Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser as of the Effective Date, subject to the qualifications and exceptions set forth below: (a) Organization and Authority. Seller has been duly organized and is validly existing and in good standing under the laws of Delaware. Seller has the full right and authority to enter into this Agreement and to transfer all of the Property to be conveyed by Seller pursuant hereto and to consummate or cause to be consummated the transactions contemplated herein to be made by Seller. The person signing this Agreement on behalf of Seller is authorized to do so. (b) No Breach. The execution, delivery and performance of this Agreement by Seller and the consummation of the transaction contemplated herein will not: (i) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which the Property is bound or affected which would have a material adverse impact on the ownership and operation of the Property by Purchaser; (ii) result in the creation or imposition of any lien, charge or encumbrance, against the Property or any portion thereof; or (iii) constitute or result in the violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon Seller or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ownership or operation of the Property by Purchaser. (c) Litigation/Condemnation. Except as set forth on Schedule 5.1(c) attached hereto, Seller has not received written notice of any litigation which has been filed against Seller that arises out of the ownership of the Property and would materially and adversely affect the Property or use thereof, or Seller’s ability to perform its obligations hereunder, nor has Seller received written notice of any condemnation proceedings. To Seller’s knowledge, there is no threatened litigation that arises out of the ownership of the Property and would materially and adversely affect the Property or use thereof, or Seller’s ability to perform its obligations hereunder. 29 --------------------------------------------------------------------------------   (d) Leases. To Seller’s knowledge, the list of Leases attached hereto as Schedule 1.1(h) is accurate and lists all Leases currently affecting the Hotel, and Seller has delivered (or otherwise made available to Purchaser) a true and correct copy of such Leases and no uncured notice of default has been delivered by Seller or received by Seller with respect to any Leases. Any and all brokerage, leasing and other commissions and tenant improvement credits or contributions due under any such Leases have been fully performed in all material respects and all amounts due from Seller as of the Closing Date have been (or will be) paid in full by the Closing Date. (e) No Violations. Except as set forth on Schedule 5.1(f) attached hereto, to Seller’s knowledge, Seller has not received prior to the Effective Date any written notification from any governmental or public authority that the Property is in violation of any applicable fire, health, building, use, occupancy or zoning laws or other statute, ordinance, law or code (including without limitation Environmental Laws and the Americans with Disabilities Act, as amended) bearing on the construction, operation or use of the Property or any part thereof where such violation remains outstanding and, if unaddressed, would have a material adverse effect on the use of the Property as currently owned and operated. (f) Ground Lease. To Seller’s knowledge, (i) Seller has delivered or made available to Purchaser true and complete copies of the Ground Lease and (ii) neither Seller nor the Ground Lessor is in default of any material obligation under the terms of the Ground Lease. (g) Service Contracts and Equipment Leases. To Seller’s knowledge, there are no Service Contracts or Equipment Leases which will affect the Property after the Closing Date except as set forth on the Schedule 1.1(e)-1 and Schedule 1.1(e)-2, respectively, and no Service Contracts or Equipment Leases have been amended except as set forth in said Schedules. To Seller’s knowledge, no uncured written notice of default has been delivered by Seller or received by Seller with respect to any Service Contracts or Equipment Leases. To Seller’s Knowledge, the copies of Service Contracts and Equipment Leases delivered or made available to Purchaser by Seller are true and complete. (h) Personal Property. To Seller’s knowledge, Seller owns the Personal Property, other than any leased Personal Property under the Equipment Leases and other than the lien of the landlord under the Ground Lease, free of all liens and encumbrances. (i) No Consents. No consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Seller is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated. 30 --------------------------------------------------------------------------------   (j) Patriot Act Compliance. Neither Seller nor any individual or entity having an interest in Seller is a person or entity either (i) described by Section 1 of the Executive Order (No. 13,224) Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49,079 (September 24, 2001), or (ii) is listed on the current list of Specially Designated Nationals and Blocked Persons issued by the U.S. Department of the Treasury, and does not engage in any dealings or transactions, and is not otherwise associated, with any such persons or entities. (k) No Other Property Interests. There are no property interests, buildings, structures or other improvements or personal property owned by Seller which are necessary for the operation of the Hotel that are not being conveyed pursuant to this Agreement. (l) Employees. To Seller’s knowledge, Seller does not employ any persons in connection with the operation of the Hotel other than those individuals identified on Schedule 5.1(l). Schedule 5.1(l) identifies each Hotel Employee (as defined below) as of the date specified on such list, showing the name and annual base salary or hourly wage for each such Hotel Employee and whether each such Hotel Employee is enrolled in medical and/or dental coverage. Notwithstanding the foregoing, if Purchaser has knowledge of a breach of any representation or warranty made by Seller in this Agreement prior to Closing and Purchaser nevertheless proceeds to close the purchase of the Property, such representation or warranty by Seller shall be deemed to be qualified or modified to reflect Purchaser’s knowledge of such breach and Seller shall have no liability whatsoever respecting the same. 5.2   Knowledge Defined. For purposes of this Agreement, “knowledge” means (a) with respect to Seller, the actual knowledge of Robert D. Kline, who is President of Oxford Lodging Advisory & Investment Group, LLC and Cody Bradshaw, who is the asset manager for Seller (provided that, in no event shall such persons have any personal liability arising under this Agreement), without any duty of inquiry or investigation, and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, manager, employee, agent or representative of Seller or any of its affiliates, and (b) with respect to Purchaser, (i) the actual knowledge of David A. Brooks (provided that, in no event shall such person(s) have any personal liability arising under this Agreement), (ii) any matter disclosed in any exhibits or schedules to this Agreement, (iii) any matter disclosed in any of the Seller Due Diligence Materials or any other documents or materials provided or made available by Seller or its agents to Purchaser prior to Closing, (iv) any matter disclosed by Purchaser’s inspections or investigations of the Property, and (v) any matter disclosed by the Ground Lease Estoppel. 31 --------------------------------------------------------------------------------   5.3   Survival of Seller’s Representations and Warranties. The representations and warranties of Seller set forth in Section 5.1 as updated by the certificate of Seller to be delivered to Purchaser at Closing in accordance with Section 4.2(f) hereof, shall survive Closing for a period of two-hundred seventy (270) days. No claim for a breach of any representation or warranty of Seller shall be actionable or payable unless each of the following conditions is satisfied: (a) the breach in question results from or is based on a condition, state of facts or other matter which was not known to Purchaser prior to Closing, (b) the valid claims for all such breaches, if any, collectively aggregate more than One Hundred Fifty Thousand and No/100 Dollars ($150,000), in which event the amount in excess of such amount of such claims shall be actionable, and (c) written notice containing a description of the specific nature of such breach shall have been given by Purchaser to Seller prior to the expiration of said two hundred seventy (270) day period and an action shall have been commenced by Purchaser against Seller within thirty (30) days after the termination of the survival period provided for above in this Section 5.3. To the extent applicable, Purchaser agrees to first seek recovery under any insurance policies, the Title Policy and the Service Contracts prior to seeking recovery from Seller, and Seller shall not be liable to Purchaser if Purchaser’s claim is satisfied from such insurance policies, title policies or agreements. As used herein, the term “Cap” shall mean the total aggregate amount of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000). Notwithstanding any provision of this Agreement to the contrary, in no event shall (i) Seller’s aggregate liability to Purchaser for breach of any representation or warranty of Seller in this Agreement or the certificate to be delivered by Seller at Closing pursuant to Section 4.2(f) hereof, taken in the aggregate with any other claims by Purchaser against Seller (including any indemnification obligations), exceed the amount of the Cap, or (ii) Seller be liable for any consequential damages of Purchaser or any punitive damages. 5.4   Covenants of Seller. Notwithstanding any other provisions of this Agreement to the contrary, Purchaser acknowledges and agrees that, pursuant to the Management Agreement, Manager is vested with decision making authority over the Hotel and therefore Seller’s ability to control the management and operation of the Hotel is circumscribed by and must be exercised in accordance with its rights as “Owner” under the Management Agreement; provided, however, Seller shall enforce its rights under the Management Agreement to the extent such enforcement would effectuate Manager complying with the covenants contained in this Agreement. Subject to the foregoing, Seller hereby covenants with Purchaser as follows: (a) From the Effective Date hereof until the Closing or earlier termination of this Agreement, Seller shall use reasonable efforts to cause Manager to operate and maintain the Hotel in a manner generally consistent with the manner in which Seller has operated and maintained the Hotel prior to the date hereof, in good 32 --------------------------------------------------------------------------------   condition consistent with past practice, reasonable wear and tear excepted and so as to maintain levels of Retail Inventory and Consumable Inventory consistent with past practice. (b) From the Effective Date hereof until Closing or the earlier termination of this Agreement, Seller shall use commercially reasonable efforts to perform its material obligations under the Management Agreement, the Service Contracts and other agreements that may affect the Property. (c) Promptly following the Effective Date, Seller shall deliver to Ground Lessor an estoppel certificate (the “Ground Lease Estoppel”), in the form of Exhibit I attached hereto, and shall request that Ground Lessor complete and sign a Ground Lease Estoppel in such form. (d) Seller shall not enter into any new management agreement or Service Contracts or other agreements or encumbrances with respect to the Property, nor shall Seller enter into any agreements modifying the Service Contracts, Permitted Exceptions or Leases unless (a) any such agreement or modification will not bind Purchaser or the Property after the date of Closing or is subject to termination on not more than thirty (30) days’ notice without penalty, or (b) Seller has obtained Purchaser’s prior written consent to such agreement or modification. Seller agrees to cancel and terminate effective as of the Closing Date any Service Contracts requested in writing by Purchaser to the extent permissible under the terms of such Service Contracts, provided any fee or penalty for such cancellation shall be paid for by Purchaser. Failure of Seller to deliver an executed Ground Lease Estoppel shall not be deemed a Seller default, but is a condition precedent to Purchaser’s obligations to consummate this transaction as specified in Section 4.6(d) above. (e) Seller shall maintain all of its current insurance policies in place until Closing. 5.5   Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller: (a) ERISA. Purchaser is not acquiring the Property with the assets of an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974. (b) Organization and Authority. Purchaser has been duly organized and is validly existing and in good standing under the laws of Delaware and is qualified to do business in California. Purchaser has the full right, power and authority to purchase the Property as provided in this Agreement and to carry out Purchaser’s obligations hereunder, and all requisite action necessary to authorize Purchaser to enter into this Agreement and to carry out its obligations hereunder have been, or 33 --------------------------------------------------------------------------------   by the Closing will have been, taken. The person signing this Agreement on behalf of Purchaser is authorized to do so, and this Agreement is enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency and similar laws. (c) No Breach. The execution, delivery and performance of this Agreement by Purchaser and the consummation of the transaction contemplated herein will not: (i) result in a breach or acceleration of or constitute a default under any agreement or instrument by which Purchaser is bound or affected which would have a material adverse impact on the ability of Purchaser to timely close the acquisition of the Property pursuant to the terms of this Agreement; or (ii) constitute or result in the violation or breach by Purchaser of any judgment, order, writ, injunction or decree issued against or imposed upon Purchaser or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material adverse impact on the ability of Purchaser to timely complete the acquisition of the Property pursuant to this Agreement. (d) No Consents. No consent, approval or action of, filing with or notice to any governmental or regulatory authority or any other person or entity on the part of Purchaser is required in connection with the execution, delivery and performance of Agreement or the consummation of the transactions contemplated. (e) Pending Actions. There is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser which, if adversely determined, could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this Agreement. (f) Patriot Act Compliance. Neither Purchaser nor any individual or entity having an interest in Purchaser is a person or entity either (i) described by Section 1 of the Executive Order (No. 13,224) Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49,079 (September 24, 2001), or (ii) is listed on the current list of Specially Designated Nationals and Blocked Persons issued by the U.S. Department of the Treasury, and does not engage in any dealings or transactions, and is not otherwise associated, with any such persons or entities. (g) Tax Identification Number. Purchaser’s valid tax identification number is 20-0110897. (h) Bankruptcy. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or 34 --------------------------------------------------------------------------------   contemplated by Purchaser or its general partner(s) or controlling shareholders or members. 5.6   Survival of Purchaser’s Representations and Warranties. The representations and warranties of Purchaser set forth in Sections 5.5(a) and (f) shall survive Closing and shall be a continuing representation and warranty without limitation. All other representations and warranties of Purchaser shall survive Closing for a period of two hundred seventy (270) days. . 5.7   Covenants of Purchaser. (a) Purchaser may at its election (but subject to the limitations of Section 3.1 above), inspect the Property for the presence of Hazardous Substances (as defined below), and, at Seller’s request, shall furnish to Seller copies of any reports received by Purchaser in connection with any such inspection. Purchaser hereby assumes full responsibility for such inspections and irrevocably waives any claim against Seller and releases Seller from all liability arising from the presence of Hazardous Substances on the Property. Purchaser shall also furnish to Seller copies of any other reports received by Purchaser relating to any other inspections of the Property conducted on Purchaser’s behalf, if any (including, specifically, without limitation, any reports analyzing compliance of the Property with the provisions of the Americans with Disabilities Act (“ADA”), 42 U.S.C. §12101, et seq., if applicable). As used herein, “Hazardous Substances” means all hazardous or toxic materials, substances, pollutants, contaminants, or wastes currently identified as a hazardous substance or waste in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “CERCLA”), as amended, the Superfund Amendments and Reauthorization Act (commonly known as “SARA”), the Resource Conservation and Recovery Act (commonly known as “RCRA”), or any other federal, state or local legislation or ordinances applicable to the Property (collectively, “Environmental Laws”). The provisions of this Section 5.7(a) shall survive Closing. (b) Without limiting anything herein to the contrary, Purchaser waives any right of contribution with respect to, and hereby agrees to indemnify, defend (with counsel reasonably acceptable to Seller), protect and hold Seller harmless from, all responsibility and liability and from all matters, claims, suits, allegations, judgments, fines, penalties from events arising out of the physical condition, valuation or utility of the Property including, without limitation, any matter arising from, or relating to the existence of, Hazardous Substances or the violation or enforcement of Environmental Laws in connection with the Property or operation thereof; provided that the foregoing indemnity shall apply only with respect to matters, claims, suits, allegations, judgments, fines and penalties arising from and after Closing. Without limiting the generality of any of the other provisions set forth in this Agreement, Seller makes no representations or 35 --------------------------------------------------------------------------------   warranties as to whether the Property or any portion thereof contains asbestos, harmful or toxic substances or other Hazardous Substances or is in compliance with Environmental Laws. The provisions of this Section 5.7(b) shall survive Closing or any termination of this Agreement. (c) Not later than two (2) days prior to the Closing, Seller shall send, or cause the Manager to send, written notice to guests or other persons who have safe deposit boxes at the Hotel advising of the sale of the Hotel and requesting verification or removal of the contents within five (5) days. The safe deposit boxes of guests or other persons not responding to said written notice shall be opened only in the presence of the Manager or representatives of both Seller and Purchaser. The contents of all boxes opened as aforesaid shall be listed at the time such boxes are opened and each such list shall be signed by or on behalf of the Manager or by or on behalf of Seller and Purchaser, and Purchaser shall not be liable or responsible for any items claimed to have been in said boxes unless such items are included in such list. Seller agrees to indemnify, defend and hold Purchaser harmless from and against any liability or responsibility for any items claimed to have been in said boxes but not included on such list and Purchaser agrees to indemnify, defend and hold Seller harmless from and against any liability or responsibility for items claimed to have been in said boxes and included in such list and all claims, losses and liabilities with respect thereto arising out of the acts or omissions of Purchaser after the Closing Date. The provisions of this Section 5.7(c) shall survive Closing. (d) All baggage or other property of guests of the Hotel which has been checked with or left in the care of Seller and remains in Seller’s care as of the Cut-Off Time shall be inventoried and tagged jointly by Seller and Purchaser. Purchaser hereby agrees to defend, indemnify and hold harmless Seller against any claims, losses or liabilities in connection with such baggage and property arising out of the acts or omissions of Purchaser from and after the Closing Date. Seller hereby agrees to defend, indemnify and hold harmless Purchaser against all claims, losses and liabilities with respect to such baggage and property arising out of the acts or omissions of Seller prior to the Closing Date. This Section 5.7(d) shall survive Closing. (e) Purchaser shall honor (and shall cause its manager to honor) all reservations at the Hotel (including honoring the rates at which such reservations were made, including reservations made on a wholesale, reward points redemption, or other basis), or for any related conference, banquet, or meeting space or any other facilities in connection with the Hotel made by Seller on or prior to the Cut-Off Time for periods on or after the Closing Date. The provisions of this Section 5.7(e) shall survive Closing. 36 --------------------------------------------------------------------------------   (f) Purchaser shall expend a sum not less than Three Million and 00/100 Dollars ($3,000,000) during the period commencing on the Effective Date and ending June 30, 2008 for the rehabilitation of the Hotel as required under the Ground Lease. The provisions of this Section 5.7(f) shall survive Closing. (g) Purchaser shall comply with the requirements of Section 3 of the Third Amendment to Lease as of the Closing, including the delivery of the Letter of Credit or Guaranty (as both are defined in the Third Amendment to Lease) to Ground Lessor at Closing. 5.8   Employees. (a) Effective at and upon the Closing, Seller shall terminate, or cause the termination of, the employment of all individuals employed at the Hotel by Manager and/or Seller as of the day immediately prior to the Closing Date, irrespective of whether such individuals are active or on leaves of absence or otherwise inactive (“Hotel Employees”). (b) Without limiting subparagraph (c) below, Purchaser agrees that it will offer to hire or cause to be hired effective at and upon the Closing, and after the Closing will offer to maintain or cause to be maintained the employment of, all Rehired Employees (as defined below). As used herein, “Rehired Employees” means not fewer than ninety-five percent (95%) of all of the Hotel Employees. All such offers to rehire shall be made in a manner consistent with satisfying the requirements of paragraph (c) of this Section 5.8. Without limiting the foregoing, it is agreed that the precise terms of the employment of each Rehired Employee by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel, relating to compensation, seniority, health benefits and vacation benefits shall be determined by Purchaser or such designee or management company, provided that Purchaser agrees to rehire or cause to be rehired the Rehired Employees on terms and conditions, including compensation, seniority and benefits, that are substantially similar to the employment terms and conditions that are applicable to such Rehired Employees in their employment by Seller prior to the Closing. Purchaser further agrees that, absent good cause (as determined solely by Purchaser) for terminating any Rehired Employee, the employment of each Rehired Employee on the terms described above shall continue for at least ninety (90) days following the Closing (the “Post-Closing Employment Period”). Promptly following the end of the Post-Closing Employment Period, Purchaser shall deliver to Seller a certificate, duly executed by an officer of Purchaser, confirming that Purchaser has fully complied with the terms and requirements of this Section 5.8(b) and Section 5.8(c) below. (c) Without limiting subparagraph (b) above, Purchaser agrees that it will offer to hire or cause to be offered to be hired effective at and upon the Closing, and after the Closing will maintain or cause to be maintained the employment of, a 37 --------------------------------------------------------------------------------   sufficient number of Rehired Employees so that Seller shall not be required to give any layoff, closing or other termination notices or otherwise incur any liability pursuant to the provisions of the Federal Worker Adjustment and Retraining Notification Act. 29 U.S.C. 2101-2109 and/or the California Worker Notification Law (California Assembly Bill 2957, effective January 1, 2003) (collectively, the “WARN Act”). If Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel, elects not to rehire a particular Hotel Employee at Closing, or if following the Closing Purchaser or such designee or management company desires to terminate the employment of any Rehired Employee, Purchaser shall be solely responsible for complying or causing compliance with all applicable provisions of federal, state and municipal laws and regulations relating to such action, including without limitation any applicable provisions of the WARN Act. (d) The parties agree to cooperate in scheduling and otherwise handling the termination of the Hotel Employees by Seller pursuant to paragraph (a) of this Section 5.8, and the rehiring of such employees by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel, pursuant to paragraphs (b) and (c) of this Section 5.8, so as to minimize prior to Closing any potential employee morale problems arising from the sale of the Hotel to Purchaser and any resulting disruption to Hotel services or the quality thereof. Without limiting the foregoing, and at the request of Purchaser, Seller agrees to cause the general manager and any of his assistant(s) in charge of personnel matters to assist Purchaser or Purchaser’s designee or management company in its rehiring efforts as may reasonably be necessary or appropriate to facilitate a smooth transition of employment responsibilities to Purchaser or Purchaser’s designee or management company, the scope and nature of such assistance to be mutually determined by Purchaser and Seller (provided that Seller shall not have any liability for any act or omission of the general manager or any of his assistants in connection with the provision of such assistance, and provided that such assistance shall be provided at no out-of-pocket cost to Seller). During the period prior to Closing the parties shall also consult on a regular basis and coordinate their activities relating to employee matters so as to facilitate a smooth transition of Hotel operations and the continued proper performance by the Hotel Employees of their respective duties up to the Closing. The parties hereto agree that (i) Purchaser will not be subject to any of the debts, obligations and/or liabilities of Seller which may exist with respect to the employment or termination of any Hotel Employees prior to the Closing, or which are attributable to the termination of such employees by Seller at or prior to Closing (“Seller’s Employee Obligations”), except to the extent that such debts, obligations and/or liabilities are expressly covered by a credit against the Purchase Price specifically provided in this Agreement; and (ii) Seller will not be subject to any of the debts, obligations and/or liabilities of Purchaser, or Purchaser’s designee or management company engaged by Purchaser to employ Hotel personnel, which are attributable 38 --------------------------------------------------------------------------------   to any actions or omissions of Purchaser or such designee or management company, or any agents or representatives thereof, in the process of the hiring or rehiring of any employees, including, without limitation, any claims arising out of or relating to whether, and upon which terms and conditions, any such employees are offered employment by Purchaser or such designee or management company, or are hired or rehired by Purchaser or such designee or management company, or which may otherwise exist regarding the employment of employees at the Hotel by Purchaser or such designee or management company from and after the Closing (“Purchaser’s Employee Obligations”). (e) Purchaser agrees to indemnify, defend and hold harmless the Seller, its officers, directors, members, owners and affiliates (herein, the “Seller-Related Parties”) from and against any claim, liability, or judgment asserted against any of the Seller-Related Parties on account of or with respect to any of Purchaser’s Employee Obligations, including, without limitation, (i) any causes of action, damages, complaints, judgments, orders and/or claims, whatsoever, and all costs and expenses (including, without limitation, reasonable attorneys’ fees and costs) incurred in connection therewith, which may be asserted against any of the Seller-Related Parties on account of any violation of any the National Labor Relations Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Vocational Rehabilitation Act of 1973, the Federal WARN Act and/or the California WARN Act (other than as expressly provided in paragraph (c) of this Section 5.8), California State Wage/Hour laws, the California Fair Employment and Housing Act, the California Labor Code, and/or any other applicable federal or state employment statutes, rules and regulations (collectively, “Employment Laws”) by Purchaser, or any designee or management company engaged by Purchaser to employ Hotel personnel, and (ii) any claims or liabilities (A) arising under the federal Employee Retirement Income Security Act, as amended, and/or any other applicable federal or state law or regulation concerning employee benefit plans with respect to the employment of employees by Purchaser or such designee or management company from and after the Closing, or (B) arising from or under any employee benefit plan applicable to any Rehired Employee or any other employee hired by Purchaser or such designee or management company to perform services at or for the Hotel, to the extent that any such claim or liability relates solely to any period of employment from and after the Closing. (f) Seller shall settle, with respect to any Hotel Employees employed by Seller prior to Closing, any and all claims and obligations which may be due and owing to any such Hotel Employees which have accrued or are otherwise payable with respect to any period prior to the Closing or in connection with their termination of employment by Seller prior to Closing, including, without limitation, all wages and/or benefits payable to such Hotel Employees for periods prior to the Closing, all accrued but unpaid vacation, holidays or holiday pay, personal days, sick leave 39 --------------------------------------------------------------------------------   and/or any other benefit entitlement payable with respect to any period prior to the Closing, and any charges or other compensation owing by reason of the termination of such employees by Seller. (g) Purchaser shall also ensure that service with Seller by Hotel Employees who are hired by Purchaser shall be deemed to have been in service with Purchaser for purposes of any length of service requirements, waiting periods, vesting periods, or differential benefits based on length of service in any benefit plan established or maintained by or on behalf of Purchaser for which such Hotel Employees may be eligible after the Closing, such that Seller shall not have any COBRA obligations for Rehired Employees hired by Purchaser; (ii) Purchaser shall ensure that any pre-existing conditions, restrictions or waiting periods under any benefit plan established by or on behalf of Purchaser providing medical, dental, vision, or prescription drug coverage or benefits are waived to the extent necessary to provide immediate coverage for Hotel employees who are hired for the Hotel following termination of such Hotel Employees’ coverage under the benefit plans maintained by or on behalf of Seller, such that Seller shall not have COBRA obligations for any such Hotel Employees who are hired by Purchaser; (iii) Purchaser shall indemnify, defend and hold Seller harmless from and against all loss, expense (including reasonable attorneys’ fees and disbursements incurred to enforce this indemnity), damage and liability resulting from any COBRA claims or obligations arising in respect of Rehired Employees and any claims or disputes with Rehired Employees regarding employee benefits arising from and after the Closing Date. (h) Without limiting any other provision of this Section 5.8, following the Closing Purchaser shall recognize and assume all of Seller’s obligations, arising from and after the Closing Date, under the existing collective bargaining agreement with the International Union of Operating Engineers, Stationary Local 39 (the “Union”), a copy of which agreement has previously been delivered to Purchaser (the “Collective Bargaining Agreement”). Purchaser further agrees to recognize the Union as the exclusive bargaining representative for the employees covered under the Collective Bargaining Agreement (the “Union Employees”), and to execute a copy of the Collective Bargaining Agreement and such other documents, if any, as are required to be executed pursuant to the express provisions of the Collective Bargaining Agreement if requested by the Union. Under the Collective Bargaining Agreement, Seller currently contributes to health and welfare, pension and annuity trust funds (collectively, the “Union Employee Benefit Funds”) on a monthly basis. Purchaser shall receive at Closing a credit against the Purchase Price, on a pro rata basis for the month in which the Closing occurs, for any of the monthly Union Employee Benefit Fund contributions that have accrued to Seller prior to Closing but for which payment is not yet due under the Collective Bargaining Agreement. Seller also currently contributes to an apprentice training fund on an annual basis, which contribution has been paid in 40 --------------------------------------------------------------------------------   full by Seller for the calendar year 2005. Purchaser shall be obligated to pay Seller at Closing, in addition to the Purchase Price, Purchaser’s pro rata share of such annual contribution for the apprentice training fund for the applicable annual period in which the Closing Date occurs, determined on a 365-day year. (i) Seller and Purchaser agree that during the Contribution Period (as defined below), Purchaser shall make contributions to the Stationary Engineers Local 39 Pension Trust Fund (“Retirement Plan”), in accordance with the Collective Bargaining Agreement, for substantially the same number of contribution base units, within the meaning of Section 4001(a)(11) of ERISA, for which Seller had an obligation to contribute with respect to the Hotel. If, as a result of Purchaser’s failure to comply with the foregoing requirement or as a result of any other action by Purchaser, Seller incur any withdrawal liability under the Retirement Plan with respect to the Hotel, or Seller incur any other liability in connection with the Retirement Plan for any reason, the Purchaser shall indemnify, defend, and hold Seller and any of its ERISA affiliates harmless from and against any such liability and all related costs and expenses, including reasonable attorneys’ fees. (j) Subject to Section 5.8(m), during the period commencing on the first day of the plan year following the Closing Date and ending on the expiration of the fifth such plan year (the “Contribution Period”), Purchaser shall provide to the Retirement Plan either a bond, letter of credit, or an escrow in an amount and manner meeting the requirements of Section 4204 of ERISA; provided that Purchaser shall not be required to provide a bond, letter of credit, escrow, or other security to the Retirement Plan if no withdrawal liability (after giving effect to the de minimis rules under Section 4209 of ERISA) would be assessed against Seller with respect to such plan. The cost of any bond, letter of credit, or escrow provided under this Section 5.8(j) shall be paid by Purchaser. (k) To the extent required pursuant to Section 4204(a)(3) of ERISA, Seller shall provide to the Retirement Plan a bond or escrow equal to the present value of the withdrawal liability Seller would have had to the Retirement Plan with respect to the assets acquired by Purchaser pursuant to this Agreement (but for the provisions of Section 4204 of ERISA), reduced to the extent provided under Section 4204(a)(3) of ERISA in the event only a portion of Seller’ assets are distributed during the Contribution Period. (l) If Purchaser at any time withdraws from the Retirement Plan in a complete or partial withdrawal with respect to the assets acquired by Purchaser pursuant to this Agreement during the Contribution Period, Purchaser shall be primarily liable and pay, and Seller shall be secondarily liable for any withdrawal liability Seller would have had to the Retirement Plan with respect to the Hotel (but for the provisions of Section 4204 of ERISA) if the withdrawal liability of Purchaser with respect to such Retirement Plan is not paid. Purchaser agrees to provide 41 --------------------------------------------------------------------------------   Seller with reasonable advance notice of any action or event which could result in the imposition of any withdrawal liability contemplated by this Section 5.8(i), and in any event Purchaser shall immediately furnish Seller with a copy of any notice including, but not limited to a notice of withdrawal liability, it may receive with respect to the Retirement Plan, together with all the pertinent details. If any such withdrawal liability shall be assessed against Purchaser, Purchaser further agrees to provide Seller with reasonable advance notice of any intention on the part of Purchaser not to make full payment of any withdrawal liability when the same shall become due. Any proposed notice or communication to the Retirement Plan relating to Purchaser’s obligations under this Section shall be provided to Seller at least ten (10) days before such notice is provided to the Retirement Plan, and the form of such notice and communication shall be subject to Seller’s written approval, which approval shall not be unreasonably withheld. (m)Notwithstanding anything contained in Section 5.8(j) to the contrary, Purchaser shall not be obligated to provide any bond, letter of credit, or escrow in the event and to the extent Purchaser obtains from the Retirement Plan or the Pension Benefit Guaranty Corporation a proper variance or exemption under Section 4204(c) of ERISA and the applicable regulations thereunder, provided any and all requirements of said variance or exemption are met and Purchaser approves such exception. (n)Purchaser’s obligations under this Section 5.8 shall survive the Closing. ARTICLE VI DEFAULT 6.1   Default by Purchaser. If Purchaser defaults under this Agreement, Seller shall be entitled, as its sole remedy (without limiting Seller’s rights with respect to any indemnification obligations of Purchaser under this Agreement or under Section 10.19 below), to terminate this Agreement and receive the Earnest Money as liquidated damages for the breach of this Agreement, it being agreed between the parties hereto that the actual damages to Seller in the event of such breach are impractical to ascertain and the amount of the Earnest Money is a reasonable estimate thereof. THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES’ REASONABLE ESTIMATE OF SELLER’S DAMAGES AND AS SELLER’S EXCLUSIVE REMEDY AGAINST PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF PURCHASER. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED AS A 42 --------------------------------------------------------------------------------   FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER.       Initials: Seller                      Purchaser                      Nothing contained in this Section 6.1 shall limit or prevent Seller from (a) asserting any legal or equitable claims against Purchaser for Purchaser’s obligation to pay attorneys’ fees and other amounts under Section 10.19, or (b) enforcing any indemnity obligation of Purchaser under this Agreement or preclude Seller from obtaining a damage award in connection therewith, or (c) enforcing Purchaser’s other obligations and liabilities which survive Closing or a termination of this Agreement. 6.2 Default by Seller. In the event that Seller fails to consummate this Agreement for any reason other than Purchaser’s default or the permitted termination of this Agreement by Seller or Purchaser as herein expressly provided, Purchaser shall be entitled, as its sole remedy, either (a) to receive the return of the Earnest Money, which return shall operate to terminate this Agreement and release Seller from any and all liability hereunder, or (b) to enforce specific performance of Seller’s obligation to execute the documents required to convey the Property to Purchaser, it being understood and agreed that the remedy of specific performance shall not be available to enforce any other obligation of Seller hereunder. Purchaser expressly waives its rights to seek damages in the event of Seller’s default hereunder. Purchaser shall be deemed to have elected to terminate this Agreement and receive back the Earnest Money if Purchaser fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before thirty (30) days following the date upon which Closing was to have occurred. 6.3 Seller’s Right to Cure Defaults. Notwithstanding anything to the contrary in this Agreement, Purchaser shall not have the right to exercise its remedies under Section 6.2 for a Seller default unless Purchaser has provided written notice to Seller specifying in reasonable detail the nature of the Seller default, and Seller has not cured the same within thirty (30) days after Seller’s receipt of such notice (the “Seller Cure Period”), in which case the Outside Closing Date shall be extended until the date which is five (5) business days after the expiration of the Seller Cure Period. ARTICLE VII RISK OF LOSS 7.1   Minor Damage. In the event of loss or damage to the Real Property or any portion thereof which is not “major” (as hereinafter defined), this Agreement shall 43 --------------------------------------------------------------------------------   remain in full force and effect provided Seller performs any necessary repairs or, at Seller’s option, assigns to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question (other than business interruption proceeds attributable to the period prior to Closing). In the event that Seller elects to perform repairs upon the Real Property, Seller shall use reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy. Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. 7.2   Major Damage. In the event of a “major” loss or damage to the Real Property, Purchaser may terminate this Agreement by written notice to Seller, in which event the Earnest Money shall be returned to Purchaser. If Purchaser fails for any reason to deliver written notice of termination to Seller within ten (10) days after Seller sends Purchaser written notice of the occurrence of major loss or damage, then Purchaser shall be deemed to have elected to proceed with Closing, in which event Seller shall, at Seller’s option, either (a) perform any necessary repairs, or (b) assign to Purchaser all of Seller’s right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies or condemnation awards relating to the premises in question. In the event that Seller elects to perform repairs upon the Real Property, Seller shall use reasonable efforts to complete such repairs promptly and the Outside Closing Date shall be extended a reasonable time in order to allow for the completion of such repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase Price shall be reduced by an amount equal to the deductible amount under Seller’s insurance policy and Seller shall assign all of its rights to proceeds under the applicable policy with respect to any claim for the applicable loss (other than business interruption proceeds attributable to the period prior to Closing). Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. 7.3   Definition of “Major” Loss or Damage. For purposes of Sections 7.1 and 7.2, “major” loss or damage refers to the following: (a) loss or damage to the Real Property or any portion thereof such that the cost of repairing or restoring the premises in question to a condition substantially identical to that of the premises in question prior to the event of damage would be, in the opinion of an architect selected by Seller and reasonably approved by Purchaser, equal to or greater than Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000), and (b) any loss due to a condemnation which permanently and materially impairs the current use of the Real Property. If Purchaser does not give notice to Seller of Purchaser’s reasons for disapproving an architect within five (5) business days 44 --------------------------------------------------------------------------------   after receipt of notice of the proposed architect, Purchaser shall be deemed to have approved the architect selected by Seller. ARTICLE VIII COMMISSIONS 8.1   Brokerage Commissions. In the event the transaction contemplated by this Agreement is consummated, but not otherwise, Seller agrees to pay to Sonnenblick-Goldman Company (“Broker”) at Closing a brokerage commission pursuant to a separate written agreement between Seller and Broker and Seller shall indemnify and hold Purchaser harmless with respect to any payments due and owing to Broker in connection with this transaction under such agreement. Each party agrees that should any claim be made for brokerage commissions or finder’s fees by any broker or finder other than the Broker by, through or on account of any acts of said party or its representatives, said party will indemnify, defend, protect and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. The provisions of this Section 8.1 shall survive Closing or earlier termination of this Agreement. ARTICLE IX DISCLAIMERS AND WAIVERS 9.1   No Reliance on Documents. Except as expressly set forth in Section 5.1 above, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by or on behalf of Seller or its brokers to Purchaser in connection with the transaction contemplated hereby including, without limitation, the Reports and other Seller Due Diligence Materials. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Purchaser shall be for general informational purposes only, (b) Purchaser shall not have any right to rely on any such report delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto, and (c) neither Seller nor any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Purchaser shall have 45 --------------------------------------------------------------------------------   any liability to Purchaser for any inaccuracy in or omission from any such report or other materials provided to Purchaser in connection with this Agreement. 9.2   DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.1 OF THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY “AS IS, WHERE IS, WITH ALL FAULTS”, EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN SECTION 5.1 OF THIS AGREEMENT. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY AND ANY ACTUAL OR PROPOSED BUDGETS FOR THE REAL PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER IS A SOPHISTICATED INSTITUTIONAL INVESTOR WITH SUBSTANTIAL EXPERIENCE AND EXPERTISE WITH INVESTMENT PROPERTIES AND HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN 46 --------------------------------------------------------------------------------   WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS DELIVERED AT CLOSING. UPON CLOSING AND SUBJECT TO THE REPRESENTATIONS AND WARRANTIES OF SELLER EXPRESSLY SET FORTH IN SECTION 5.1 AND THE DOCUMENTS DELIVERED AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY EXCEPT FOR FRAUD AND OBLIGATIONS OF SELLER UNDER THIS AGREEMENT OR ANY AGREEMENTS EXECUTED AND DELIVERED BY SELLER AT CLOSING. PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER THE CLOSING DATE, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF PURCHASER.      The waivers and releases set forth in Sections 5.7(a) and (b) and in the immediately preceding paragraph include claims of which Purchaser is presently unaware or which Purchaser does not presently suspect to exist which, if known by Purchaser, would materially affect Purchaser’s waiver or release of Seller and the other parties referenced in this Section. Purchaser specifically waives the 47 --------------------------------------------------------------------------------   provisions of California Civil Code Section 1542, which provides as follows:      “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR EXPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR.” INITIALS: Purchaser                      9.3   Repairs, Reserves, and Capital Expenditures. Purchaser acknowledges and agrees that except as provided in Section 5.4 of this Agreement, (a) Seller shall have no obligation to make any repairs, replacements, improvements or alterations to the Property or to expend any funds therefor, including, without limitation, any reserves that may be held for such purpose, and (b) Purchaser shall not be entitled to a credit to the Purchase Price at Closing in the event capital expenditures actually made at the Hotel for any year are less than the budgeted amount as of the date of the Closing. 9.4   Effect and Survival of Disclaimers. Seller and Purchaser acknowledge that the compensation to be paid to Seller for the Property has been decreased to take into account that the Property is being sold subject to the provisions of this Article IX. Seller and Purchaser agree that the provisions of this Article IX shall survive Closing. ARTICLE X MISCELLANEOUS 10.1   Confidentiality. This Agreement, the terms hereof and the Property Information shall be treated in accordance with that certain Pan Pacific Hotel Confidentiality Agreement executed by Purchaser in favor of Seller (the “Confidentiality Agreement”). The provisions of this Section 10.1 shall survive the Closing. 10.2   Public Disclosure. Any release to the public, at any time prior to or after Closing, of information with respect to the sale contemplated herein or any matters set forth in this Agreement will be made only in the form approved by Purchaser and Seller and their respective counsel. The provisions of this Section 10.2 shall survive the Closing. Notwithstanding the foregoing, it is acknowledged that Purchaser is, or is an affiliate of, a real estate investment trust (the “REIT”), and the REIT has and will seek to sell shares to the general public; consequently, Purchaser shall have the absolute and unbridled right disclose any information regarding the transaction contemplated by this Agreement required by law or as necessary to satisfy Purchaser’s disclosure and reporting obligations as required by law. On or at any time following the Effective Date, Purchaser may file with 48 --------------------------------------------------------------------------------   the United States Securities Exchange Commission information regarding the transaction contemplated by this Agreement to the extent required by law, and make a press release reasonably acceptable to Seller in connection therewith. 10.3   Discharge of Obligations. The acceptance of the Assignment of Ground Lease by Purchaser shall be deemed to be a full performance and discharge of every representation and warranty made by Seller herein and every agreement and obligation on the part of Seller to be performed pursuant to the provisions of this Agreement, except those which are herein specifically stated to survive Closing. 10.4   Assignment. Purchaser may not assign its rights under this Agreement without first obtaining Seller’s written approval which may be given or withheld in Seller’s sole discretion; provided that, Purchaser may assign all or any portion of this Agreement (a) to one or more entities which are directly or indirectly controlled by, or under common control with, Purchaser, and (b) pursuant to a 1031 exchange as set forth in Section 10.25 hereof. Any assignment by Purchaser of this Agreement shall not relieve Purchaser of its obligations under this Agreement and any permitted assignee must expressly assume the obligations of Purchaser in writing. Without limiting the foregoing, in no event shall Purchaser assign this Agreement to any assignee which, in the reasonable judgment of Seller, will cause the transaction contemplated hereby or any party thereto to violate the requirements of ERISA. 10.5   Notices. Any notice pursuant to this Agreement shall be given in writing by (a) personal delivery, or (b) reputable overnight delivery service with proof of delivery, or (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) legible facsimile transmission completed before 5:00 p.m. (local time at the Real Property) on a business day sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee shall have designated by written notice sent in accordance herewith, and shall be deemed to have been given either at the time of personal delivery, or, in the case of expedited delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile transmission, as of the date of the facsimile transmission provided that an original of such facsimile is also sent to the intended addressee by means described in clauses (a), (b) or (c) above. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement shall be as follows: 49 --------------------------------------------------------------------------------   If to Seller: c/o Oxford Lodging Advisory & Investment Group, LLC 50 California Street, Suite 3300 San Francisco, California 94111 Attention: Mr. Robert D. Kline Facsimile no. (415) 946-2322 With a copy to: Paul, Hastings, Janofsky & Walker LLP 515 South Flower Street, 25th Floor Los Angeles, California 90071 Attention: Alan Weakland, Esq. Facsimile no. (213) 996-3241 If to Purchaser: Ashford Hospitality Limited Partnership 14185 Dallas Parkway, Suite 4100 Dallas, Texas 75254 Attention: David A. Brooks and Christopher Peckham Facsimile no. (972) 490-9605 With a copy to: Andrews Kurth LLP 1717 Main Street, Suite 3700 Dallas, Texas 75201-4605 Attention: Brigitte Gawenda Kimichik, Esq. Facsimile no. 214/659-4401 (Direct: 4777) 10.6   Modifications. This Agreement cannot be changed orally, and no executory agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such executory agreement is in writing and is signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought.   10.7   Calculation of Time Periods; Time is of the Essence. Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Real Property is located, in which event the period shall run until the end of the 50 --------------------------------------------------------------------------------   next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5:00 p.m., local time where the Real Property is located. Time is of the essence with respect to each and every term and provision of this Agreement. 10.8   Successors and Assigns. Subject to the limitations on assignment set forth in Section 10.4 above, the terms and provisions of this Agreement are to apply to and bind the permitted successors and assigns of the parties hereto.   10.9   Entire Agreement. This Agreement, including the Exhibits, the Schedules and the Confidentiality Agreement contain the entire agreement between the parties pertaining to the subject matter hereof and fully supersedes all prior written or oral agreements and understandings between the parties pertaining to such subject matter.   10.10   Further Assurances. Each party agrees that it will without further consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement. Without limiting the generality of the foregoing, Purchaser shall, if requested by Seller, (a) execute acknowledgments of receipt with respect to any materials delivered by Seller to Purchaser with respect to the Property, and (b) obtain sellers’ permits for any sales activities conducted at the Property prior to Closing and/or obtain “sale for resale certificates” for any Personal Property that may be sold after the Closing. The provisions of this Section 10.10 shall survive Closing.   10.11   Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, and all such executed counterparts shall constitute the same agreement. It shall be necessary to account for only one such counterpart in proving this Agreement. In order to expedite the transaction contemplated herein, telecopied or facsimile signatures may be used in place of original signatures on this Agreement. Seller and Purchaser intend to be bound by the signatures on the telecopied document, are aware that the other party will rely on the telecopied signatures, and hereby waive any defenses to the enforcement of the terms of this Agreement based on the form of signature.   10.12   Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect.   10.13   Applicable Law. THIS AGREEMENT IS PERFORMABLE IN THE STATE IN WHICH THE LAND IS LOCATED AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE FEDERAL LAWS OF THE UNITED STATES AND THE LAWS OF SUCH STATE. SELLER AND PURCHASER HEREBY 51 --------------------------------------------------------------------------------   IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE IN WHICH THE LAND IS LOCATED IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN A STATE OR FEDERAL COURT SITTING IN THE STATE IN WHICH THE LAND IS LOCATED. PURCHASER AND SELLER AGREE THAT THE PROVISIONS OF THIS SECTION 10.13 SHALL SURVIVE THE CLOSING OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT. 10.14   No Third Party Beneficiary. The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller and Purchaser only and are not for the benefit of any third party, and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing. 10.15   Exhibits and Schedules. The following schedules or exhibits attached hereto shall be deemed to be an integral part of this Agreement:                   Schedule 1.1(a)(i)   -   Legal Description of the Land     Schedule 1.1(a)(ii)   -   Description of Ground Lease     Schedule 1.1(c)   -   Excluded Personal Property     Schedule 1.1(e)-1   -   Service Contracts     Schedule 1.1(e)-2   -   Equipment Leases     Schedule 1.1(h)   -   List of Leases     Schedule 3.2   -   Reports     Schedule 4.4.11   -   Vouchers     Schedule 5.1(c)   -   Litigation     Schedule 5.1(f)   -   Violations     Schedule 5.1(l)   -   Employees                   Exhibit A   -   Assignment of Ground Lease     Exhibit B   -   Grant Deed     Exhibit C   -   Bill of Sale     Exhibit D   -   Assignment and Assumption of Contracts     Exhibit E   -   Assignment and Assumption of Leases     Exhibit F   -   FIRPTA Certificate     Exhibit G   -   Designation Agreement     Exhibit H   -   Fourth Amendment to Lease     Exhibit I   -   Form of Ground Lease Estoppel     Exhibit J   -   Form of Owner’s Affidavit 52 --------------------------------------------------------------------------------   10.16   Captions. The section headings appearing in this Agreement are for convenience of reference only and are not intended, to any extent and for any purpose, to limit or define the text of any section or any subsection hereof. 10.17   Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits, schedules or amendments hereto. Singular words shall connote the plural as well as the singular, and plural words shall connote the singular as well as the plural, and the masculine shall include the feminine and the neuter, as the context may require. 10.18   Termination of Agreement. It is understood and agreed that if either Purchaser or Seller terminates this Agreement pursuant to a right of termination granted hereunder, such termination shall operate to relieve Seller and Purchaser from all obligations under this Agreement, except for such obligations as are specifically stated herein to survive the termination of this Agreement. 10.19   Attorneys Fees. If any action or proceeding is commenced by either party to enforce their rights under this Agreement or to collect damages as a result of the breach of any of the provisions of this Agreement, the prevailing party in such action or proceeding, including any bankruptcy, insolvency or appellate proceedings, shall be entitled to recover all reasonable costs and expenses, including, without limitation, reasonable attorneys’ fees and court costs, in addition to any other relief awarded by the court. 10.20   Arbitration of Disputes. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.       (a) Any dispute, controversy or claim expressly required pursuant to the terms of this Agreement to be submitted to arbitration shall be submitted to and settled by binding arbitration in the City of San Francisco, California, pursuant to the rules of the Judicial Arbitration and Mediation Services, Inc., then in effect (or at any other place or under any other form of arbitration mutually acceptable to the 53 --------------------------------------------------------------------------------   parties). Notwithstanding the foregoing, the parties hereto agree that any such arbitration shall be governed by the following requirements: (b) A single neutral arbitrator (with at least five (5) years experience in real property transactions in the location of Purchaser Property) mutually selected by the parties shall conduct the arbitration proceedings. If the parties are unable to agree upon a single neutral arbitrator within fifteen (15) days from the date of any notice of demand for arbitration, the parties shall each select a neutral arbitrator within ten (10) days. The two (2) arbitrators so selected shall then choose a third neutral arbitrator within five (5) days. The three neutral arbitrators (“Arbitrators”) so selected shall conduct the arbitration proceeding and render the arbitration decision. (c) Any arbitration decision shall be in writing, with the bases of such decision specified in reasonable detail. (d) Each party shall submit to the other party, not less than five (5) business days (or such longer period as the Arbitrators may specify) prior to the commencement of the arbitration hearing, (i) a list of the persons whose testimony the other party intends to elicit at the arbitration hearing, (ii) copies of any and all documents to be offered into evidence, and (iii) a description in reasonable detail of any other evidence such party intends to offer into evidence. The foregoing shall not limit the parties’ rights to such other discovery as may be permitted pursuant to the rules of the arbitrating entity. (e) If the Parties elect arbitration, any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in the highest court of the state forum having jurisdiction over the subject matter of such arbitration. The expenses of the arbitration shall be borne equally by the parties to the arbitration, provided that each party shall pay for and bear the cost of its own experts, evidence and counsel’s fees; and provided, further, that the Arbitrators may award all or any portion of the costs of either party to be borne by the other party where the Arbitrators find that such other party’s claim or defense was manifestly unreasonably maintained. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL ARBITRATION.                                 SELLER’S INITIALS   BUYER’S INITIALS         The foregoing shall not apply to or limit the right of Purchaser to bring suit for specific performance in an appropriate court of law in accordance with the terms 54 --------------------------------------------------------------------------------   of this Agreement. 10.21   No Waiver. Failure of either party at any time to require performance of any provision of this Agreement shall not limit the party’s right to enforce the provision. Waiver of any breach of any provision shall not be a waiver of any succeeding breach of the provision or a waiver of the provision itself or any other provision. 10.22   No Reservation of Property. The preparation and/or delivery of unsigned drafts of this Agreement shall not create any legally binding rights in the Property and/or obligations of the parties, and Purchaser and Seller acknowledge that this Agreement shall be of no effect until it is duly executed by both Purchaser and Seller. Purchaser understands and agrees that Seller shall have the right to continue to market the Property and/or to negotiate with other potential purchasers of the Property until the satisfaction or waiver in writing of all conditions to the obligations of Purchaser under this Agreement. 10.23   No Recordation. Purchaser shall not record this Agreement, nor any memorandum or other notice of this Agreement, in any public records. 10.24   Liability under Assignment. Purchaser agrees that if Purchaser has any right or claim against Seller pursuant to the warranties in the Assignment of Ground Lease, if any, Purchaser shall exhaust all of its rights and remedies against the Title Company pursuant to the Title Policy prior to bringing any claim or action against Seller in respect of such warranties. 10.25   Like-Kind Exchange. Notwithstanding anything to the contrary in this Agreement, Purchaser or Seller may elect to exchange the Property for other real estate of a like kind in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”. To the extent possible, the provisions of this Section shall be interpreted consistently with this intent. To exercise any rights under this Section, the party electing to exchange the Property shall provide the other with a written statement stating its intent to enter into an exchange at least five (5) days prior to Closing. Either party’s election to exchange, rather than sell or buy, the Property for other real estate of a like kind shall be at no cost or liability to the other. Should this Agreement become part of a 1031 transaction, the party electing to exchange the Property (the “Exchanger”) hereby agrees that the other party may enforce any and all representations, warranties, covenants and other obligations of the Exchanger under this Agreement directly against Exchanger, and the other party agrees that Exchanger may enforce any and all representations, warranties, covenants and other obligations of the other party under this Agreement directly against the other party. [SIGNATURE PAGE FOLLOWS] 55 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date. SELLER: W2001 PAC REALTY, L.L.C., a Delaware limited liability company                       By:   Whitehall Parallel Global Real Estate Limited Partnership 2001,     a Delaware limited partnership                               By:   WH Parallel Advisors, L.L.C. 2001,             a Delaware limited liability company             General Partner                                   By:   /S/ PAT TRIBOLET                                       Pat Tribolet,                     Vice President     PURCHASER: ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a Delaware limited partnership                   By:   Ashford OP General Partner LLC,     a Delaware limited liability company                       By:   /S/ DAVID A. BROOKS                               David A. Brooks                 Vice President     56

  EXHIBIT 10.8 THE CHASE MANHATTAN BANK AND PARTICIPATING COMPANIES EXCESS RETIREMENT PLAN RESTATED EFFECTIVE JANUARY 1, 1997 PREAMBLE      This Plan is the successor to, and continuation of, the Supplemental Retirement Plan of Chemical Banking Corporation and Certain Subsidiaries. The purpose of this Plan is to provide an alternate means of paying benefits precluded by operation of law to certain designated executives participating in the Retirement Plan of The Chase Manhattan Bank and Certain Affiliated Companies (“Retirement Plan”).      The Plan is a non-qualified, unfunded deferred compensation arrangement. It is not subject to Section 401 of the Internal Revenue Code. Further, it is generally, not subject to Employee Retirement Income Security Act.      Except for certain designated individuals who qualify as Grandfathered Participants under the Retirement Plan, the Supplemental Executive Retirement Plan of The Chase Manhattan Bank, N.A. (“Chase Plan”) was terminated effective December 31, 1996. The Supplemental Chase Retirement Accounts under the Chase Plan became part of an account balance under the Deferred Compensation Program of The Chase Manhattan Corporation and subject to the terms and conditions of such Program and are not part of the account balances under this Plan. Similarly, annuity benefits accrued and frozen as of December 31, 1988 under the Chase Plan were converted into a lump sum and also became part of an account balance under such Deferred Compensation Program. ARTICLE 1 DEFINITIONS      The following are defined terms wherever they appear in the Plan:      1.1 “Account” shall have the meaning ascribed thereto under the Retirement Plan.      1.2 “Administrator” shall mean the individual holding the title Director Human Resources of The Chase Manhattan Corporation or the Bank, or successor title, who shall be responsible for those functions assigned to him under the Plan.      1.3 “Bank” shall mean The Chase Manhattan Bank.      1.4 “Beneficiary” shall have the meaning ascribed thereto under the Retirement Plan.      1.5 “Board” shall mean the Board of Directors of the Bank or of the Corporation; provided that any action taken by a duly authorized committee of the Board (including any action pursuant to Article VII) within the scope of authority delegated to it by the Board shall be considered an action of the Board for purposes of this Plan.      1.6 “Chase Lump Sum Final Pay Benefit” shall have the meaning ascribed thereto under Section 4.1 of the Retirement Plan.      1.7 “Chase Plan” shall mean the Supplemental Executive Retirement Plan of The Chase Manhattan Bank, N.A. Page 1 --------------------------------------------------------------------------------        1.8 “Chemical Retirement Plan” means the Retirement Plan of Chemical Bank and Certain Affiliated Companies as in effect on December 31, 1996.      1.9 “Code” shall mean the Internal Revenue Code of 1986.      1.10 “Committee” shall mean the Compensation and Benefits Committee of the Board.      1.11 “Compensation Limit” shall mean the dollar limitation imposed by Section 401(a)(17) of the Code on the amount of Eligible Compensation taken into account in computing benefits under the Retirement Plan.      1.12 “Corporation” shall mean The Chase Manhattan Corporation.      1.13 “Credit Balance” shall have the meaning ascribed thereto under the Retirement Plan.      1.14 “Deferred Compensation Program” shall mean the Deferred Compensation Program of The Chase Manhattan Corporation and Participating Companies.      1.15 “Effective Date” shall mean January 1, 1997.      1.16 “Eligible Compensation” has the meaning ascribed thereto by the Retirement Plan.      1.17 “Employee” shall mean an individual who is an employee of an Employer and a participant accruing benefits under the Retirement Plan. By way of clarification, individuals who are not classified as employees of an Employer for purposes of its payroll system, including, without limitation, individuals employed by temporary help firms or other staffing firms or who are treated as independent contractors by the Employer (whether or not deemed to be common law employees or leased employees), are not “Employees.” In addition, in the event that any individual is re-classified as an employee for any purpose by any action of any third party or as a result of any lawsuit, action or administrative proceeding, such individual shall not be deemed an “Employee” under the Plan.      1.18 “Employer” shall have the meaning ascribed thereto under the Retirement Plan; provided that such entity adopts the Plan by act of its board of directors and which adoption is approved by the Committee or Administrator; provided, however, that any entity participating in the MHT Plan or the Prior Plan on December 31, 1992 or the Chase Plan on December 31, 1996 shall be an Employer under the Plan as of January 1, 1993 or January 1, 1997, respectively.      1.19 “Executive Retirement Plan” shall mean the Executive Retirement Plan of The Chase Manhattan Corporation.      1.20 “Final Average Salary” shall have the meaning ascribed thereto under the Chemical Retirement Plan.      1.21 “Final Salary Benefit” shall have the meaning ascribed thereto under the Chemical Retirement Plan.      1.22 “Grandfathered Participant” shall have the meaning ascribed thereto under the Retirement Plan.      1.23 “Interest Credit” shall have the meaning ascribed thereto under the Retirement Plan. Page 2 --------------------------------------------------------------------------------        1.24 “Lump Sum Final Pay Benefit” shall have the meaning ascribed thereto under Section 4.1 of the Retirement Plan.      1.25 “MHT Plan” shall mean the Supplemental Retirement Benefits Plan of Manufacturers Hanover Trust Company and Certain Affiliated Companies as in effect immediately prior January 1, 1993.      1.26 “Participant” shall mean each Employee of an Employer who participates in the Plan in accordance with the terms and conditions set forth herein.      1.27 “Participating Company” shall mean (a) the Bank and (b) each Employer, which has been authorized by the Administrator to participate in the Plan and has agreed to comply with the provisions of the Plan.      1.28 “Period of Service” shall have the meaning ascribed thereto under the Retirement Plan.      1.29 “Plan” shall mean the Excess Retirement Plan of The Chase Manhattan Bank and Certain Participating Companies, as in effect at any time, which was formerly named the Supplemental Retirement Plan of Chemical Banking Corporation and Certain Participating Companies.      1.30 “Prior Plan” shall mean the Executive Cash Plan for Retirement of Chemical Banking Corporation and Affiliated Companies.      1.31 “Prior Service Balance” shall have the meaning ascribed thereto by the Retirement Plan.      1.32 “Related Company” shall mean a corporation of which more than 51% of the combined voting of all classes of stock entitled to vote or equity interest is owned directly or indirectly by the Corporation or a partnership, joint venture, or another incorporated entity of which more than 51% of the capital equity or profits interest is owned directly or indirectly by the Corporation.      1.33 “Retirement Benefits” shall mean the Credit Balance of the Account of a Participant under the Retirement Plan.      1.34 “Retirement Plan” shall mean the Retirement Plan of The Chase Manhattan Bank Affiliated Companies, as in effect January 1, 1997 and as amended from time to time.      1.35 “Transition Credit” shall have the meaning ascribed thereto by the Retirement Plan. ARTICLE II PARTICIPATION      2.1 Eligibility for Credit Balance. Commencing as of January 1, 1997, each Employee whose Eligible Compensation exceeds the Compensation Limit during any calendar year shall be a Participant as of such date with respect to the benefits described in Sections 3.1.      2.2 Previously Accrued Benefits. Effective as of January 1, 1997, each Employee who had benefits under this Plan of December 31, 1996 shall be a Participant to the extent described in Section 3.2.      2.3 Section 415 Limits. Commencing on or after January 1, 1997, if an Employee’s distribution of Retirement Benefits is subject to the limitations of Section 415 of the Code, such Employee shall be a Participant as of the date of such distribution and shall be eligible for the benefits described in Section 3.4. Page 3 --------------------------------------------------------------------------------   ARTICLE III BENEFITS      3.1 Pay-Based Credits. (a) Effective as of January 1, 1997, each Participant described in Section 2.1 whose Eligible Compensation in any calendar month exceeds the Compensation Limit used by the Retirement Plan for that calendar month shall have an amount credited to an Account under the Plan equal to the excess of (i) the Pay-Based Credit that would have been accrued under the Retirement Plan but for the application of such Compensation Limit for such calendar month over (ii) the amount actually credited under the Retirement Plan for such calendar month. Pay-Based Credits hereunder shall be made on the same basis as provided in the Retirement Plan to an Account. Notwithstanding the foregoing, the Plan shall not provide benefits on Eligible Compensation based on draw, commission in excess of draw or production overrides when, during a calendar year, such Eligible Compensation exceeds 100 percent of the annual Compensation Limit and, in the case of Chase Mortgage Company, 50 percent shall be substituted for 100% of such annual Compensation Limit.      (b) Interest Credits. The Account of a Participant shall be credited with the Interest Credits that would have been provided under the Retirement Plan but for the Compensation Limit’s application to the Pay-Based Credits.      3.2 Previously Accrued Amount. Any amount credited to an Account under this Plan prior to December 31, 1996, including the bonus amounts described in Section 3.4 of this Plan as in effect on December 31, 1996, shall be part of the Account of a Participant. See Article VI.      3.3 Final Average Salary Benefit. If the amount of a Chase Lump Sum Final Pay Benefit or Lump Sum Final Pay Benefit under the Retirement Plan was reduced because of the application of the annual Compensation Limit, then there shall be credited to the Account of a Participant herein the excess of (i) the Chase Lump Sum Final Pay Benefit or Lump Sum Final Pay Benefit, as applicable, that would have been credited under the Retirement Plan but for the application of the annual Compensation Limit over (ii) the Chase Lump Sum Final Pay Benefit or the Lump Sum Final Pay Benefit actually credited under the Retirement Plan, provided that such amount shall be reduced if at a future date, all or any part of such amount may be credited to a Participant’s Account under the Retirement Plan.      3.4 Excess Benefits. Upon any distribution of Retirement Benefits or payment of any benefit accrued in the form of a life annuity based on a Participant’s life expectancy from the Retirement Plan, each Employee whose Retirement Benefits or such life annuity benefit is reduced in the calendar year when such benefit commences by application of the limitations of Section 415 of the Code shall receive an amount equal to the excess of the (i) Retirement Benefits or life annuity payable under the Retirement Plan without application of Section 415 of the Code over (ii) amount actually payable under the Retirement Plan; provided that once the a benefit is in pay status hereunder as a result of the application of Section 415 of the Code, no adjustment shall be made for changes in Section 415 of the Code; provided further that nothing in this Section or Plan shall require any amounts to be paid under this Plan, should an administrative or judicial determination require the payment of Retirement Benefits or life annuity benefits under the Retirement Plan in excess of those initially distributed as a lump sum or as a life annuity under the Retirement Plan to a Participant.      3.5 Grandfathered Participants. If a Participant elects to receive his/her accrued benefit under Section 4.6 of the Retirement Plan because such individual is a Grandfathered Participant, then any amount due under this Plan shall be forfeited, except for the amount specified in Section 3.4, so long as it is Page 4 --------------------------------------------------------------------------------   not duplicative of any amount required under another plan or program maintained by the Employee.      3.6 Aggregate. The total value of the benefits to be received under the Plan when combined with the Retirement Benefits shall never exceed the value of the Retirement Benefits that would have been payable under the Retirement Plan but for the application of Section 415 of the Code and the Compensation Limit; provided that the foregoing shall not apply to amounts credited to an Account because of the inclusion of bonuses as part of Eligible Compensation hereunder; ARTICLE IV VESTING      4.1 Account. The benefits described in Section 3.1 and Section 3.2 shall vest upon the date that the benefits under the Retirement Plan vest; provided that the amount of such benefit shall be determined only upon the date that the individual receives a distribution of his/her from the Retirement Plan. Benefits hereunder shall be forfeited upon a termination employment with an Employer or Affiliated Company if such Participant is not then vested in his/her Retirement Benefits. Benefits hereunder shall not be subject to being restored upon re-employment.      4.2 Vesting 415 Benefit. The benefit described in Section 3.4 shall be deemed to accrue and vest only upon the dates or date of the distribution of benefits under the Retirement Plan. ARTICLE V TRANSFERS TO DEFERRED COMPENSATION, WITHHOLDING, LIABILITY FOR PAYMENTS      5.1 Form of Distribution. (a) If a Participant with a vested benefit under this Plan elects to receive such individual’s Retirement Benefits (or in the case, where the benefit in the form of an annuity under the Retirement, then the vested benefit hereunder shall be distributed as of the date of such annuity commenced and shall be distributed in the form of the annuity selected under the Retirement Plan. Notwithstanding the foregoing, if the monthly amount of the annuity hereunder is less than a minimum amount specified from time to time by the Administrator, the vested benefit hereunder shall be distributed as a lump sum or shall be subject to the transfer provision described below, as the Administrator shall determine. Unless the Administrator otherwise designates, the actuarial factors used under the Retirement Plan in calculating the amount the monthly annuity payable to an individual shall be used for the annuity payable hereunder.      (b) If a Participant with a vested benefit under this Plan elects to receive such individual’s Retirement Benefit as a lump sum, including a transfer to an Individual Retirement Account or to another qualified plan, then any vested benefit hereunder in the form of an Account or otherwise payable as a lump sum shall be treated as of the first day of the month following that transfer (or such other date as the Administrator may designate) as an account balance subject to the terms and conditions of the Deferred Compensation Program. Accordingly, such amount shall be subject to the distribution election made by the Participant with respect to such individual’s deferred compensation account under such Program and to the beneficiary designation under the Program; provided that if the Participant does not have an account under the Deferred Compensation Program and amount hereunder is less than $5000, then such amount Page 5 --------------------------------------------------------------------------------   shall be distributed to the Participant in a lump sum within a reasonable period of time following the date of the distribution of his or her Retirement Benefits. Pending exercise by the Participant of investment discretion under the Deferred Compensation Program, the balance of such account shall receive the rate of interest provided by the Stable Value Fund.      5.2 Withholding. Any payment under this Plan shall be reduced by any amount required to be withheld under applicable Federal, state and local income tax laws.      5.3 Participant’s Rights Unsecured. The right of any Participant or former Participant to receive further payments under the provisions of the Plan shall be unsecured claim against general funds of (i) the Bank, if the Employer employing the participant at the time his/her Eligible Compensation is subject to this Plan, was a bank or a bank subsidiary or (ii) the Corporation, if the employer employing the Participant at the time his/her Eligible Compensation is subject to this Plan, was not a bank or a bank subsidiary. No assets of shall be required to be segregated or earmarked to represent any liability for supplemental benefits hereunder, but the Corporation and Bank shall have the right to establish vehicles to assist them and the other Employers in meeting their obligations hereunder. The rights of any person to receive benefits under the Plan shall be only those of a general unsecured creditor; and such status shall not be enhanced by reason of the establishment of any funding vehicles.      5.4 Beneficiary. Upon the death of a Participant who has vested benefits under this Plan which death occurs prior either to his/her receipt of benefits hereunder or the transfer to benefits to the Deferred Compensation Program, the Beneficiary of such Participant shall receive a benefit equal to the difference between that amount under the Retirement Plan that such Beneficiary would have received but for Section 415 limitation and that amount actually received under the Retirement Plan; and the Account of the Participant. ARTICLE VI PRIOR PLAN AND MHT PLAN      6.1 Prior Plan. (a) Any individual who was a Participant in the Prior Plan and whose benefit has not been distributed as of January 1, 1993, shall have an Account under the Plan. To the extent provided under Prior Plan, Interest Credits and/or Transition Credits shall be added to the Account, as if such account were an Account under the Retirement Plan.      (b) An individual shall vest in the balance of such Account under the Prior Plan as provided in Section 4.1. Benefits are forfeited upon a termination of employment with an Employer or a Related Company if the individual has not satisfied such criteria. Such benefits are not restored upon re-employment.      (c) Notwithstanding Section 5.1(a) or (b), if the employment of a Participant who was employed by Chemical Banking Corporation or a Related Company terminated on or before December 31, 1996, then any vested benefit under this Plan shall be distributed under the terms and conditions of this Plan as in effect on such termination date except that the terms of Section 3.4 as set forth in this Plan document shall be applicable to any amounts payable thereunder.      6.2 MHT Plan. (a) Individuals receiving benefits from the MHT Plan shall continue to receive such benefits under the Plan.      (b) Individuals who terminated employment on or before January 1, 1993, having satisfied the age and service criteria for a benefit under the MHT Plan and whose benefit under the Retirement Plan is limited by Section 415 of Page 6 --------------------------------------------------------------------------------   the Code and/or the Compensation Limit shall receive a benefit hereunder as provided for in the MHT Plan; provided that such benefits shall not be paid in the form of a lump sum. ARTICLE VII AMENDMENT AND TERMINATION      7.1 Amendment. The Board or the Administrator may amend the Plan in any respect and at any time; provided, however, that no amendment shall have the effect of reducing (i) any benefit then being paid to any Participant or to any other person pursuant to Articles III or VI, or (ii) the vested amount of any benefit under Sections 3.1, 3.2 and 3.3 theretofore accrued on behalf of any Participant.      7.2 Termination. The Board may terminate the Plan at any time. In the event of termination, the Plan shall continue in force with respect to any Participant, or other person entitled to receive a benefit under Sections 3.1, 3.2 and 3.3 to the extent accrued and vested under the Plan prior to its termination, and shall be binding upon any successor to substantially all the assets of the Corporation or any other Employer. Notwithstanding the foregoing, the Board may determine that it is in the best interests of the Employers or the Participants to terminate the Plan in its entirety and distribute to each Participant (or other person entitled to receive payments hereunder) the benefit of such Participant thereunder. ARTICLE VIII GENERAL PROVISIONS      8.1 Assignability. No right to receive payments hereunder shall be transferable or assignable by a Participant except by will or by the laws of descent and distribution or by a court of competent jurisdiction. Any other attempted assignment or alienation of payments hereunder shall be void and of no force or effect.      8.2 Administration. Except as otherwise provided herein, the Plan shall be administered by the Administrator, who shall have the authority to adopt rules and regulations for carrying out the provisions of the Plan, and who shall conclusively interpret, construe and implement the provisions of the Plan, including eligibility to participate, the entitlement to benefits and the amount of such benefits.      8.3 Legal Opinions. The Administrator may consult with legal counsel, who may be counsel for the Bank or other counsel, with respect to his obligations or duties hereunder, or with respect to any action proceeding or any question of law, and shall not be liable with respect to any action taken, or omitted, by him in good faith pursuant to the advice of such counsel.      8.4 Liability. Any decision made or action taken by the Board, Committee or the Administrator arising out of, or in connection with, the construction, administration, interpretation and effect of the Plan shall be within their absolute discretion, and will be conclusive and binding on all parties. Neither the Administrator nor a member of the Board or of the Committee shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done in connection with this Plan.      8.5 Corporate Reorganization. In the event that a corporation or unincorporated entity ceases to meet the definition of an Employer such corporation or entity shall cease to be an Employer under the plan and its Page 7 --------------------------------------------------------------------------------   employees shall cease to be Participants under the Plan, and the Plan shall be treated as though a separate plan for the benefit of its employees who were Participants in the plan to govern the accrued benefits of each such Participant (or any person entitled to benefits in respect of such a Participant).      8.6 Construction. The masculine gender, where appearing in this Plan, shall be deemed to also include the feminine gender. The singular shall also include the plural, where appropriate.      8.7 Governing Law. The Plan shall be construed and administered in accordance with the laws of the State of New York.      8.8 Not an Employment Contract. Nothing herein shall be construed to confer upon any person any legal right to continued employment with the Bank or any Related Company.  8  Page 8

Exhibit 10.5 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of November 6, 2006, is entered into among HEALTH NET, INC., a Delaware corporation (the “Borrower”), the Lenders and JPMORGAN CHASE BANK, N.A., as administrative agent (the “Administrative Agent”). Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement described below. W I T N E S S E T H WHEREAS, the Borrower, the Lenders party thereto, and the Administrative Agent entered into that certain Credit Agreement dated as of June 23, 2006 (the “Existing Credit Agreement”); WHEREAS, the Borrower has requested that the Required Lenders agree to amend certain provisions of the Credit Agreement as hereinafter set forth; and WHEREAS, the Required Lenders have agreed to such modifications on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: PART 1 DEFINITIONS SUBPART 1.1 Certain Definitions. Unless otherwise defined herein or the context otherwise requires, the following terms used in this Amendment, including its preamble and recitals, have the following meanings: “Amended Credit Agreement” means the Existing Credit Agreement as amended hereby. “Amendment No. 1 Effective Date” is defined in Subpart 3.1. SUBPART 1.2 Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Existing Credit Agreement. -------------------------------------------------------------------------------- PART 2 AMENDMENT TO EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Amendment No. 1 Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part 2. SUBPART 2.1 Amendment to Section 1.01. The definition of “Specified Share Repurchase” found in Section 1.01 of the Existing Credit Agreement is hereby amended and restated to read as follows: “Specified Share Repurchase” means that certain redemption, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of the Borrower in an amount not to exceed $500,000,000. PART 3 CONDITIONS TO EFFECTIVENESS SUBPART 3.1 Amendment No. 1 Effective Date. This Amendment shall be and become effective as of the date hereof (the “Amendment No. 1 Effective Date”) when all of the conditions set forth in this Part 3 shall have been satisfied, and thereafter this Amendment shall be known, and may be referred to, as the “Amendment”. SUBPART 3.2 Execution of Counterparts of Amendment. The Administrative Agent shall have received counterparts of this Amendment, which collectively shall have been duly executed on behalf of each of the Borrower, the Required Lenders and the Administrative Agent. SUBPART 3.3 Fees and Expenses. The Administrative Agent shall have received all out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment (including without limitation the fees and expenses of Moore & Van Allen PLLC, special counsel to the Administrative Agent to the extent the Borrower has received an invoice prior to the Amendment No. 1 Effective Date). PART 4 MISCELLANEOUS SUBPART 4.1 Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that, after giving effect to this Amendment, (a) no Default or Event of Default exists under the Existing Credit Agreement and (b) the representations and warranties set forth in Article V of the Existing Credit Agreement (i) that contain a materiality qualification are true and correct on and as of the date hereof, subject to the limitations set forth therein, as if made on and as of such date (except to the extent such representations and warranties expressly relate to another date in which case such representations and warranties shall be true and correct as of such date) and (ii) that do not contain a materiality qualification are true and correct in all material respects on and as of the date hereof, subject to the limitations set forth therein, as if made on and as of such date (except to the extent such representations and warranties expressly relate to another date in which case such representations and warranties shall be true and correct in all material respects as of such date). -------------------------------------------------------------------------------- SUBPART 4.2 Cross-References. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment. SUBPART 4.3 Instrument Pursuant to Existing Credit Agreement. This Amendment is executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement. SUBPART 4.4 References in Other Loan Documents. At such time as this Amendment shall become effective pursuant to the terms of Subpart 3.1, all references to the “Credit Agreement” shall be deemed to refer to the Credit Agreement as amended by this Amendment. SUBPART 4.5 Counterparts/Telecopy. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of executed counterparts of the Amendment by telecopy or other electronic means shall be effective as an original and shall constitute a representation that an original shall be delivered. SUBPART 4.6 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES). SUBPART 4.7 Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SUBPART 4.8 General. Except as amended hereby, the Existing Credit Agreement and all other credit documents shall continue in full force and effect. [Remainder of Page Intentionally Left Blank] -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Credit Agreement as of the date first above written.   BORROWER:     HEALTH NET, INC., a Delaware corporation     By:   /s/ Wisdom Lu       Name:   Wisdom Lu       Title:   Treasurer -------------------------------------------------------------------------------- ADMINISTRATIVE AGENT:     JPMORGAN CHASE BANK, N.A.,     By:   /s/ Dawn Lee Lum       Name:   Dawn Lee Lum       Title:   Vice President --------------------------------------------------------------------------------     CITICORP USA, INC.     By:   /s/ Peter C. Bickford       Name:   Peter C. Bickford       Title:   Vice President --------------------------------------------------------------------------------     NATIONAL CITY BANK     By:   /s/ Gustavus A. Bahr       Name:   Gustavus A. Bahr       Title:   Vice President --------------------------------------------------------------------------------     UBS LOAN FINANCE, LLC     By:   /s/ Richard L. Tavrow       Name:   Richard L. Tavrow       Title:   Director     By:   /s/ Irja R. Otsa       Name:   Irja R. Otsa       Title:   Associate Director --------------------------------------------------------------------------------     THE BANK OF NEW YORK     By:   /s/ Jonathan Rollins       Name:   Jonathan Rollins, CFA       Title:   Vice President --------------------------------------------------------------------------------     THE BANK OF NOVA SCOTIA     By:   /s/ V.H. Gibson       Name:   V.H. Gibson       Title:   Assistant Agent --------------------------------------------------------------------------------     U.S. BANK NATIONAL ASSOCIATION     By:   /s/ Timothy D. Myers       Name:   Timothy D. Myers       Title:   Vice President --------------------------------------------------------------------------------     JPMORGAN CHASE BANK, N.A. as Lender     By:   /s/ Dawn Lee Lum       Name:   Dawn Lee Lum       Title:   Vice President --------------------------------------------------------------------------------     UNION BANK OF CALIFORNIA, N.A.     By:   /s/ Philip M. Roesner       Name:   Philip M. Roesner       Title:   Vice President

midtownpartners photo [midtownpartners.jpg]   Midtown Partners & Co., LLC        4902 Eisenhower Blvd., Suite 185        Tampa, FL 33634          Phone: 813.885.5744 ♦ Fax: 813.885.5911  --------------------------------------------------------------------------------   PLACEMENT AGENT AGREEMENT This agreement (the “Agreement”), made as of this 18th day of October, 2006, by and between OmniReliant Corporation, a Florida corporation, (the “Company”), with its principal place of business at 4902 Eisenhower Blvd., Suite 185, Tampa, Fl 33634 and MIDTOWN PARTNERS & CO., LLC, (the “Placement Agent”, “Midtown” or “Midtown Partners”), a Florida limited liability company, with its principal place of business at 4902 Eisenhower Blvd., Suite 185, Tampa, Fl 33634, confirms the understanding and agreement between the Company and the Placement Agent as follows: SECTION I The Company hereby engages the Placement Agent as the Company’s exclusive placement agent in connection with a proposed private placement in the United States (the “Offering”) of up to five million dollars (US$5,000,000) of the Company’s securities (the “Financing”). The Offering will be made to solely “accredited investors” (the “Accredited Investors”), as such term is defined in Rule 501(a) of Regulation D (“Regulation D”) promulgated under the United States Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption from registration under applicable federal and state securities laws available under Rule 506 of Regulation D and in accordance with the terms of this Agreement. The terms and conditions of the Financing shall be similar to those terms and provisions as attached in Exhibit A hereto subject to a final term Sheet to be set forth at a later date to be approved by the Company. The Placement Agent hereby accepts such engagement upon the terms and conditions set forth in this Agreement. This Agreement shall not give rise to any commitment or obligation by the Placement Agent to purchase any of the Financing or, except as set forth herein, to find purchasers for the Financing. The Placement Agent shall provide the following services (the “Services”):   (a) Advise the Company with regard to the size of the Offering and the structure and terms of the Financing in light of the current market environment; (b) Assist the Company in identifying and evaluating prospective qualified Accredited Investors; (c) Approach such investors on a “best efforts basis” regarding an investment in the Company; and (d) Work with the Company to develop a negotiating strategy and assist with the negotiations with such potential investors. In connection with the Placement Agent providing the Services, the Company agrees to keep the Placement Agent up to date and apprised of all material business, market and legal developments related to the Company and its operations and management. The Placement Agent shall devote such time and effort, as it deems commercially reasonable under the circumstances in rendering the Services. The Placement Agent shall not provide any work that is in the ordinary purview of a certified public accountant. The Placement Agent cannot guarantee results on behalf of the Company, but shall pursue all avenues that it deems reasonable through its network of contacts.   1 -------------------------------------------------------------------------------- SECTION II The Placement Agent, its affiliates and any person acting on its or their behalf hereby represent, warrant and agree as follows (the “Placement Agent Parties”): (a)  The Financing offered and sold by the Placement Agent have been and will be offered and sold in compliance with all federal and state securities laws and regulations governing the registration and conduct of broker-dealers, and each Placement Agent Party making an offer or sale of Financing was or will be, at the time of any such offer or sale, registered as a broker-dealer pursuant to Section 15(b) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and under the laws of each applicable state of the United States (unless exempted from the respective state’s broker-dealer registration requirements), and in good standing with the National Association of Securities Dealers, Inc. (b) The Financing offered and sold by the Placement Agent have been and will be offered and sold only to Accredited Investors in accordance with Rule 506 of Regulation D and applicable state securities laws; provided, however, the Company shall make all necessary filings under Rule 503 of Regulation D and such similar notice filings under applicable state securities laws. The Placement Agent Parties represent and warrant that they have reasonable grounds to believe and do believe that each person to whom a sale, offer or solicitation of an offer to purchase Financing was or will be made was and is an Accredited Investor. Prior to the sale and delivery of a Debenture to any such investor, the Placement Agent Parties will obtain an executed subscription agreement and an executed investors’ rights agreement in the form agreed upon by the Company and the Placement Agent (the “Subscription Documents”). (c) In connection with the offers and sales of the Financing, the Placement Agent Parties have not and will not (1)  Offer or sell, or solicit any offer to buy, any Financing by any form of “general solicitation” or “general advertising”, as such terms are used in Regulation D, or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; (2)  Use any written material other than the term sheet, that will be approved by the Company at a later date, and the Placement Agent, a copy of which is attached hereto as Exhibit A, and the Subscription Documents, and shall only rely upon and communicate information that is publicly available regarding the Company to any potential investors (without limiting the foregoing, none of the Placement Agent Parties is authorized to make any representation or warranty to any offeree concerning the Company or an investment in the Financing); or (3)  Take any action that would constitute a violation of Regulation M under the Exchange Act. (d) The Placement Agent shall cause each affiliate or each party acting on its or their behalf with whom they enter into contractual arrangements relating to the offer and sale of any Financing to agree, for the benefit of the Company, to the same provisions contained in this Agreement. SECTION III During the Term (as defined below), the Placement Agent is hereby retained by the Company to make limited introductions on a best efforts basis to provide financing for the Company in an amount and form to be mutually determined by the Company and the Placement Agent.  SECTION IV The Company hereby represents, warrants and agrees as follows:   (a) This Agreement has been authorized, executed and delivered by the Company and, when executed by the Placement Agent will constitute the valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.   2 -------------------------------------------------------------------------------- (b)  The offer and sale of the Financing, the Shares, and the Warrants shall be exempt from registration under the Securities Act, and will comply, in all material respects with the requirements of Rule 506 of Regulation D promulgated under the Securities Act and any applicable state securities laws. No documents prepared by the Company in connection with the Offering, or any amendment or supplement thereto, 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. (c)  The financial statements, audited and unaudited (including the notes thereto), included in the Company’s latest annual information form and subsequent quarterly reports (the “Financial Statements”), present fairly the financial position of the Company as of the dates indicated and the results of operations and cash flows of the Company for the periods specified. Such Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved except as otherwise stated therein. (d)  No federal, state or foreign governmental agency has issued any order preventing or suspending the Offering. (e)  The Company is a Florida corporation organized, existing and with active status under the laws of Florida, with corporate power and authority under such laws to own, lease and operate its properties and conduct its business as now conducted. The Company has all power, authority, authorization and approvals as may be required to enter into this Agreement and each of the Subscription Documents, and to carry out the provisions and conditions hereof and thereof, and to issue and sell the Financing, the Shares, and Warrants. (f)  The Financing, the Shares, the Warrants, and common shares issuable upon exercise of the Warrants (the “Warrant Shares”), have all been authorized for issuance and sale pursuant to the Subscription Documents, and when issued and delivered by the Company against payment therefore in accordance with the terms of the Subscription Documents, will be validly issued and fully paid and non-assessable. (g) With the exception of any approvals required by the Securities and Exchange Commission related to the Offering, no further approval or authorization of any shareholder of the Company, its Board of Directors or other person or group is required for the issuance and sale of the Financing, the Shares, the Warrants or the Warrant Shares. (h)  Since the latest unaudited financial statements there has not been any (A) material adverse change in the business, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company, (B) transaction that is material to the Company, except transactions in the ordinary course of business, (C) obligation that is material to the Company, direct or contingent, incurred by the Company, except obligations incurred in the ordinary course of business, (D) change that is material to the Company or in the common shares or outstanding indebtedness of the Company, or (E) dividend or distribution of any kind declared, paid, or made in respect of the common shares. SECTION V The parties agree that the close of the Offering (the “Closing”) shall be subject to the satisfaction of the following conditions, unless expressly waived in writing by the parties: (a) The Offering shall not be subject to any regulatory or judicial proceeding questioning or reviewing its effectiveness for the purpose of offering the Financing for sale and issuance. (b) The Company shall deliver a certificate of an officer of the Company dated as of the Closing that affirms the accuracy of the representations and warranties contained in Section IV hereof.   3 -------------------------------------------------------------------------------- (c)  The Agent shall have received an opinion of counsel to the Company, dated as of the Closing, that the Financing offered and sold in compliance with this Agreement are not required to be registered under the Securities Act. (d)  The Company shall have paid, or made arrangements satisfactory to the Agent for the payment of, all such expenses as required by Section VIII below. (e) The Placement Agent and the Company shall have finalized and agreed to the form of the warrant agreement and registration rights agreement referred to in Section VIII below. SECTION VI (a) The term of this Agreement shall commence on the date first written above and shall expire the earlier of one (1) year after the date the Company (1) provides the Placement Agent with requested due diligence materials and (2) the Company and the Placement Agent mutually agree that information documents (including, but not limited to: a business plan; executive summary; three-year historical income statement, statement of cash flows, and balance sheet; five-year projected financial statements; use of proceeds statement; investor presentation; valuation analysis), to be provided and approved by the Company, are ready for presentation to the Placement Agent’s network of potential financing sources or the closing of the Offering, unless terminated in accordance with the provisions set forth below, or extended by the mutual written consent of the parties hereto (the “Term”). This Agreement may be terminated only: (1) By the Placement Agent for any reason at any time upon thirty (30) days’ prior written notice; or (2) By the Placement Agent upon default in the payment of any amounts due to the Placement Agent pursuant to this Agreement, if such default continues for more than fifteen (15) days following receipt by the Company from the Placement Agent of written notice of such default and demand for payment. (a) In the event of termination, the Placement Agent shall be immediately paid in full on all items of compensation and expenses (including any amounts deferred) payable to the Placement Agent pursuant hereto, as of the date of termination. (b) The Placement Agent Fee or Financing Fee shall become due and payable to PLACEMENT AGENT upon the date that the Company receives the proceeds of the financing from the party providing the financing. A Placement Agent Fee shall also be payable with respect to any Qualified Offering or any subsequent Qualified Financing accepted and received by Company within twelve (12) months after the termination or expiration of this Agreement, by any party or source of funding introduced or facilitated by PLACEMENT AGENT to Company; or   (3) By the Company or the Placement Agent for any reason at any time upon fifteen (15) days’ prior written notice after the completion of the initial Term; or (4) By mutual agreement of the parties. SECTION VII At any time during the twelve (12) months following the termination of this Agreement, the Placement Agent shall be entitled to the compensation and fees as set forth in Section VIII of this Agreement for any Qualified Financing (as defined below) received by the Company. “Qualified Financing” shall mean an investment from a person after the termination of this Agreement that directly results from the Placement Agent’s performance of the Services hereunder during the Term of this Agreement (for the avoidance of doubt this shall mean any solicitation of a potential investor or an introduction of a potential investor to the Company by the Placement Agent related to the Offering during the Term of this Agreement). The Placement Agent agrees to provide to the Company within ten (10) days after the termination of this Agreement (the “Delivery Deadline”) a list of all persons solicited on behalf of the Company or introduced to the Company by the Placement Agent related to the Offering (the “Solicitation List”) to assist the parties in making a later determination as to whether a Qualified Financing has occurred. If the Solicitation List is not provided to the Company prior to the expiration of the Delivery Deadline, the Company’s obligation to pay any commissions or fees related to a Qualified Financing pursuant to this Section VII shall immediately terminate. For purposes of this Agreement, receipt of Qualified Financing shall be deemed to be received by the Company on the date that a definitive agreement regarding the Qualified Financing is executed by the Company and the party providing such financing. The compensation or fees shall become payable to the Placement Agent upon the date that the Company receives the proceeds of the Qualified Financing. The provisions set forth in this Section VII shall survive any termination of this Agreement.   4 -------------------------------------------------------------------------------- SECTION VIII In consideration for the performance of the Services hereunder, the Company hereby agrees to pay to the Placement Agent such fees (“The Placement Agent Fee or the Financing Fee”) as outlined below: (a) If the Placement Agent receives subscriptions for Financing as a part of the Offering (the “Placement Agent Investors”), the Company shall: 1) Pay to the Placement Agent in US dollars via wire from the attorney’s escrow at closing an amount equal to ten percent (10%) of the principal amount of the Financing purchased by the Placement Agent Investors (the “Financing Fee”), and pay to the Placement Agent ten percent (10%) on the execution of any Warrants purchased by the Investors. 2) On each closing date of a Financing on which aggregate consideration is paid or becomes payable to the Company for its Equity Securities, the Company shall issue to the Placement Agent or its permitted assigns warrants (the “Warrants”) to purchase such number of shares of the common stock of the Company equal to ten percent (10%) of the aggregate number of shares of common stock of the Company issued and issuable by the Company under and in connection with the Financings. The Company shall grant to the Placement Agent all Series of Warrants equal to ten percent (10%) of the number of Warrants issued to the Placement Agent Investors. The number of shares of common stock issuable upon exercise of the Warrants shall include all shares of common stock issuable under the Securities, including, without limitation, shares issuable upon conversion or exercise of the Securities. The Warrants shall have a ten (10) year term and shall provide for cashless exercise (even if the Purchasers do not have such right) and have terms and conditions identical to the Securities purchased by the Purchasers, including, without limitation, anti-dilution and full ratchet provisions to take into account any issuance of additional shares of common stock as a result of an adjustment to the Securities or the shares of common stock underlying the Securities. The Warrants shall be exercisable after the date of issuance and shall expire ten (10) years after the date of issuance, unless otherwise extended by the Company. The Warrants shall include anti-dilution protection, including protection against issuances of securities at prices (or with exercise prices, in the case of warrants, options or rights) below the exercise price of the Warrants. The Warrants shall not be callable or redeemable. The Warrants shall also include one demand registration right exercisable following the first anniversary of the closing, and piggyback registration rights. The Warrants shall be transferable within MIDTOWN PARTNERS, at the Placement Agent’s discretion. 3) An escrow with a third party agent approved by the parties hereto will be used for each closing to which the Placement Agent shall be a party. All consideration due the Placement Agent shall be paid to the Placement Agent directly there from. 4) Cause its affiliates to, pay to the Placement Agent all compensation described in this Section VIII with respect to all Securities sold to a purchaser or purchasers at any time prior to the expiration of thirty-six (36) months after the expiration of this Agreement (the “Tail Period”) if (i) such purchaser or purchasers were identified to the Company by the Placement Agent during the Term authorized, (ii) the Placement Agent advised the Company with respect to such purchaser or purchasers during the Term authorized or (iii) the Company or the Placement Agent had discussions with such purchaser or purchasers during the Term authorized. 5) The Company also agrees to pay for the legal and due diligence fees outlined in the attached term sheet and such fees shall not exceed $25,000.   5 -------------------------------------------------------------------------------- (b) It is acknowledged and agreed that the Company shall bear all costs and expenses incident to the issuance, offer, sale and delivery of the Financing. These costs and expenses will include but are not limited to state “Blue Sky” fees, legal fees, printing costs, travel costs, mailing, couriers, personal background checks, and other expenses incidental to the advancement and completion of the Offering. Full payment of Placement Agent’s expenses shall be made in same day funds at the Closing or, if the Offering is terminated for any reason, within ten (10) days of receipt by the Company of a written request from the Placement Agent for reimbursement of expenses, including documentation therefore satisfactory to the Company.   (c)  Subject to the other requirements set forth in this Agreement, the Placement Agent may introduce investors to the Offering directly or through other NASD member broker-dealers. If the Placement Agent utilizes any intermediaries, the Placement Agent shall be the Company’s point of contact, not the intermediary, and the Placement Agent, not the Company, shall be responsible for any compensation arrangement with the intermediary. The Company’s sole compensation arrangement, responsibility and obligation are with the Placement Agent. The Placement Agent will disclose the identity and compensation arrangements with all of its intermediaries in order to allow the Company to adequately disclose such arrangements, where necessary. SECTION IX The Company agrees to indemnify the Placement Agent and hold it harmless against any losses, claims, damages or liabilities incurred by the Placement Agent, in connection with, or relating in any manner, directly or indirectly, to the Placement Agent rendering the Services in accordance with the Agreement, unless it is determined by a court of competent jurisdiction that such losses, claims, damages or liabilities arose out of the Placement Agent’s breach of this Agreement, sole negligence, gross negligence, willful misconduct, dishonesty, fraud or violation of any applicable law. Additionally, the Company agrees to reimburse the Placement Agent immediately for any and all expenses, including, without limitation, attorney fees, incurred by the Placement Agent in connection with investigating, preparing to defend or defending, or otherwise being involved in, any lawsuits, claims or other proceedings arising out of or in connection with or relating in any manner, directly or indirectly, to the rendering of any Services by the Placement Agent in accordance with the Agreement (as defendant, nonparty, or in any other capacity other than as a plaintiff, including, without limitation, as a party in an interpleader action); provided, however, that in the event a determination is made by a court of competent jurisdiction that the losses, claims, damages or liability arose primarily out of the Placement Agent’s breach of this Agreement, sole negligence, gross negligence, willful misconduct, dishonesty, fraud or any violation of any applicable law, the Placement Agent will remit to the Company any amounts for which it had been reimbursed under this paragraph. The Company further agrees that the indemnification and reimbursement commitments set forth in this paragraph shall extend to any controlling person, strategic alliance, partner, member, shareholder, director, officer, employee, agent or subcontractor of the Placement Agent and their heirs, legal representatives, successors and assigns. The provisions set forth in this Section IX shall survive any termination of this Agreement. SECTION X All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by facsimile transmission or the fifth calendar day after being mailed by registered or certified mail, return receipt requested, postage prepaid, to the addresses herein above first mentioned or to such other address as any party hereto shall designate to the other for such purpose manner herein set forth. SECTION XI Governing Law. The subject matter of this Agreement shall be governed by and construed in accordance with the laws of the State of Florida (without reference to its choice of law principles), and to the exclusion of the law of any other forum, without regard to the jurisdiction in which any action or special proceeding may be instituted. EACH PARTY HERETO AGREES TO SUBMIT TO THE PERSONAL JURISDICTION AND VENUE OF THE STATE AND/OR FEDERAL COURTS LOCATED IN HILLSBOURGH COUNTY, FLORIDA FOR RESOLUTION OF ALL DISPUTES ARISING OUT OF, IN CONNECTION WITH, OR BY REASON OF THE INTERPRETATION, CONSTRUCTION, AND ENFORCEMENT OF THIS AGREEMENT, AND HEREBY WAIVES THE CLAIM OR DEFENSE THEREIN THAT SUCH COURTS CONSTITUTE AN INCONVENIENT FORUM. AS A MATERIAL INDUCEMENT FOR THIS AGREEMENT, EACH PARTY SPECIFICALLY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY ISSUES SO TRIABLE. If it becomes necessary for any party to institute legal action to enforce the terms and conditions of this Agreement, the prevailing party may be awarded reasonable attorneys fees, expenses and costs.   6 -------------------------------------------------------------------------------- Confidentiality. The Placement Agent may acquire certain non-public information respecting the business of the Company in connection with the performance of services hereunder, including information, which is reasonably understood to be proprietary or confidential in nature (collectively, “Confidential Information”). The Placement Agent hereby agrees that all Confidential Information shall be kept strictly confidential by the Placement Agent and its affiliates, members, partners, shareholders, managers, directors, officers, employees, advisors, agents, and controlling persons (collectively, “Representatives”), except that Confidential Information or portions thereof may be disclosed to Representatives who need to know such information for the purpose of enabling the Placement Agent to perform services hereunder (it being understood that prior to such disclosure, such Representative will be informed by the Placement Agent of the confidential nature of such Confidential Information and shall agree to be bound by this Agreement). The Placement Agent shall be responsible for any breach of this provision by any of its Representatives. For purposes hereof, Confidential Information shall not include any information which (i) at the time of disclosure or thereafter is or becomes generally known by the public (other than as a result of its disclosure by the Placement Agent or its Representatives), (ii) was or becomes available to the Placement Agent on a non-confidential basis from a person who is not subject to a confidentiality agreement concerning that information, or (iii) is required by law to be disclosed by the Placement Agent (provided that if such disclosure is required by order of a court or administrative agency, the Placement Agent shall notify the Company as soon as possible so that the Company may seek a protective order). Assignments and Binding Effect. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The rights and obligations of the parties under this Agreement may not be assigned or delegated without the prior written consent of both parties, and any purported assignment without such written consent shall be null and void. Modification and Waiver. Only an instrument in writing executed by the parties hereto may amend this Agreement. The failure of any party to insist upon strict performance of any of the provisions of this Agreement shall not be construed as a waiver of any subsequent default of the same or similar nature, or any other nature. Construction. The captions used in this Agreement are provided for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Facsimile Signatures. Facsimile transmission of any signed original document, and re-transmission of any signed facsimile transmission, shall be the same as delivery of an original. At the request of either party, the parties shall confirm facsimile transmitted signatures by signing an original document. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement.  Severability. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect, and of the remaining provisions of this Agreement, shall not be in any way impaired. Exclusive. Midtown acknowledges and agrees that it is being granted exclusive rights with respect to the Services to be provided to the Company and the Company is not free to engage other parties to provide services similar to those being provided by Midtown hereunder without the prior written consent of Midtown. Non-Circumvention. The Company hereby irrevocably agrees not to circumvent, avoid, bypass, or obviate, directly or indirectly, the intent of this Agreement. The Company agrees not to accept any business opportunity from any third party to whom PLACEMENT AGENT introduces to the Company without the consent of PLACEMENT AGENT, unless for each business opportunity accepted by the Company from a third party introduced by PLACEMENT AGENT, the Company remits a term sheet and then a contract which defines a mutually agreeable compensation structure for PLACEMENT AGENT. In addition, the Company shall not work with, negotiate with or enter into any equity linked financing whatsoever with any Investor, Consultant or Placement Agent without Midtown’s prior written consent. If the Company raises capital through in any equity offering or sale or equity linked instrument while engaged with Midtown as the exclusive Placement Agent, the Company shall pay to Midtown all of its fees in Section VIII, even if the Placement Agent has provided no assistance whatsoever in raising such capital.   7 -------------------------------------------------------------------------------- Survivability. Neither the termination of this Agreement nor the completion of any services to be provided by the Placement Agent hereunder, shall affect the provisions of this Agreement that shall remain operative and in full force and effect. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter of this Agreement and supersedes all prior understandings and agreements, whether written or oral, among the parties with respect to such subject matter. If the foregoing correctly sets forth the understanding between the Placement Agent and the Company, please so indicate in the space provided below for that purpose within 10 days of the date hereof or this Agreement shall be withdrawn and become null and void. The undersigned parties hereto have caused this Agreement to be duly executed by their authorized representatives, pursuant to corporate board approval and intend to be legally bound.   OMNIRELIANT CORPORATION     MIDTOWN PARTNERS & CO., LLC.                 By:     By: -------------------------------------------------------------------------------- Chris D. Phillips, President     -------------------------------------------------------------------------------- Bruce Jordan, President     8 --------------------------------------------------------------------------------  

  GSA Resources, Inc.   P.O. Box 509 Cortaro, AZ 85652 (520) 744-8845 FAX: (520) 744-7770 [email protected] www.gsaresources.com    ________________________________   May  22, 2006 TO: Roy Shipes - President Atlas Mining Corporation White Cliffs Mining Inc. 8040 S. Kolb Road Tucson, AZ 85706   Dear Roy: RE: Mineral Property Acquistion This letter sets out the agreement (“Agreement”) reached among GSA Resources Inc. (“GSA” or the “Purchaser”) and White Cliffs Mining Inc. and Atlas Minerals Inc. (together the "Vendor") as vendor regarding the transfer and sale by the Vendor of all (100%) of the interest and rights to a diatomite mineral property of twenty unpatented placer mining claims covering 3,120 acres located in near Mammoth in Arizona, (the “Property”) more particularly described in Schedule A to this Agreement together with the other assets described in this Agreement to be sold to GSA , an Arizona company.   Acquisition     1. The Vendor hereby agrees to transfer to GSA all the Property on the terms and subject to the conditions set out in this Agreement (the “Sale Transaction”). The Sale Transaction will include assumption of any non-financial encumbrances and liabilities registered on the Property such as existing easements. Transfer of the Property will also include transfer of any and all assessments, reports, geological and sample data and any other information or data that has been collected or produced and is in the possession or owned by WCM.   The Vendor will also transfer all appurtenances attached to the Property and all equipment used in and regarding the operations at the Property, as listed in Schedule B to this Agreement, including without limitation the cash reclamation bond of approximately $45,900 which the Vendor has put up for reclamation of the Property. The term “Property” will for the purpose of this Agreement include all transferred assets as listed on Schedules A and B. The Vendor will transfer the Property directly to GSA or to any assignee of GSA, in GSA’s discretion. The Property will be transferred free and clear of all liabilities, except as indicated in this Agreement. -------------------------------------------------------------------------------- After conducting due diligence, GSA or its assigns may in their discretion purchase all the issued and outstanding shares of White Cliff Mining Inc. from Atlas Mining Corporation and in such event, the Vendors will co-operate to ensure that White Cliff Mining Inc. at the time of sale holds the Properties free and clear of liabilities, on the same terms as are otherwise set out in this Agreement.   Consideration     2. In payment for the sale and transfer of the Property to GSA , on Closing (defined below), GSA will pay to the Vendor the sum of $225,000 (the “Purchase Price”).   Deposit   3. GSA will pay to the Vendor the sum of $15,000 (the “Deposit”) which sum will be used as a non-refundable deposit and will form a portion of the purchase price on Closing. Upon acceptance of the Deposit GSA will have 60 days to close the Sale Transaction. GSA may obtain a further 45 day extension to close by paying a further non-refundable deposit of $10,000 (the “Further Deposit”).   In the event that GSA does not complete the Sale Transaction for any reason other than breach of a representation or agreement by the Vendor, this Agreement will terminate and the Vendor’s sole remedy will be to retain the Deposit and if already delivered to the Vendor, the Further Deposit.   Closing     4. Closing of the Sale Transaction (the "Closing") will occur on the first business day after the 60th day from execution of this Agreement by both parties, or 45 days later as per section 3, or on such other date as the parties may agree. Closing will be held at the City of Tucson, Arizona, in the offices of GSA at 11 A.M., or at such other place and time as the parties may agree.   Definitive Agreements   5. The parties agree to instruct their attorneys to co-operate and complete comprehensive and definitive transfer documents and agreements for the Sale Transaction upon execution of this Agreement. The definitive agreements will contain terms and representations customary for agreements governing the purchase and sale of property and equipment in Arizona, as prepared by commercial legal counsel of good reputation.      Due Diligence     6. GSA will have the right to conduct due diligence on the Property in connection with the Sale Transaction. GSA and its accountants, legal counsel and other representatives will have full access during normal business hours to the management, properties, books, records, contracts, commitments and other documents regarding the Property in connection with the transactions contemplated herein.    -------------------------------------------------------------------------------- Closing Conditions     7. This Agreement and the Closing hereof is subject to the following:       (a) GSA being satisfied in its sole discretion with the results of its due diligence review; and       (b) all representations and warranties contained herein and to be contained in the definitive agreements described in Section 5 hereof shall be true and correct at the date of Closing.     Representations of the Vendor     8. The Vendor represents and warrants that:       (a) the Vendor has the full power and authority to transfer or cause to be transferred the Property to GSA free and clear of any charges, encumbrances, liens or claims;       (b) all data, reports and information about the Property provided and to be provided to GSA is true and accurate in all material respects; and       (c) there are no royalties are payable on the Property except current governmental taxes and assessments.     Pre Closing Covenants     9. GSA and the Vendor hereby covenant to the other as follows:       (a) until Closing the Vendor shall maintain the Property in the ordinary and normal course, as it has been maintained for the past year;       (b) the Vendor will assist in any permitting and other development matters that GSA wishes to pursue, including without limitation the air quality permit, provided that GSA will be responsible for all permitting and development costs. In the event that the Sale Transaction does not close, such costs will be forfeit.       (c) GSA may secure the Property at its own expense provided that the Vendor shall have full access until Closing. This may include with the vendor’s permission moving the mobile equipment to a secure site in Tucson for assessment and repair estimates at GSA’s expense.     Provided the Property claims are in good standing at the date of this Agreement, and provided GSA has requested and paid for a 45 day extension to close set out in paragraph 3, GSA will pay the costs of maintaining the Property claims in good standing between the date of this Agreement and the Closing, including specifically the claims maintenance fees due by September 1, 2006.     -------------------------------------------------------------------------------- Binding Agreement     10. Upon acceptance of the terms of this Agreement, the terms of this Agreement shall be a legally valid and binding agreement. Other terms will be set within 60 days as agreed by the parties and set out in definitive agreements. If any term cannot be agreed to in the definitive agreement, the terms of this Agreement will remain in full force and effect.   General   11. All dollar references are United States dollars.   If the foregoing correctly sets out the terms of our agreement, please execute this letter in the space provided.   GSA Resources, Inc.   Per: /s/ Daniel T. Eyde             Daniel T. Eyde   Accepted this 29th day of May, 2006.     White Cliffs Mining Inc.   Per: /s/ Roy Shipes Authorized Signatory   Atlas Minerals Inc.   Per: /s/ Roy Shipes Authorized Signatory --------------------------------------------------------------------------------   SCHEDULE A   Property Description   Twenty unpatented placer mining claims covering 3,120 acres   Legal Description:     --------------------------------------------------------------------------------   SCHEDULE B   Bond, Plant Facilities and Equipment List   Reclamation Bond   Paid to U.S. Bureau of Land Management in the amount of $45,900.   Facilities:   16 cubic yard (cy) ore receiving hopper, conveyor belt, impact mill, diesel fired dryer, hammer mill, three cyclones for separation, a baghouse, three product silos, and two bagging machines. Any mobile or other equipment, trailers, lab facilities, or test and process equipment not specifically mentioned, but part of the processing facilities and equipment currently at the White Cliffs site. Mobile Equipment

  Exhibit 10.1 AGREEMENT OF TERMINATION AND RELEASE AGREEMENT OF TERMINATION AND RELEASE, made this 30th day of June 2006 (the “Agreement”), by and between Xenomics, Inc. (“Xenomics, Inc.”),  Xenomics, a California corporation (“Xenomics” and together with Xenomics, Inc., the “Company”),  L. David Tomei, Samuil Umansky, Hovsep Melkonyan, Kathryn P. Wilkie and Anatoly V. Lichtenstein (collectively, the “Shareholders”). The Company and the Shareholders collectively shall be referred to as the “Parties.” WHEREAS, the Parties hereto entered into a Technology Acquisition Agreement dated June 24, 2004 (the “Technology Acquisition Agreement”), which, among other things, contains certain rights, obligations, and duties of the Parties; and WHEREAS, the Parties desire to mutually terminate the Technology Acquisition Agreement; WHEREAS, each of the Parties desires to release each of the other Parties from any and all claims in connection with or relating to the Technology Acquisition Agreement; NOW THEREFORE, in consideration of the mutual covenants and other good and valuable considerations hereinafter contained, the Parties agree as follows: 1.                                       Recitals. The above recitals are incorporated into this Agreement. 2.                                      Mutual Termination of the Technology Acquisition Agreement. The Technology Acquisition Agreement is hereby terminated so as to be rendered null and void and of no further force and effect, and the Parties (and their assignees) are hereby relieved of all of their respective obligations thereunder. 3.                                       Mutual Release. The Company (and its past, present and future officers, directors, employees, servants, agents, representatives, successors, predecessors, divisions, subsidiaries, parents, affiliates, business units, and assigns of each of them) hereby release each of the other Parties (and their past, present and future officers, directors, employees, servants, agents, representatives, attorneys, successors, predecessors, divisions, subsidiaries, parents, affiliates, business units, and assigns of each of them) from any and all claims, demands, damages, actions, causes of action or suits at law or in equity of whatever kind or nature, liabilities, verdicts, debts, judgments, liens and injuries, whether based upon the Technology Acquisition Agreement or any other legal or equitable theory of recovery, known or unknown, past, present or future, suspected to exist or not suspected to exist, anticipated or not anticipated, which have arisen or are now arising or hereafter may arise, whether presently asserted or not, in connection with or relating to the Technology Acquisition Agreement (including, but not limited to, the performance rendered or not rendered thereunder). --------------------------------------------------------------------------------   4.                                       Mutual Consent. The Parties hereto, and each of them, do hereby: (i) acknowledge that they have reviewed or caused to be reviewed the Technology Acquisition Agreement; (ii) acknowledge that they have reviewed or caused to be reviewed this Agreement; (iii) unconditionally consent to the termination of the Technology Acquisition Agreement (and the consummation of the transactions contemplated thereby) by the Company; and (iv) unconditionally consent to the release of any and all claims as described in Section 3. 5.                                       Merger. All understandings and agreements heretofore had between the Parties, except as set forth herein, are null and voice and of no force and effect. 6.                                       Duplicate Originals; Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single agreement. 7.                                       Governing Law. This Agreement shall be interpreted and the rights and liabilities of the Parties determined in accordance with the laws of the State of New York, excluding its conflict of laws rules. 2 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the Parties hereto have executed this Agreement of Termination and Release as of the day and year first written above. XENOMICS, INC.       By: /s/ L. David Tomei     Name: L. David Tomei     Title: Chief Executive Officer         XENOMICS         By: /s/ Samuil Umansky     Name: Samuil Umansky     Title: President           /s/ L. David Tomei     L. David Tomei           /s/ Samuil Umansky     Samuil Umansky           /s/ Hovsep Melkonyan     Hovsep S. Melkonyan           /s/ Anatoly Lichtenstein     Anatoly V. Lichtenstein           /s/ Kathryn Wilkie     Kathryn P. Wilkie   3 --------------------------------------------------------------------------------

Exhibit 10.7 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT. CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION. GOTO SEARCH SERVICES ORDER Affiliate’s Name: Comet Systems, Inc. Type of Entity/State: Corporation/Delaware Street Address: 143 Varick Street City/State/Zip: New York, NY 10013 Affiliate Contact: Matt Gillis Email: [email protected] Telephone/Fax: 212-231-2000 x130/ 212-809-0926 Tax Identification Number: 13-3938540     1. Term: The earlier of ***.       2. (a) Effective Date: April 26, 2001       (b) Launch Date: ***     3. GoTo Services: GoTo Services includes GoTo’s technology and functionality for matching particular keyword requests with an index of certain web site URL’s, for providing the results of that match via the Internet and then enabling users to link to a designated page for the Advertisers which comprise the results of such match, which such Advertisers are ranked according to GoTo’s on-going auction for such keywords. GoTo Services do not include other services and products such as GoTo Shopping Services and GoTo Auction Services, which are provided by entities that are affiliated with GoTo or GoTo contemplated Paid Inclusion Product.     4. The GoTo Services will be offered on Affiliate’s Offering(s), which, in addition to any offerings Affiliate creates as part of its testing program outlined in Paragraph 2 of the Rider to this Services Order, is either or both of the following, as indicated below:     N/A Affiliate’s Web Site(s): The pages under all of the top level domain names owned or operated by Affiliate, including but not limited to the following: ______________________ (together with all successor web pages to the foregoing). Yes Affiliate’s Application: Affiliate’s Search Cursor application currently marketed under the Smart Cursor’s brand-name. The Search Services will be accessible through a user action via the search the web icon (currently represented by a magnifying glass) in a drop down menu (currently located on top of the browser toolbar). or any legacy or replacement interface that serves the same of a substantially similar purpose, and then clicking on a search term with the Search Cursor, or through selection of the Search Web menu item from Affiliate’s system tray icon and then typing in a search query in the search box, or through a persistent Search Box while in Search Web mode.     5. GoTo Links: GoTo Links enable a user to access GoTo Services. The included GoTo Links on Affiliate’s Offering are indicated below:       Type of GoTo Link Description N/A GoTo Search Box The GoTo search box as provided by GoTo. Yes Affiliate Search Box All of the search boxes on Affiliate’s Offering provided by Affiliate. N/A Contextual Links Words and/or phrases provided by GoTo that are hyperlinked to GoTo Results that appear in a new browser window.   *** CONFIDENTIAL TREATMENT REQUESTED -------------------------------------------------------------------------------- N/A HotSpots Words and/or phrases provided by GoTo that are hyperlinked to GoTo Results. Yes Other Any hyperlink enabled by Affiliate’s Offering which transfers a user to Web search results.         6. Implementation of GoTo Links:GoTo shall provide the GoTo Search Box, Contextual Links and HotSpots (as indicated), or, for GoTo Links to be created by Affiliate (either the Affiliate Search Box or a GoTo Link described in “Other”), GoTo shall provide the software code and functionality (such as the precise URL) and, if applicable, the GoTo Marks to create those GoTo Links. Affiliate shall enable all users of Affiliate’s Offering(s) to initiate search queries through the GoTo Links and to access the GoTo Services by creating, implementing, and maintaining the GoTo Links in accordance with the specifications (including content, branding, shape, size, color, spacing and placement) as such are agreed upon between Affiliate and GoTo in this Services Order, and otherwise in accordance with this GoTo Services Order. GoTo Links on Affiliate’s Web Site must be located Above the Fold. ***           ***           ***           After a user initiates a query of the GoTo Services via a GoTo Link, then GoTo shall ***. GoTo Results are as indicated below:       N/A Paid GoTo Results only, where “Paid GoTo Results” are search results provided by Advertisers of GoTo and do not include supplemental search results. Yes All GoTo Results (Paid GoTo Results plus supplemental search results).         7. GoTo Results Implementation. Upon a user initiating a search query though a GoTo Link on Affiliate’s Offering, the user shall be transferred to a Web page hosted by GoTo (or a mutually agreed upon third party) which shall contain GoTo Results and other search provider results as approved in advance by GoTo and Affiliate. Affiliate’s logo shall be displayed at the top of the search results page.         8. Licensed Materials: The Licensed Materials are the items licensed by GoTo to Affiliate for purposes of this Services Order, as indicated below.       Yes Portions of GoTo Links provided by GoTo (i.e. the GoTo Search Box, Contextual Links or HotSpots and the software code, functionality and/or URLs that enable a user of GoTo Links to access the GoTo Services.) Yes GoTo Marks displayed on Affiliate’s Offering(s) No GoTo Results displayed on Affiliate’s Offering(s) Yes GoTo Services         9. Default Services Provider. ***         10. Compensation. GoTo shall pay Affiliate the amounts set forth below, excluding ***, within 45 days after the end of the calendar month ***. GoTo shall include a report of the amounts that accrued during the most recent measurement period with each payment. GoTo will retain all revenue derived from the GoTo Links, GoTo Services and GoTo Results, except as specifically set forth on this GoTo Services Order. Payments shall be in U.S. Dollars GoTo has no obligation to make any payment in any period where the total due Affiliate is less than $250; GoTo may hold such payments due Affiliate until the amount due Affiliate hereunder exceeds $250 and will remit such amount upon the next scheduled payment date. *** CONFIDENTIAL TREATMENT REQUESTED 2 --------------------------------------------------------------------------------     For each calendar month during the Term, GoTo shall pay Affiliate ***           For purposes of this Section, a “Transfer” occurs each time a user of Affiliate’s Offering(s) clicks on a GoTo Link and accesses the GoTo Services. Transfers are counted at GoTo’s servers. ***         11. Miscellaneous. Terms not defined herein have the meanings indicated in the attached Terms and Conditions, which, along with all attached exhibits, riders and mock ups, if any, are incorporated into this GoTo Services Order. By signing below, both Affiliate and GoTo accept and agree to this GoTo Services Order, including the attached Terms and Conditions, and all exhibits, riders and mock ups, if any.           Accepted and Agreed:           AFFILIATE     GOTO.COM, INC.                      By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name of Entity:           --------------------------------------------------------------------------------       *** CONFIDENTIAL TREATMENT REQUESTED 3 --------------------------------------------------------------------------------   RIDER TO GOTO SERVICES ORDER       The following additional terms and conditions are included in the attached GoTo Services Order:     1. Upon material execution of this Service Order, the Agreement dated June 20, 2000 between Affiliate and GoTo is hereby terminated.     2. ***     3. Affiliate grants to GoTo a limited, non-exclusive, non-assignable, non-transferable, royalty-free license during the term of this Services Order to use and display the Comet Marks on search results pages as specifically authorized or described in the Services Order. *** CONFIDENTIAL TREATMENT REQUESTED 4 -------------------------------------------------------------------------------- TERMS AND CONDITIONS OF SERVICES ORDER 1. ADDITIONAL DEFINITIONS       1.1 Above the Fold means visible on the top of a computer screen without the user scrolling down or to the right or to the left, at a screen resolution of 800 by 600.         1.2 Adjusted Gross Revenue means amounts *** by GoTo for Bidded Clicks ***         1.3 Advertiser means any third party that has signed up to be included in GoTo’s Results for the specific keywords which have been clicked upon, has agreed to GoTo’s advertiser terms and conditions and who has agreed to pay every time a user clicks on the link to such advertiser’s site.         1.4 Affiliate means the entity or person set forth in the first line of the GoTo Services Order as Affiliate.         1.5 Affiliate Marks means (i) any or all of the following, as provided by Affiliate: (A) The mark “Comet Cursor” and “Comet”, in typed form and stylized formats; (B) any words or phrases in which Affiliate has intellectual property rights; (ii) all of the following (X) any word, symbol or device, or any combination thereof, used or intended to be used by Affiliate to identify and distinguish Affiliate’s products or services from the products or services of others, and to indicate the source of such goods and services; and (Y) any updates to the foregoing.         1.6 Bidded Click means *** Bidded Clicks are counted at GoTo’s servers and are determined by GoTo.         1.7 Change of Control means (a) a merger, consolidation or other reorganization to which the entity is a party if the individuals and entities who were stockholders (or partners or members or others that hold an ownership interest) of the party immediately prior to the effective date of the transaction have “beneficial ownership” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of less than *** of the total combined voting power for election of directors (or their equivalent) of the surviving entity following the effective date of the transaction, (b) acquisition by any entity or group of direct or indirect beneficial ownership in the aggregate of securities (or other ownership interests) of the party then issued and outstanding representing *** or more of the total combined voting power of the party, or (c) a sale of all or substantially all of the party’s assets.         1.8 GoTo means GoTo.com, Inc.   1.9 GoTo Marks means (i) any or all of the following, as provided by GoTo: (A) The mark “GoTo.com” and “GoTo”, in typed form and stylized formats; (B) the green circle on a yellow background incorporating the name “GoTo.com” or “GoTo” (the “GoTo Logo”, as may be modified from time to time); (C) any words or phrases in which GoTo has intellectual property rights; (ii) all of the following (X) the format or general image or appearance of the GoTo Results or the Web pages provided by GoTo or produced by any of its technology or services; (Y) any word, symbol or device, or any combination thereof, used or intended to be used by GoTo to identify and distinguish GoTo’s products or services from the products or services of others, and to indicate the source of such goods or services; and (Z) any updates to the foregoing.     2 GRANT OF LICENSE         2.1 License. Subject to the terms and conditions of Services Order, GoTo grants to Affiliate a limited, non-exclusive, non-assignable, non-transferable, non-sub-licensable (unless explicitly provided for under this Services Order), royalty-free license during the term of this Services Order to use and display the Licensed Materials on Affiliate’s Offering(s), as specifically authorized or described in this Services Order.         2.2 Conditions of License. The Licensed Materials must be reproduced and displayed in the size, place, and manner indicated in this Services Order, and only in compliance with GoTo’s Usage Guidelines, attached hereto as Schedule 1, as modified from time to time by GoTo in its reasonable discretion If Affiliate engages in any action that, in GoTo’s sole discretion, reflects poorly on GoTo or otherwise disparages or devalues the GoTo Marks, or GoTo’s reputation or goodwill, GoTo may terminate the Services Order immediately upon notice to Affiliate.         2.3 Ownership of Licensed Materials. Affiliate acknowledges that all right, title and interest in the Licensed Materials is exclusively owned by GoTo and/or its licensors, and that no right other than the limited license granted herein is provided to Affiliate. Affiliate shall not assert copyright, trademark or other intellectual property ownership or other proprietary rights in the Licensed Materials or in any element, derivation, adaptation, variation or name thereof. Affiliate shall not contest the validity of, or GoTo’s ownership of, any of the Licensed Materials. During the term of this Services Order, Affiliate shall not, in any jurisdiction, adopt, use, or register, or apply for registration of, whether as a corporate name, trademark, service mark or other indication of origin, or as a domain name, any GoTo Marks, or any word, symbol or device, or any combination confusingly similar to any of the GoTo Marks.   *** CONFIDENTIAL TREATMENT REQUESTED 5 --------------------------------------------------------------------------------   2.4 Ownership of Goodwill. Affiliate agrees that its use of the Licensed Materials inures to the benefit of GoTo. All goodwill or reputation in the Licensed Materials automatically vests in GoTo when the Licensed Materials are used by Affiliate pursuant to this Services Order.         2.5 Ownership of GoTo Services. Affiliate acknowledges and agrees that, as between the parties, GoTo owns all right, title and interest in and to the GoTo Services and the GoTo Results, whether or not such items are included in the Licensed Materials.         2.6 Caching Licensed Material. Affiliate shall not cache any GoTo Results or any other Licensed Material.     3 AFFILIATE’S RESPONSIBILITES         3.1 Affiliate’s Offerings: Affiliate agrees that it is solely responsible for the development, maintenance and operation of Affiliate’s Offerings and for all materials and content that appear on Affiliate’s Offerings. Affiliate shall not ***. Affiliate acknowledges and agrees that ***.     4 REPRESENTATIONS AND WARRANTIES         4.1 *** GOTO IS NOT RESPONSIBLE FOR ANY CONTENT PROVIDED BY THIRD PARTIES (INCLUDING ADVERTISERS), OR FOR ANY THIRD PARTY SITES THAT CAN BE LINKED TO FROM THE GOTO RESULTS. GOTO AND ITS LICENSORS MAKE NO OTHER WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMNET. ***         4.2 Affiliate Warranties. Affiliate represents and warrants that: (i) it has full power and authority to enter into this Services Order, (ii) the tax identification number set forth on the top of the page 1 to this Services Order is the Affiliate’s correct federal tax identification number, and (iii) the content on Affiliate’s Offerings, or on GoTo Links or the Web site or other location GoTo Results are displayed (except to the extent provided by GoTo) (collectively, “Affiliate Items”), and/or the technology used by Affiliate in connection with Affiliate Items and/or the means by which users access Affiliate Items (a) are owned, validly licensed for use by Affiliate or in the public domain; (b) do not constitute defamation, libel, obscenity; (c) do not violate applicable law or regulations; (d) do not infringe, dilute or otherwise violate any copyright, patent, trademark or other similar intellectual property right, or otherwise violate or breach any duty toward, or rights of any person or entity, including without limitation, rights of any person or entity, including without limitation, rights of privacy and publicity; and (e) do not result in any consumer fraud, product liability, breach of contract to which Affiliate is a party or cause injury to any third party. Affiliate does not warrant *** that performance of Affiliate’s Offerings will be uninterrupted or error-free. *** 5 CONFIDENTIALITY         5.1 Definition. “Confidential Information” means any information disclosed by either party to the other party during the Term (and any renewals terms), either directly or indirectly, in writing, orally or by inspection of tangible objects, which is designated as “Confidential,” “Proprietary” or some similar designation. All of the terms of this Services Order shall be deemed “Confidential.” Information communicated orally will be considered Confidential Information if such information is designated as being Confidential Information at the time of disclosure ***. Confidential Information will not, however, include any information which (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party; (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party; (iv) is obtained by the receiving party from a third party without a breach of such third party’s obligations of confidentiality; or (v) is independently developed by the receiving party without use of or reference to the disclosing party’s Confidential Information.         5.2 Restrictions. The receiving party agrees (i) not to disclose any Confidential Information to any third parties, (ii) not to use any Confidential Information for any purposes except to carry out its rights and responsibilities under this Services Order and (iii) to keep the Confidential Information confidential using the same degree of care the receiving party uses to protect its own confidential information, as long as it uses at least reasonable care. If either party receives a subpoena or other validly issued judicial process requesting, or is required by a government agency (such as the SEC) to disclose, Confidential Information of the other party, then the receiving party shall not disclose such Confidential Information without the prior written approval of the disclosing party and shall notify the disclosing party of such requirement and shall reasonably cooperate to seek confidential treatment or to obtain an appropriate protective order to preserve the confidentiality of the Confidential Information. All obligations under this Section 5.2 survive for 3 years after termination of the Services Order.   *** CONFIDENTIAL TREATMENT REQUESTED 6 -------------------------------------------------------------------------------- 6 INDEMNIFICATION         6.1 GoTo Indemnification. GoTo shall defend and/or settle, and pay damages awarded or costs of settlements entered into pursuant to, any third party claim brought against Affiliate, which ***; provided that Affiliate promptly notifies GoTo in writing of any such claim, promptly tenders the control of the defense and settlement of any such claim to GoTo (at GoTo’s expense and with GoTo’s choice of counsel), and cooperates fully with GoTo (at GoTo’s request and expense) in defending or settling such claim, including but not limited to providing any information or materials necessary for GoTo to perform the foregoing. GoTo will not enter into any settlement or compromise of any such claim that would involve remedies or obligations other than money damages without Affiliate’s prior consent, which shall not be unreasonably withheld or delayed.         6.2 Affiliate Indemnification. Affiliate shall defend and/or settle, and pay damages awarded or costs of settlements entered into pursuant to, any third party claim brought against GoTo, which would constitute a breach of any warranty, representation or covenant made by Affiliate under this Services Order; provided that GoTo promptly notifies Affiliate in writing of any such claim, promptly tenders the control of the defense and settlement of any such claim to Affiliate (at Affiliate’s expense and with Affiliate’s choice of counsel), and cooperates fully with Affiliate (at Affiliate’s request and expense) in defending or settling such claim, including but not limited to providing any information or materials necessary for Affiliate to perform the foregoing. Affiliate will not enter into any settlement or compromise of any such claim that would involve remedies or obligations other than money damages without GoTo’s prior consent, which shall not be unreasonably withheld or delayed.         6.3 Limitation of Liability. *** NEITHER PARTY OR ANY OF ITS LICENSORS WILL BE LIABLE FOR ANY LOST PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST DATA, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABLITY, INCLUDING BUT NOT LIMITED TO CONTRACT, PRODUCTS LIABLITY, STRICT LIABILITY AND NEGLIGENCE, AND WHETHER OR NOT SUCH PARTY WAS OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILTY OF SUCH DAMAGE AND (B) ***         6.4 IN NO EVENT WILL GOTO’S LIABILTY ARISING OUT OF THIS SERVICES ORDER EXCEED THE NET AMOUNT PAID OR PAYABLE TO AFFILIATE UNDER THIS SERVICES ORDER DURING THE TWELVE MONTHS PRIOR TO THE DATE THE CAUSE OF ACTION AROSE.     7 TERM         7.1 Term. This Services Order is effective as of the Effective Date and shall continue in force for the Term. Thereafter, this Services Order will renew automatically ***, or until otherwise terminated pursuant to the provisions of this Services Order.   7.2 Termination. If either party breaches any covenant, representation and/or warranty of this Services Order and such breaching party does not cure such breach within *** days of written notice by the non-breaching party of such breach, then the non-breaching party may terminate the Services Order upon written notice to the breaching party after failure to cure within those *** days. *** In addition, either party may suspend performance and/or terminate this Services Order if the other party makes any assignment for the benefit of creditors or has any petition under bankruptcy law filed against it ***         7.3 Effect of Termination or Expiration. Upon the termination of this Services Order for any reason (i) all license rights granted herein shall terminate immediately, and (ii) Affiliate shall immediately cease use of the Licensed Materials, and (iii) Sections 2.3, 2.4, 5, 6, 7.3 and 8 survive.     8 MISCELLANEOUS         8.1 Notice. Any notice required for or permitted by this Services Order shall be in writing and shall be deemed delivered if delivered as indicated: (i) by personal delivery when delivered personally, (ii) by overnight courier upon written verification of receipt, (iii) by telecopy or facsimile transmission when confirmed by telecopier or facsimile transmission report, (iv) by certified or registered mail, return receipt requested, upon verification of receipt; or (v) by the same day, when delivered by email. All notices must be sent to Affiliate at 143 Varick Street, New York, New York 10013, Attn: Director of Legal Affairs or to GoTo at 74 North Pasadena Avenue, Pasadena, California 91103, Attn: Vice President Business Affairs, or to such other address that the receiving party may have provided for the purpose of notice in accordance with this Section.         8.2 Press Release. Neither party may issue any press release or other public statements regarding this Services Order. Notwithstanding the prior sentence, GoTo may in its discretion permit such a press release or pubic statement by Affiliate, but such consent must be by an authorized person of GoTo and must be in writing. The failure to obtain the prior written approval of GoTo shall be deemed a material non-curable breach of this Services Order, whereby GoTo may terminate this Services Order immediately following written notice to Affiliate, and the cure provision of this Services Order shall not apply. Notwithstanding the foregoing, during the Term, GoTo shall have the right to notify its advertisers and potential advertisers of the general nature of this transaction (including GoTo’s estimate of the increase in traffic).         8.3 Mock Ups. *** all GoTo Links and/or all GoTo Results, as appropriate, shall appear substantially similar to such mock ups.         8.4 ***         8.5 No Third Party Beneficiaries. All rights and obligations of the parties hereunder are personal to them. This Services Order is not intended to benefit, nor shall it be deemed to give rise to, any rights in any third party.   *** CONFIDENTIAL TREATMENT REQUESTED 7 --------------------------------------------------------------------------------   8.6 Governing Law. This Services Order will be governed and construed, to the extent applicable, in accordance with United States law, and otherwise, in accordance with California law, without regard to conflict of law principles. ***         8.7 Independent Contractors. The parties are independent contractors. This Services Order shall not be construed to create a joint venture or partnership between the parties. Neither party shall be deemed to be an employee, agent, partner or legal representative of the other for any purpose and neither shall have any right, power or authority to create any obligation or responsibility on behalf of the other.         8.8 Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, earthquakes, Internet outages, acts of God, war, governmental action, or any other cause that is beyond the reasonable control of such party.         8.9 Compliance with Law. Each party shall be responsible for compliance with all applicable laws, rules and regulations, if any, related to the performance of its obligations under this Services Order.         8.10 Entire Agreement. This Services Order (including the Services Order, these Terms and Conditions and all exhibits, riders and mock ups attached thereto) constitutes the entire agreement between the parties with respect to the subject matter hereof. This Services Order supersedes, and the terms of this Services Order govern, any other prior or collateral agreements (including without limitation, any warranties) with respect to the subject matter hereof. Any amendments to this Services Order must be in writing and executed by an officer of the parties. Nothing in this Services Order shall impair or affect how GoTo operates its business. GoTo shall be entitled to make any and all changes to its business as it deems appropriate, including but not limited to terminating products (including GoTo Links), without incurring any liability to Affiliate.         8.11 Counterparts. This Services Order may be entered into by each party in separate counterparts and shall constitute one fully executed Services Order upon execution by both Affiliate and GoTo.         8.12 Severability. If any provision of this Services Order is held or made invalid or unenforceable for any reason, such invalidity shall not affect the remainder of this Services Order, and the invalid or unenforceable provisions shall be replaced by a mutually acceptable provision, which being valid, legal and enforceable comes closest to the original intentions of the parties hereto and has like economic effect.   8.13 Waiver. The terms or covenants of this Services Order may be waived only by a written instrument executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Services Order, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any term or covenant contained in this Services Order.         8.14 Section Headings. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Services Order.       SCHEDULE 1       GOTO USAGE GUIDELINES       1.     Affiliate may use the Licensed Materials solely for the purpose authorized herein by GoTo and only in compliance with the specifications, directions, information and standards supplied by GoTo and modified by GoTo from time to time.       2.     Affiliate agrees to comply with any requirements established by GoTo concerning the style, design, display and use of the Licensed Materials; to correctly use the trademark symbol ™or registration symbol ® with every use of the trademarks, service marks and/or tradenames as part of the Licensed Materials as instructed by GoTo; to use the registration symbol ® upon receiving notice from GoTo of registration of any trademarks, service marks and/or tradenames that are part of the Licensed Materials.       3.     Affiliate may not alter the Licensed Materials in any manner, or use the Licensed Materials in any manner that may dilute, diminish, or otherwise damage GoTo’s rights and goodwill in any GoTo trademark, tradename and/or service mark that are part of the Licensed Materials.       4.     Affiliate may not use the Licensed Materials in any manner that implies sponsorship or endorsement by GoTo of services and products other than those provided by GoTo.   *** CONFIDENTIAL TREATMENT REQUESTED 8 -------------------------------------------------------------------------------- Amendment Number 1 to GoTo Search Services Order This Amendment Number 1 (the “Amendment”) amends the GoTo Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and GoTo.com, Inc., a Delaware corporation (“GoTo”) effective April 26, 2001 (the “Agreement”) and is made effective as of December __, 2001 (the “Amendment Effective Date”). 1. Amendments to Reflect Corporate Name Change. All instances of “GoTo.com, Inc.” in the Agreement are hereby replaced with “Overture Services, Inc.” and all instances of the defined terms “GoTo” or “GoTo.com” in the Agreement are hereby replaced with “Overture”.       2. Section 1 shall be deleted in its entirety and replaced with the following sentence: Term: The “Term” means the period of time from *** until and including ***.       3. Section 4 shall be amended by adding the following sentences to the end of the description of “Affiliate’s Application”:           “Affiliate will also transfer users of its Search Cursor to the Overture Services (i) in response to search queries conducted through DNS error pages; (ii) in response to search queries conducted through the URL address bar on Search Cursor users’ internet browsers; and (iii) in response to clicks on “Related Searches” text links that appear in response to queries by Search Cursor users on third party web sites mutually approved by Affiliate and Overture. Additionally, the parties may agree on the addition of other applications or web sites that shall be included in Affiliate’s Offering.”     4. The first paragraph of Section 6 shall be amended by adding the following sentence at the end of the paragraph:           “Affiliate shall utilize source-identifying “tags”, search URLs or other source feed indicators provided by Overture for each application or web site included in Affiliate’s Offering that enable Overture to identify the specific source of each search performed (i.e., Search Cursor search box, searches conducted on DNS error pages, searches conducted via the “Related Searches” text links, and other applications or web sites that the parties agree to add pursuant to Section 4 above); provided that Overture shall have no obligation to pay Affiliate for any Bidded Clicks generated by searches that do not utilize such tags, search URLs or other source feed indicators.”     5. The final paragraph of Section 6 and the text box following such paragraph shall be deleted in their entirety and shall be replaced by the following paragraph and text box: *** CONFIDENTIAL TREATMENT REQUESTED 9 --------------------------------------------------------------------------------     “After a user initiates a query of the Overture Services via a Overture Link, then Overture shall *** deliver either Overture’s results for that query (the “Overture Results”) or a response that no results are being delivered for that query. Overture Results are as indicated below:”       Yes Paid Overture Results only, where “Paid Overture Results” are search results provided by Advertisers of Overture and do not include supplemental search results. N/A All Overture Results (Paid Overture Results plus supplemental search results)     6. Section 7 shall be deleted in its entirety and shall be replaced by the following paragraphs:           “Overture Results Implementation. Affiliate shall display Overture Results, if delivered by Overture, in response to each and every search query submitted by end users via Affiliate’s Offering in accordance with the provisions of this Agreement. ***           To the extent Affiliate displays Overture Results on Affiliate’s Offering, Affiliate will ensure that (i) Overture Results appear in the same sequential order as provided by Overture; (ii) Overture Results are displayed together without other content of any kind between each Overture Result; (iii) each Overture Result will *** and (iv) Affiliate will not modify any aspect of such Overture Results (including, but not limited to, the data contained therein). ***     7. Section 8 shall be amended by deleting the word “Yes” from the box appearing to the left of the box containing the phrase “Overture Services” and replacing it with the word “No”.       8. Section 9 shall be deleted and replaced in its entirety with the following:     “Exclusivity. ***     9. Section 10 shall be amended by deleting the second and third paragraphs in their entirety and adding the following paragraph:           “Beginning on the Amendment Effective Date, Overture will pay ***           Overture will pay Affiliate *** for all Bidded Clicks generated on the following two search URLs: (i) ***”     10. Section 3 of the Terms and Conditions shall be amended by adding the following paragraph as a new subsection:           “3.2 Wrongful Acts: The only users that shall be transferred to Overture Results or a web page containing Overture Results shall be users accessing the Overture Links as set forth in the Services Order. Without limiting anything contained above, Affiliate shall not allow any users to be directed to Overture Results or directed to any web page containing Overture Results by means of any computer or browser functionality or by means of any web page not specified in this Services Order. Affiliate shall not *** *** CONFIDENTIAL TREATMENT REQUESTED 10 -------------------------------------------------------------------------------- 11. Section 1.9 of the Terms and Conditions shall be deleted and replaced with the following:           “Overture Marks means (i) any or all of the following, as provided by Overture: (A) The mark “Overture” in typed form and stylized formats; (B) a circular center, surrounded by three concentric circular rings (the “Overture Logo”, as may be modified from time to time); (C) any words or phrases in which Overture has intellectual property rights; (ii) all of the following (X) the format or general image or appearance of the Overture Results or the Web pages provided by Overture or produced by any of its technology or services; (Y) any word, symbol or device, or any combination thereof, used or intended to be used by Overture to identify and distinguish Overture’s products or services from the products or services of others, and to indicate the source goods or services; and (Z) any updates to the foregoing.”     12. Section 2.3 of the Terms and Conditions shall be amended by adding the following sentence at the end of paragraph:           “Except for the limited license expressly granted herein, nothing in this Services Order shall be construed as Overture granting to Affiliate any right, title or interest in or to the Licensed Materials.”     13. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect.       14. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.       15. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control.       [Remainder of Page Intentionally Blank] *** CONFIDENTIAL TREATMENT REQUESTED 11 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Amendment, effective as of the Effective Date, “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 12 -------------------------------------------------------------------------------- EXHIBIT A MOCK-UPS OF SEARCH RESULTS PAGES Mock-Up of Affiliate Search Results Pages and URL Address Bar Search Product GRAPHIC OMITTED   Related Searches Product GRAPHIC OMITTED   Error Search Product GRAPHIC OMITTED             *** CONFIDENTIAL TREATMENT REQUESTED 13 -------------------------------------------------------------------------------- Amendment Number 2 GoTo Search Services Order This Amendment Number 2 (the “Amendment”) amends the GoTo Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and GoTo.com, Inc., a Delaware corporation (“GoTo”) effective April 26, 2001, as Amended by that certain Amendment Number 1, effective as of December 1, 2001 (as amended, the “Agreement”) and is made effective as of July 15, 2002 (the “Second Amendment Effective Date”).   1. Section 1 shall be amended by adding the following sentence: “The parties have agreed to extend the Term until and including ***.”         2. Section 3 shall be deleted in its entirety and replaced with the following paragraph:           Overture Services: Overture Services includes Overture’s technology and functionality for matching particular keyword requests with an index of certain web site URL’s, for providing the results of that match via the Internet and then enabling users to link to a designated page for the Advertisers which comprise the results of such match.         3. Section 9 (“Exclusivity”) shall be deleted in its entirety and replaced with the following paragraph:           “Exclusivity. ***         4. Section 10 shall be amended by deleting the second paragraph (as amended by Amendment Number 1) in its entirety and replacing it with the following paragraph:           Beginning on the Second Amendment Effective Date, Overture will pay ***         5. Section 6.3 of the Terms and Condition shall be deleted in its entirety and replaced with the following paragraph:           Limitation of Liability. *** NEITHER PARTY OR ANY OF ITS LICENSORS WILL BE LIABLE FOR ANY LOST PROFITS OR COSTS OF PROCEREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST DATE, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO CONTRACT, PRODUCTS LIABILITY, STRICT LIABILITY AND NEGLIGENCE, AND WHETHER OR NOT SUCH PARTY WAS OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. IN NO EVENT WILL EITHER PARTY’S LIABILITY ARISING OUT OF THIS SERVICES ORDER EXEED ***. *** CONFIDENTIAL TREATMENT REQUESTED 14 --------------------------------------------------------------------------------   6. Section 6.4 of the Terms and Conditions shall be deleted in its entirety.         7. Section 7.2 of the Terms and Conditions shall be deleted in its entirety and replaced with the following paragraph (amendments shown in bold italics):           Termination. If either party breaches any covenant, representation and/or warranty of this Services Order and such breaching party does not cure such breach within *** of written notice by the non-breaching party of such breach, then the non-breaching party may terminate the Services Order upon written notice to the breaching party after failure to cure within those *** In addition, either party may suspend performance and/or terminate this Services Order if the other party makes any assignment for the benefit of creditors or has any petition under bankruptcy law field against it***.         8. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect.         9. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.         10. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control. [Remainder of Page Intentionally Blank] *** CONFIDENTIAL TREATMENT REQUESTED 15 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Amendment, effective as of the Effective Date. “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 16 -------------------------------------------------------------------------------- Amendment Number 3 to Overture Search Services Order This Amendment Number 3 (the “Amendment”) amends the Overture Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and Overture Services, Inc., a Delaware corporation (“Overture”) effective April 26, 2001, as amended by Amendment Number 1 effective as of December 1, 2001 and Amendment Number 2 effective as of July 15, 2002 (as amended, the “Agreement”) and is made effective as of August 1, 2003 (the “Third Amendment Effective Date”). 1. The last sentence of Section 1 shall be deleted in its entirely and replaced with the following: “The parties have agreed to extend the Term until and including ***.”     2. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect.     3. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.     4. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Amendment, effective as of the Third Amendment Effective Date. “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 17 -------------------------------------------------------------------------------- Ex. 2- Response off a lander page (user clicks on the term ‘Music Download’) = paid listings + algorithmic backfill GRAPHIC OMITTED *** CONFIDENTIAL TREATMENT REQUESTED 18 -------------------------------------------------------------------------------- Amendment Number 4 to Overture Search Services Order      This Amendment Number 4 (the “Amendment”) amends the Overture Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and Overture Services, Inc., a Delaware corporation (“Overture,” formerly GoTo.com, Inc.) effective April 26, 2001, as amended by that certain Amendment Number 1, effective as of December 1, 2001, that certain Amendment Number 2, effective as of July 15, 2002 and that certain Amendment Number 3, effective August 1, 2003 (as amended, the “Agreement”) and is made effective as of October 1, 2003 (the “Fourth Amendment Effective Date”).      In consideration of the mutual covenants contained herein, and for such other good and valuable consideration, the sufficiency of which is acknowledged by the parties hereto, Overture and Affiliate desire to amend the Agreement as follows: 1. Section 1 shall be deleted in its entirety and replaced with the following:           “1. Term: The Term means the period of time from *** until and including ***.”     2. The Text box following the last paragraph of Section 6 is deleted in its entirety and replaced with the following text box:     N/A Paid Overture Results only, where “Paid Overture Results” are search results provided by Advertisers of Overture and do not include Supplemental Search Results or Additional Search Results. Yes All Overture Results (Paid Overture Results plus supplemental search results, which may be chosen by Affiliate). “Supplemental Search Results” are search results provided by Overture’s algorithmic search engine *** in response to a search query. “Additional Search Results” are news, picture, video and audio search results provided by Overture’s algorithmic search engine in response to one of these types of search queries.     3. Section 10 shall be amended by deleting the first sentence of the second paragraph (as amended by Amendment Number 1 and Amendment Number 2) in its entirety and replacing it with the following sentence:           “Beginning on the Fourth Amendment Effective Date, Overture will pay *** *** CONFIDENTIAL TREATMENT REQUESTED 19 -------------------------------------------------------------------------------- 4. A new Section 12 shall be added to the Agreement and shall read as follows:           “12. ***. Affiliate shall pay Overture $*** for each one thousand (1,000) Impressions that include *** or ***. “Impressions” mean the display by Affiliate of a Web page that is (a) viewed by a human user and (b) includes an implementation of the Overture Results that complies with the terms of this Services Order.”     5. A new Section 13 shall be added to the Agreement and shall read as follows:           “13. Additional Services. Overture acknowledges that it shall make available to Affiliate its *** and *** services. For the avoidance of doubt, this Services Order shall govern Overture Services provided to Affiliate in connection with Affiliate’s Application distributed to, and used by, users in Korea; provided that ***”     6. Section 1.7 of the Terms and Conditions shall be deleted in its entirety and replaced with the following:           “1.7 Change of Control means (a) the consummation of any transaction or series of related transactions pursuant to which any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the party representing *** or more of the total voting power represented by the party’s then outstanding voting securities, (b) the consummation of any transaction or series of related transactions (including any merger, consolidation or reorganization), which results in the holders of the outstanding voting securities of the party immediately prior to such transaction holding less than *** of the voting securities of the surviving entity (or the entity controlling the surviving entity) immediately following such transactions, (c) the consummation of any compulsory share exchange pursuant to which the party’s common stock is converted into cash, securities or property of another entity which is not affiliate of the party or (d) the consummation of the sale, transfer or other conveyance by the party of all or substantially all of the party’s assets.”     7. Section 1 of the Terms and Conditions shall be amended by adding the following paragraphs as a new subsection 1.10:           “1.10 Related Company means, with respect to any entity, any entity controlling, controlled by or under common control with such entity. For purposes of this definition, “control” means ownership of in excess of 50% of the voting stock of the controlled entity, the right to elect a majority of the members of the board of directors of such entity or ownership of all or substantially all of the consolidated assets of such entity.”         8. Section 7.2 of the Terms and Conditions shall be amended by adding the following language at the paragraph:           “On or after a Change of Control of Affiliate, ***         9. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect.   10. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument. *** CONFIDENTIAL TREATMENT REQUESTED 20 -------------------------------------------------------------------------------- 11. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Amendment, effective as of the Fourth Amendment Effective Date. “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 21 -------------------------------------------------------------------------------- Amendment Number 5 to Overture Search Services Order This Amendment Number 5 (the “Amendment”) amends the Overture Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and Overture Services, Inc., a Delaware corporation (“Overture,” formerly GoTo.com, Inc.,) effective April 26, 2001, as amended by that certain Amendment Number 1, effective as of December 1, 2001, that certain Amendment Number 2, effective as of July 15, 2002, that certain Amendment Number 3, effective August 1, 2003, and that certain Amendment Number 4, effective October 1, 2003 (as amended, the “Agreement”), and is made effective as of June 29, 2004 (the “Fifth Amendment Effective Date”). In consideration of the mutual covenants contained herein, and for such other good and valuable consideration, the sufficiency of which is acknowledged by the parties hereto, Overture and Affiliate desire to amend the Agreement as follows: 1. Section 1 shall be deleted in its entirety and replaced with the following:           1. Term: The Term means the period of time starting on the *** until and including ***.   2. Section 4 (as amended by Amendment Number 1) shall be amended by deleting the description of “ Affiliate’s Application” and replacing it with the following:         (a) Search Cursor Application: “Comet” and “Starware” branded versions of Affiliate’s “Search Cursor” application, which is comprised of various modular software elements containing search functionality (each, a “Search Cursor Element”), and which Affiliate currently distributes on the following Web sites: cometcursor.com, cometzone.com, stareware.com, smileytown.com, supercursors.com and screensavers.com. ***. The Overture Links for each Overture-Enabled Element shall be approved in writing by Overture upon Affiliate’s providing mock-ups of such Overture Links. *** The parties agree to modify the Agreement to include additional terms and conditions that apply specifically to the Korean market or any other international market that the parties may agree to incorporate into this Agreement in the future within *** of the Fifth Amendment Effective Date.         (b) ***               Within 10 days after each calendar quarter, Affiliate shall provide Overture with written notification stating whether Affiliate is in compliance with its obligations under this Section. Twice a year, Overture will be entitled to retain at Overture’s sole expense, a reputable, independent certified public account firm (the “Auditor”) reasonably acceptable to Affiliate solely for the purpose of auditing, at a mutually agreed upon time during normal business hours, those records of Affiliate that are reasonably necessary to determine the Affiliate’s compliance with its obligations under this Section. Such audit shall be conducted in accordance with generally accepted auditing standards, and such Auditor shall execute a non-disclosure agreement with Affiliate and may not disclose any information to Overture or any third parties except to inform Overture as to whether Affiliate is in compliance with this Section. The provisions of Exhibit B, attached hereto to Amendment Number 5, shall apply to each and every Affiliate’s Application which are or may be included in the Affiliate’s Offerings.   3. Section 1.7 of the Terms and Conditions is hereby amended by adding the following to the end of the “Change of Control” definition:               [delete period]; or (e) *** *** CONFIDENTIAL TREATMENT REQUESTED 22 -------------------------------------------------------------------------------- 4. Section 5.1 of the Terms and Conditions shall be deleted in its entirety and replaced with the following:       1.1     Definition. “Confidential Information” means any information disclosed by either party to the other party during the Term, either directly or indirectly, in writing, orally or by inspection of tangible objects, which is designated as “Confidential,” “Proprietary” or some similar designation, or information that a party may reasonably understand to be confidential, including but not limited to any information that either party may make available to the other party in connection with the performance of this Agreement. All of the terms of this Agreement shall be deemed Confidential Information. Information communicated orally will be considered Confidential Information if such information is designated as being Confidential Information at the time of disclosure. Confidential Information will not, however, include any information which (a) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; party to the receiving party through no action or inaction of the receiving party; (c) was already in the possession of the receiving party at the time of disclosure by the disclosing party to the receiving party, (d) is obtained by the receiving party from a third party, but only if the receiving party received it from a third party who the right to provide such information to the receiving party; or (e) is independently developed by the receiving party without use of or reference to the disclosing party’s Confidential Information.         5. Section 5.2 of the Terms and Conditions shall be amended by adding the following sentence at the end of the paragraph:           For clarity, any Related Company of Affiliate, including but not limited to FindWhat.com and any of its successors, subsidiaries, or affiliates (except for Affiliate itself), are considered third parties to which Affiliate would be prohibited from disclosing Confidential Information under this Section 5.2, except as follows***. Under no circumstances shall any Confidential Information, including the information described in the prior sentence, be disclosed to any business unit, or any person associated therewith, of FindWhat.com or Related Companies. If Affiliate violates this Section 5 in any way, Overture may, without waiving any other rights or remedies it may have under this Agreement or otherwise by law, terminate this Agreement or any license granted herein upon *** prior written notice, and the cure provisions provided for in Section 7.2 of the Terms and Conditions shall not apply. Notwithstanding the foregoing, Affiliate shall be permitted to disclose to its auditors and securities laws compliance managers any information necessary for Affiliate and its Related Companies to complete their audit and/or securities laws compliance requirements on a “need-to-know” basis and only if such employees and agents are bound by confidentiality obligations no less strict than those set forth in this Section. For clarity, nothing in this Section shall prohibit Overture from disclosing Confidential Information to Related Companies***. Each party will use commercially reasonable efforts to give the other party 20 days prior written notice of its intent to file this Agreement with the SEC or other similar regulatory agency and will use commercially reasonable efforts to consults with the other party for the purpose of incorporating reasonably proposed redactions (i.e., such proposed redactions to comply with laws, rules and regulations interpreting securities and other applicable laws).   6. A new Section 5.3 shall be added to the Terms and Conditions of the Agreement and shall read as follows:           5.3.     Reports and Click Tracking Prohibition. Affiliate’s access to Overture reporting data, *** shall be limited to: (1) the total number of searches made through Affiliate Offerings for the given reporting period, and (2) Gross Revenue, for a given period. Under no circumstances shall Affiliate track or count, or attempt to track or count, the number of user clicks, including but not limited to Bidded Clicks, made in connection with Paid Overture Results delivered through Affiliate’s Applications; if Affiliate does or attempts to do so, Overture may, without waiving any other rights or remedies it may have under this Agreement or otherwise by law, terminate this Agreement or any license granted herein upon *** days prior written notice. *** CONFIDENTIAL TREATMENT REQUESTED 23 -------------------------------------------------------------------------------- 7. Section 9 (“Exclusivity”) shall be deleted in its entirety and replaced with the following paragraph:       9.     Exclusivity. ***         8. Section 10 shall be amended by deleting the first sentence of the second paragraph (as amended by Amendment Numbers 1, 2 and 4) in its entirety and replacing it with the following sentence:           Beginning on the Fifth Amendment Effective Date, Overture will pay ***.         9. A new Section 14 shall be added to the Agreement and shall read as follows:           Yahoo Branding. Overture, at its sole discretion, may at any time during the Term require some or all Affiliate Applications to include branding or trademarks or Yahoo! Inc., pursuant to any usage guidelines or other conditions that Overture may provide in connection therewith.     10. Section 2.3 of the Terms and Conditions of Services Order (as amended by Amendment Number 1) shall be amended by adding the following to the end of the paragraph:           No other permissions or licenses are intended by this Agreement, nor are any permissions or licenses from Overture or its Related Companies given to other products or services of Affiliate or any other products or services provided by FindWhat.com or any related or affiliated entities, including any Related Companies. More specifically, (1) nothing in this Agreement is intended to allow syndication or sublicensing of any rights granted, (2) nothing in this Agreement shall have any affect, on Overture’s pending litigation with FindWhat.com (Overture Services, Inc. v. FindWhat.com, CD Cal. Civ. No. SACV 03-0685 CJC (EX)) or any other existing or future patent claims between Overture and FindWhat.com, nor shall this Agreement prejudice in any manner any of Overture’s right in such litigations, and (3) nothing herein should be interpreted or implied to extend to any product or service provided by FindWhat.com or any related or affiliated entities including any Related Companies; nor does this Agreement in any way absolve any prior or existing infringement by FindWhat.com or any related or affiliate entities for the manufacture, use, sale, or offer for sale of any other product or services. Notwithstanding the foregoing, nothing in this Agreement shall be construed as an acknowledgement, admission, or agreement by Affiliate or its Related Companies as to the validity or enforceability of any patents or any other intellectual property rights purposed to be owned by Overture.   11. Section 7.2 of the Terms and Conditions of Service Order (as amended by Amendment Numbers 2 and 4) shall be amended by adding the following to the end of the paragraph:           Termination Based on Revenue Performance. If the average Gross Revenue for a given consecutive three-month period during the Term is ***% less than the average Gross Revenue for the immediately prior consecutive three-month period, Overture may, in its sole discretion, (1) reduce, for each such consecutive three-month period, Affiliate’s share of Gross Revenue under Section 10 to ***% of Gross Revenue, and/or (2) terminate this Agreement upon 15 days prior written notice which termination right may be independently exercisable from the Gross Revenue reduction right stated in subsection (1). For clarity, the cure provisions provided for this Section 7.2 shall not apply to a termination based on the prior sentence. ***   12. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect. *** CONFIDENTIAL TREATMENT REQUESTED 24 -------------------------------------------------------------------------------- 13. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.   14. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control. IN WITNESS WHEREOF, the parties have caused their duly authorized representative to enter into this Amendment, effective as of the Fifth Amendment Effective Date. “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 25 -------------------------------------------------------------------------------- EXHIBIT B A. Affiliate Representations. Warranties and Covenants. ***     B. Termination; Affiliate Indemnification. In the event of a breach by Affiliate of any of the representations, warranties and covenants contained in this Exhibit B, Overture may terminate this Agreement upon *** days prior written notice to Affiliate and the cure provisions provided for in Section 7.2 of the Terms and Conditions shall not apply. In addition to and without limitation of Affiliate’s indemnification obligation under Section 6.2 of the Terms and Conditions and pursuant thereto; Affiliate shall indemnify, defend and hold harmless Overture from and against any and all losses, damages, injuries, claims, demands and expenses of whatever kind or nature arising out of or relating to Affiliate’s breach of any of its representations, warranties, covenants or obligations under this Exhibit B. Affiliate’s indemnification obligations hereunder will survive the expiration or termination of this Agreement ***.     C. Right to Offset. With respect to any non-delinquent money due Affiliate from Overture under this Agreement (“Accounts Payable”), Overture shall have a right of offset for such Accounts Payable in connection with any Affiliate indemnification duties arising under this Exhibit B, limited to the amount of: (1) a final judgment against Overture awarded to a state or federal government authority or as a result of any private action; and (2) any defense costs incurred by Overture on behalf of itself or its Advertisers in connection with any prospective claim for which Affiliate’s indemnification duties are triggered pursuant to this Exhibit B, provided such indemnity claims were undertaken pursuant to the terms set forth in Section 6.2 of the Terms and Conditions. ***     D. Distribution Consent. Affiliate shall not, without Overture’s prior written consent, (a) distribute an Affiliate’s Application through third party distributors, or (b) bundle an Affiliate’s Application or otherwise include the Affiliate’s Application in distributions with other software applications, functionality, data or services. Where Overture has given consent to distributions of the Affiliate’s Application, such distributions shall comply with the representations, warranties and covenants contained in this Exhibit B and any other requirements that Overture may specify as conditions to its consent. Affiliate shall distribute the Affiliate’s Applications at its sole expense and shall provide hosting in connection with the downloading, installation and updating of the Affiliate’s Applications. ***     E. Functionality. *** *** CONFIDENTIAL TREATMENT REQUESTED 26 -------------------------------------------------------------------------------- Amendment Number 6 to Overture Search Services Order This Amendment Number 6 (the “Amendment”) amends the Overture Search Services Order Agreement by and between Comet Systems, Inc., a Delaware corporation (“Affiliate”) and Overture Services, Inc., a Delaware corporation (“Overture,” formerly GoTo.com, Inc.) effective April 26, 2001, as amended by that certain Amendment Number 1, effective as of December 1, 2001, that certain Amendment Number 2, effective as of July 15, 2002, that certain Amendment Number 3, effective August 1, 2003, that certain Amendment Number 4, effective October 1, 2003 and that certain Amendment Number 5, effective June 28, 2004 (as amended, the “Agreement”) and is made effective as of November 30, 2004 (the “Sixth Amendment Effective Date”). In consideration of the mutual covenants contained herein, and for such other good and valuable consideration, the sufficiency, of which is acknowledged by the parties hereto, Overture and Affiliate desire to amend the Agreement as follows: 1. Affiliate represents and warrants that the download and installation process will ***and an example of such a download and installation process for one of the Search Cursor Applications that includes more than one application is accurately depicted on the mock ups attached as Exhibit 1 hereto.   2. A new Exhibit 2 regarding Domain Match is added to the Agreement and is attached as Exhibit 2 hereto.   3. The third row of the table in Section 5 shall be deleted in its entirety and replaced with the following   Yes Contextual Links Words and/or phrases provided by Overture that are hyperlinked to a Results Page. A “Results Page” is a Web page on which Overture Results appear.   4. The definition of Paid Overture Results in the first row of the text box in Section 6 is deleted in its entirety and replaced with the following:           Paid Overture Results only, where “Paid Overture Results” are search results provided by Advertisers of Overture and to the extent available, Local Match Results, and do not include Supplemental Search Results or Additional Search Results. Local Match Results are the Paid Overture Results provided to Publisher by Overture pursuant to this Agreement, which Paid Overture Results contains locally targeted information and other content of Advertiser.   5. Except as expressly set forth herein, the terms and conditions of the Agreement are unmodified and remain in full force and effect. *** CONFIDENTIAL TREATMENT REQUESTED 27 -------------------------------------------------------------------------------- 6. This Amendment may be executed in one more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.   7. In the event of a conflict between any of the terms and conditions of the Agreement and any of the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Amendment, effective as of the Sixth Amendment Effective Date. “Overture”     “Affiliate”             Overture Services, Inc.   Comet Systems, Inc.           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 28 -------------------------------------------------------------------------------- EXHIBIT 1 DOWNLOAD AND INSTALLATION MOCK UPS GRAPHIC OMITTED   GRAPHIC OMITTED   GRAPHIC OMITTED               *** CONFIDENTIAL TREATMENT REQUESTED 29 -------------------------------------------------------------------------------- EXHIBIT 2 DOMAIN MATCH 1. When a user of the Search Cursor Application enters in a browser address bar an incomplete or otherwise improperly formed URL (i.e., an entry that does not follow a format supported by the domain name system, contains misspelled or non-existent top level domain extensions or otherwise cannot be resolved), (each an “Internet Address Bar Query”), Affiliate shall directly transfer all such users to a Landing Page. For the avoidance of doubt, Internet Address Bar Queries do not include properly formed single or multiple word keyword queries (i.e., queries without “www” before the query or a top level domain extension following the query) entered in a browser address bar. “Landing Page” means a Web page returned in response to an Internet Address Bar Query containing (i) an Overture Search Box and (ii) Contextual Links. Affiliate will host the Landing Pages and the Results Pages. Affiliate will not include any content on the Landing Page that is Paid Internet Search or links to Overture Results if such content has not been approved in writing by Overture. The display of a Landing Page shall not (a) disable the browser’s back button, (b) launch a pop-up or pop-under window of any kind, (c) replace the user’s home page without the user’s consent, (d) prompt the user to download or install a file or program or (e) automatically install any program     2. Mapping Technology. Affiliate will use Overture’s Domain Match technology (or the technology of another entity chosen by Overture) for matching relevant keywords used to create Contextual Links and will direct all Internet Address Bar Queries to Overture.     3. Excluded Queries. Affiliate agrees that Overture need not provide a response to an Internet Address Bar Query if Affiliate has reason to believe or has been notified that: (a) it does not have the right to use or to associate data or content with that query; (b) the association of data or content on the Landing Page in response to such query (i) violates the trademark (or other related rights), copyright, trade secret, patent or other intellectual property right of any third party or (ii) is libelous, defamatory or obscene; (c) the provision of a response to such query otherwise might create a likely liability for Overture; or (d) the user or originates outside of the US or Canada.     4. Notice of Third-Party Claims. Affiliate shall promptly notify Overture of any claim made or threatened against it concerning the content of nay Landing Page in connection with an Internet Address Bar Query.     5. Mock Ups of Domain Match Landing Page and Results Page. *** CONFIDENTIAL TREATMENT REQUESTED 30 -------------------------------------------------------------------------------- Example of using DM to drive PM results supplemented by Web Results GRAPHIC OMITTED   Ex. 1-Error page for ‘www.downlaods.cm’   = Lander page with relevant term suggestions (See next page for results page) GRAPHIC OMITTED             *** CONFIDENTIAL TREATMENT REQUESTED 31 --------------------------------------------------------------------------------           Amendment Number 7 to Overture Search Services Order This Amendment Number 7 (this “Amendment”) is made as of the 21st of March, 2005 (the “Seventh Amendment Effective Date”), by and among Comet Systems, Inc. (“Affiliate”), Overture Services, Inc. (“Overture”) and Overture Search Services (Ireland) Limited (“OSSIL”) and amends the Overture Search Services Order between Overture and Affiliate entered into as of April 26, 2001, as amended by that certain Amendment Number 1, effective as of December 1, 2001, that certain Amendment Number 2, effective as of July 15, 2002, that certain Amendment Number 3, effective August 1, 2003, that certain Amendment Number 4, effective October 1, 2003, that certain Amendment Number 5, effective June 28, 2004 and that certain Amendment Number 6 effective November 30, 2004 (the “Agreement”). In consideration of mutual covenants and conditions, the receipt and sufficiency of which are hereby acknowledge, Affiliate, OSSIL and Overture hereby agree as follows: 1. The Agreement is hereby amended by adding OSSIL as a party to the contract. OSSIL will fulfill the Overture duties as described by the Agreement for the Territory other than the United States. The use of the term “Overture” throughout the Agreement shall include OSSIL with respect to the Territory other than the United States.   2. The Agreement is hereby amended by adding the following new Section 15 to the Agreement:           15. Territory. This Agreement applies to (i) Affiliate’s Search Cursor Application in the United States and (ii) Japan, Korea, Canada, Australia, New Zealand, China, Brazil, Mexico, Hong Kong and Taiwan to the extent OSSIL serves localized Overture Results in such areas (collectively, the “Territory”). ***   3. The Agreement is hereby amended by deleting the first paragraph of Section 10 of the Agreement in its entirety and inserting the following:           Provided that Affiliate is not in breach of this Agreement, Overture shall pay to Affiliate the amounts set forth below within forty-five (45) days after the end of the month in which the applicable revenue was earned by Overture; provided, however, Overture will not be in breach for failing to make payment within the stated period for any compensation due Affiliate in connection with the Territory other than the United States, where Affiliate fails to comply with OSSIL invoicing requirement. All payments will be made in U.S. dollars, calculated by Overture using the average exchange rate for the currency in which payment is made by Advertiser, as published by Oanda.com. At any time, Overture shall have the right to change the source used for the average exchange rate to any other nationally recognized source; provided that Overture will use commercially reasonable efforts to notify Affiliate of such change within 30 days. The “average exchange rate” will be the average of the daily exchange rates for the month in which such amounts were recognized. Overture may offset any amounts owed to Affiliate by deducting amounts owed to Overture by Affiliate. With each payment, Overture will include a report that describes the determination of compensation. Except as specifically set forth in this Section 10, Overture will retain all revenues derived from or in connection with this Agreement.     4. The Agreement is hereby amended by adding the following sentence to the end of the first paragraph of Section 7 of the Agreement:           The Overture Results shall be displayed by Affiliate in the official languages of the country from which the search query originated. *** CONFIDENTIAL TREATMENT REQUESTED 32 -------------------------------------------------------------------------------- 5. The Agreement is hereby amended by adding a new subsection 1.11 to Section 1 of the Terms and Conditions to the Agreement as follows:           1.11Overture Entities mean OSSIL, Yahoo! Inc., Overture KK, Overture Services YH, Overture Services (Canada), Inc., Overture Services Australia Pty. Ltd, Overture Services Hong Kong Limited Taiwan Branch.   6. The Agreement is hereby amended by adding a new subsection (h) to Section 3.2 of the Terms and Conditions to the Agreement as follows:           , ***   7. The Agreement is hereby amended by deleting the language in all capital letters at the end of Section 4.1 of the Terms and Conditions to the Agreement in its entirety and replacing it with the following:           TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, OVERTURE AND TS LICENSORS ARE NOT RESPONSIBLE FOR ANY CONTENT PROVIDED HEREUNDER OR FOR ANY SITES THAT CAN BE LINKED TO OR FROM THE OVERTURE RESULTS OR BY MEANS OF THE OVERTURE LINKS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, OVERTURE AND ITS LICENSORS MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMENT. ***   8. The Agreement is hereby amended by deleting Section 6.2 of the Terms and Conditions to the Agreement in its entirety and replacing it with the following (added language in italics):           6.2 Affiliate Indemnification. Affiliate shall defend and/or settle, and pay damages awarded or costs of settlements entered into pursuant to, any third party claim brought against Overture and/or an Overture Entity, which would constitute a breach of any warranty, representation or covenant made by Affiliate under this Services Order; provided that Overture and/or the Overture Entity promptly notifies Affiliate in writing of any such claim, promptly tenders the control of the defense and settlement of any such claim to Affiliate (at Affiliate’s expense and with Affiliate’s choice of counsel), and cooperate fully with Affiliate (at Affiliate’s request and expense) in defending or settling such claim, including but not limited to providing any information or materials necessary for Affiliate to perform the foregoing. Affiliate will not enter into any settlement or compromise of any such claim that would involve remedies or obligations other than money damages without Overture and/or Overture Entity’s prior consent, which shall not be unreasonably withheld or delayed.   9. The Agreement is hereby amended by deleting Section 6.3 of the Terms and Conditions to the Agreement in its entirety and replacing it with the following (added language in italics):           *** TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER PARTY OR ANY OF ITS LICENSORS NOR OVERTURE ENITIES WILL BE LIABLE FOR ANY LOST PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST DATA, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO CONTRACT, PRODUCTS LIABILITY, STRICT LIABLITY AND NEGLIGENCE, AND WHETHER OR NOT SUCH PARTY WAS OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. IN NO EVENT WILL EITHER PARTY’S LIABILITY, INCLUDING THE LIABILITY OF OVERTURE ENTITIES, ARISING OUT OF THIS SERVICES ORDER EXCEED ***. *** CONFIDENTIAL TREATMENT REQUESTED 33 -------------------------------------------------------------------------------- 10. The Agreement is hereby amended by adding the following sentence to the end of Section 8.4 of the Terms and Conditions to the Agreement:           Affiliate shall not assign or transfer in any way the “Comet” and “Starware” branded versions of the Affiliate’s Search Cursor Application described in Section 4(a) of the Agreement to any Affiliated Related Company.   11. The Agreement shall hereby be amended by deleting the second and third sentences of the second paragraph of Section 10 to the Agreement and replacing them with the following:           For the purposes of this Services Order, “Gross Revenue” shall mean ***   12. The Agreement is amended to provide that references in the Agreement to “this Agreement” or “the Agreement” (including indirect reference such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed references to the Agreement as amended hereby. All capitalized defined terms used but not defined herein shall have the same meaning as set forth in the Agreement.   13. Except as expressly set forth herein, the Agreement will remain in full force and effect in accordance with its terms. In the event of a conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall govern. *** CONFIDENTIAL TREATMENT REQUESTED 34 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, Overture Services, OSSIL and Affiliate have executed this Amendment as of the Seventh Amendment Effective Date. Comet Systems, Inc.   Overture Services, Inc.,           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------           Overture Search Services (Ireland) Limited                 By:           --------------------------------------------------------------------------------       Name:           --------------------------------------------------------------------------------       Title:           -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 35 --------------------------------------------------------------------------------   Amendment Number 8 to Overture Search Services Order This Amendment Number 8 (this “Amendment”) is made as of the 7th of October, 2005 (the “Eighth Amendment Effective Date”), by and among MIVA Direct, Inc. (formerly, Comet Systems, Inc.) (“Affiliate”), Overture Services, Inc., doing business as Yahoo! Search Marketing (“Overture”) and Overture Search Services (Ireland) Limited (“OSSIL”), and amends the Overture Search Services Order between Overture and Affiliate entered into as of April 26, 2001, as amended by that certain Amendment Number 1, effective as of December 1, 2001, that certain Amendment Number 2, effective as of July 15, 2002, that certain Amendment Number 3, effective August 1, 2003, that certain Amendment Number 4, effective October 1, 2003, that certain Amendment Number 5, effective June 28, 2004, that certain Amendment Number 6 effective November 30, 2004 and that certain Amendment Number 7 effective March 21, 2005 (the “Agreement”). In consideration of mutual covenants and conditions, the receipt and sufficiency of which are hereby acknowledged, Affiliate, OSSIL and Overture hereby agree as follows: 1. The column to the left of the Affiliate’s Web Site(s) definition in Section 4 shall be amended to read “Yes”. Weatherstudio.com shall be added to the definition of “Affiliate’s Web Site(s)”.   2. Subsection (a) of Section 4 of the Agreement shall be amended to read in its entirety as follows:   (a)     Search Cursor Application: “Comet”, “Starware” and “weatherstudio” branded versions of Affiliate’s “Search Cursor” application, which is comprised of various modular software elements containing search functionability (each, a “Search Cursor Element”), and which Affiliate currently distributes on the following Web sites: cometcursor.com, cometzone.com, starware.com, smileytown.com, supercursors.com, screensavers.com and weatherstudio.com. Notwithstanding anything to the contrary contained in this Agreement, additional branded versions of the Search Cursor application may be added to this subsection (a) by mutual written agreement of the parties ***. The Overture Links for each Overture-Enabled Element shall be approved in writing by Overture upon Affiliate’s providing mock-ups of such Overture Links. ***   3. The last sentence of Section 8.4 of the Terms and Conditions to the Agreement is amended to read in its entirety as follows: *** CONFIDENTIAL TREATMENT REQUESTED 36 --------------------------------------------------------------------------------     Affiliate shall not assign or transfer in any way to any Affiliate Related Company, (i) the “Comet”, “Starware” or “weatherstudio” branded versions of the Affiliate’s Search Cursor Application described in Section 4(a) of the Agreement or (ii) any other branded version of Affiliate’s Search Cursor Application that is added to this Agreement pursuant to Section 4(a) of the Agreement.   4. All capitalized defined terms used but not defined herein shall have the same meaning as set forth in the Agreement.   5. Except as expressly set forth herein, the Agreement will remain in full force and effect in accordance with its terms. In the event of a conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall govern. IN WITNESS WHEREOF, Overture, OSSIL and Affiliate have executed this Amendment as of the Eighth Amendment Effective Date. MIVA Direct, Inc.,   Overture Services, Inc., doing business as Yahoo! Search Marketing           By:     By:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Name:     Name:     --------------------------------------------------------------------------------     -------------------------------------------------------------------------------- Title:     Title:     --------------------------------------------------------------------------------     --------------------------------------------------------------------------------           Overture Search Services (Ireland) Limited                 By:           --------------------------------------------------------------------------------       Name:           --------------------------------------------------------------------------------       Title:           -------------------------------------------------------------------------------- *** CONFIDENTIAL TREATMENT REQUESTED 37 --------------------------------------------------------------------------------

Exhibit 10.1   SECOND AMENDMENT TO CREDIT AGREEMENT   THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of April 5, 2006, is by and among HNI CORPORATION, an Iowa corporation (the “Borrower”), those Domestic Subsidiaries of the Borrower identified as a “Guarantor” on the signature pages hereto (the “Guarantors”), the Lenders (defined below) party hereto and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders (the “Administrative Agent”).   W I T N E S S E T H   WHEREAS, the Borrower, the Guarantors, the lenders from time to time party thereto (the “Lenders”), and the Administrative Agent have entered into that certain Credit Agreement dated as of January 28, 2005 (as amended, restated, amended and restated, modified, supplemented or otherwise modified through the date hereof, the “Credit Agreement”; capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement);   WHEREAS, the Credit Parties have requested the Required Lenders amend certain provisions of the Credit Agreement; and   WHEREAS, the Required Lenders are willing to make such amendments to the Credit Agreement, subject to the terms and conditions set forth herein.   NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:   ARTICLE I AMENDMENTS TO CREDIT AGREEMENT   1.1          New Definitions. The following definitions are hereby added to Section 1.1 of the Credit Agreement in the appropriate alphabetical order:   “Note Purchase Agreement” shall mean the Note Purchase Agreement, dated as of April 6, 2006, by and among the Borrower and the purchasers party thereto, with respect to the Senior Notes, in the initial aggregate principal amount of $150,000,000 and with a maximum aggregate principal amount of $650,000,000, as each of the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.   “Second Amendment Effective Date” shall mean April 5, 2006.   “Senior Notes” shall mean (a) the Borrower’s 5.54% Series 2006-A Senior Notes due April 6, 2016 and (b) any additional series of senior notes of the Borrower, in each   --------------------------------------------------------------------------------   case issued pursuant to the Note Purchase Agreement (or a supplement thereto) and with a maximum aggregate principal amount of $650,000,000.   1.2          Section 5.8. Section 5.8 of the Credit Agreement is hereby amended by adding the following paragraph at the end of such section:   In addition to the foregoing requirements of this Section 5.8, the Borrower shall cause any Domestic Subsidiary that guarantees the obligations of the Borrower under the Senior Notes (and which is not a Guarantor) to promptly become a “Guarantor” hereunder by executing and delivering to the Administrative Agent a Joinder Agreement and such other documentation as contemplated above; provided that the Administrative Agent shall, at the Borrower’s request and without the need for any action by or approval of any Lender, release such Domestic Subsidiary from its obligations as a Guarantor and such Domestic Subsidiary shall cease to be a “Guarantor” so long as such Domestic Subsidiary is not otherwise required to be a Guarantor pursuant to the requirements of this Section 5.8 above and substantially concurrently with such release such Domestic Subsidiary is released from its guaranty obligations under the Note Purchase Agreement.   1.3          Section 6.1(f). Section 6.1(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:   (f)            Guaranty Obligations in respect of Indebtedness of a Credit Party to the extent the incurrence or existence of such Indebtedness is not prohibited by this Section 6.1;   1.4          Section 6.8. Section 6.8 of the Credit Agreement is hereby amended by adding at the end of the last sentence of such section the following clause and by making the appropriate grammatical and punctuation changes thereto:   , and except (in respect of the matters referred to in clause (e) above) for restrictions in the Note Purchase Agreement, provided that the Note Purchase Agreement does not so restrict any Subsidiary that has guaranteed the Borrower’s obligations under the Senior Notes.   1.5          Section 6.11. Section 6.11 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:   6.11        NO FURTHER NEGATIVE PLEDGES.   Enter into, assume or become subject to any agreement (a) prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, in favor of the Administrative Agent (for the benefit of the Lenders) to secure the Credit Party Obligations (provided that any restriction (i) on the amount of Indebtedness under this Credit Agreement and the other Credit Documents that can be secured shall not be deemed a restriction prohibited by   2 --------------------------------------------------------------------------------   this Section 6.11 so long as the permitted amount of secured Indebtedness is equal to or greater than the aggregate Commitments hereunder including any Additional Loans and (ii) in the Note Purchase Agreement shall not be deemed a restriction prohibited by this Section 6.11 if such Liens in favor of the Administrative Agent shall be permitted thereunder on the condition that the Senior Notes be equally and ratably secured with the Credit Party Obligations secured thereby pursuant to an agreement reasonably satisfactory to the Required Holders (as defined in the Note Purchase Agreement)), or (b) requiring the grant of any security for any obligation if security is given for some other obligation, except in connection with (i) any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien) or (ii) the Note Purchase Agreement and the Senior Notes.   ARTICLE II CONDITIONS TO EFFECTIVENESS   2.1          CLOSING CONDITIONS.   This Amendment shall become effective as of the Second Amendment Effective Date upon satisfaction of the following conditions (in form and substance reasonably acceptable to the Administrative Agent):   (a)           Executed Documents. Receipt by the Administrative Agent of counterparts of this Amendment executed by each Credit Party, the Administrative Agent and the Required Lenders.   (b)           Fees and Expenses. The Administrative Agent and the Lenders shall have received from the Borrower the aggregate amount of fees and expense payable in connection with the consummation of the transactions contemplated hereby.   (c)           Note Purchase Agreement. The Administrative Agent shall have received the final draft form of the Note Purchase Agreement.   ARTICLE III MISCELLANEOUS   3.1          Amended Terms. On and after the Second Amendment Effective Date, all references to the Credit Agreement in each of the Credit Documents shall hereafter mean the Credit Agreement as amended by this Amendment. Except as specifically amended hereby or otherwise agreed, the Credit Agreement is hereby ratified and confirmed and shall remain in full force and effect according to its terms.   3 --------------------------------------------------------------------------------   3.2          Representations and Warranties of Credit Parties. Each of the Credit Parties represents and warrants as follows:   (a)           It has taken all necessary action to authorize the execution, delivery and performance of this Amendment.   (b)           This Amendment has been duly executed and delivered by such Person and constitutes such Person’s legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).   (c)           No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by such Person of this Amendment.   (d)           After giving effect to this Amendment, the representations and warranties set forth in Article III of the Credit Agreement or which are contained in any certificate furnished at any time under or in connection with the Credit Agreement are true and correct as of the Second Amendment Effective Date (except for those which expressly relate to an earlier date).   (e)           After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.   (f)            The Credit Party Obligations are not reduced by this Amendment.   3.3          Reaffirmation of Credit Party Obligations. Each Credit Party hereby ratifies the Credit Agreement (as amended) and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement applicable to it and (b) that it is responsible for the observance and full performance of its respective Credit Party Obligations.   3.4          Credit Document. This Amendment shall constitute a Credit Document under the terms of the Credit Agreement and shall be subject to the terms and conditions thereof.   3.5          Entirety. This Amendment and the other Credit Documents embody the entire agreement between the parties hereto and supersede all prior agreements and understandings, oral or written, if any, relating to the subject matter hereof.   3.6          Counterparts; Telecopy. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart to this   4 --------------------------------------------------------------------------------   Amendment by telecopy shall be effective as an original and shall constitute a representation that an original will be delivered.   3.7          No Actions, Claims, Etc. As of the date hereof, each of the Credit Parties hereby acknowledges and confirms that it has no knowledge of any actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, by it against the Administrative Agent, the Lenders, or the Administrative Agent’s or the Lenders’ respective officers, employees, representatives, agents, counsel or directors arising from any action by such Persons, or failure of such Persons to act, under the Credit Agreement on or prior to the date hereof.   3.8          GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.   3.9          Consent to Jurisdiction; Service of Process; Waiver of Jury Trial. The jurisdiction, services of process and waiver of jury trial provisions set forth in Sections 10.14 and 10.17 of the Credit Agreement are hereby incorporated by reference, mutatis mutandis.   3.10        Expenses. The Borrower agrees to pay all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable fees and expenses of the Administrative Agent’s legal counsel.   3.11        Further Assurances. The Credit Parties agree to promptly take such action, upon the request of the Administrative Agent, as is necessary to carry out the intent of this Amendment.   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]   5 --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT   IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed and delivered as of the date first above written.   BORROWER: HNI CORPORATION,   an Iowa corporation       By: /s/ Melinda C. Ellsworth     Name: Melinda C. Ellsworth   Title: Vice President, Treasurer and Investor Relations     GUARANTORS: THE HON COMPANY   ALLSTEEL INC.   HEARTH & HOME TECHNOLOGIES INC.   PAOLI INC.   RIVER BEND CAPITAL CORPORATION       By: /s/ Melinda C. Ellsworth     Name: Melinda C. Ellsworth   Title: Vice President and Treasurer   --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT   LENDERS: WACHOVIA BANK, NATIONAL ASSOCIATION,   individually in its capacity as a     Lender and in its capacity as Administrative Agent           By: /s/ Richard E. Anglin III     Name: Richard E. Anglin III     Title: Vice President     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     BANK OF AMERICA, N.A.,     individually in its capacity as a     Lender and in its capacity as Syndication Agent         By: /s/ Charles R Dickerson     Name: Charles R Dickerson     Title: Managing Director     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     WELLS FARGO BANK, N.A.,     individually in its capacity as a     Lender and in its capacity as Documentation Agent         By: /s/ Elizabeth Emde     Name: Elizabeth Emde     Title: A.V.P.     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     BNP PARIBAS,     individually in its capacity as a     Lender and in its capacity as Documentation Agent         By: /s/ Gaye Plunkett     Name: Gaye Plunkett     Title: Vice-President               By: /s/ Christopher Grumboski     Name: Christopher Grumboski     Title: Managing Director     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     HARRIS N.A., as successor by merger to Harris Trust & Savings Bank, as a Lender         By: /s/ Thad D. Racshe     Name: Thad D. Racshe     Title: Director     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     NATIONAL CITY BANK OF THE MIDWEST,   as a Lender           By: /s/ Richard Sems     Name: RICHARD SEMS     Title: SVP     --------------------------------------------------------------------------------   HNI CORPORATION SECOND AMENDMENT TO CREDIT AGREEMENT     SUNTRUST BANK,     as a Lender           By: /s/ Daniel S. Komitor     Name: Daniel S. Komitor     Title: Director     --------------------------------------------------------------------------------

Exhibit 10.1 EXECUTION COPY EMPLOYMENT AGREEMENT, dated as of August 9, 2006, between RBC Centura Bank, a North Carolina banking corporation (the “Bank”), and Kim Michael Childers (the “Executive”). RECITALS A. Current Position. The Executive currently serves as EVP, Chief Credit Officer of Flag Financial Corporation, a Delaware corporation (“Flag Financial”). B. The Merger. The Bank has entered in an Agreement and Plan of Merger with Flag Financial, dated as of the date of this Agreement (the “Merger Agreement”). C. Continued Employment. The Bank recognizes the Executive’s substantial contribution to the growth and success of Flag Financial and desires to provide for the continued employment of the Executive after the “Closing Date” (as defined in the Merger Agreement). It is a material inducement and condition to the willingness of the Bank to enter into and perform the Merger Agreement that the Executive enters into this Agreement. The continuity of certain members of Flag Financial’s management following the transactions contemplated by the Merger Agreement, including the Executive, is a critical factor in the Bank’s assessment of the likely benefits to be derived from the Merger Agreement. NOW, THEREFORE, IT IS AGREED AS FOLLOWS: 1. Employment Period. (a) Employment Period. The Bank agrees to employ the Executive, and the Executive agrees to work in the employ of the Bank, subject to the terms and conditions of this Agreement, for the period commencing on the Closing Date and ending on the second anniversary of the Closing Date (the “Initial Employment Period”). Commencing on the second anniversary of the Closing Date and on each anniversary thereafter, the Employment Period shall be automatically extended for one-year terms unless either the Bank or the Executive shall give the other party written notice of non-renewal of this Agreement, which notice must be given not later than the 90th day prior to the termination of the Initial Employment Period or any successor renewal term (the Initial Employment Period and any extension thereof, the “Employment Period”). Notwithstanding anything herein to the contrary, the Employment Period shall terminate on the date the Executive’s employment is terminated in accordance with the terms of this Agreement. (b) Termination Before the Closing Date. Notwithstanding Section 1(a), if the Merger Agreement or the Executive’s employment with Flag Financial terminates for any reason before the Closing Date, all of the provisions of this Agreement will terminate and there will be no liability of any kind under this Agreement. -------------------------------------------------------------------------------- 2. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, the Executive shall serve as Chief Credit Officer, Georgia, with the appropriate authority, duties and responsibilities attendant to such position and any other duties that may be assigned by the Chief Executive Officer or the Board of Directors of the Bank. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business attention and time to the business and affairs of the Bank and to use the Executive’s reasonable best efforts to perform his duties and responsibilities to the Bank under this Agreement. During the Employment Period, the Executive shall not, without prior approval of the Chief Executive Officer of the Royal Bank of Canada, serve on any for-profit or not-for-profit corporate boards, or any civic or charitable committees. It shall not be a violation of this Agreement for the Executive to manage personal investments, so long as such activities do not interfere with the performance of the Executive’s responsibilities as an employee of the Bank in accordance with this Agreement or contravene the Bank’s Code of Conduct. It is understood that the Executive will take and pass the Bank’s Code of Conduct test within thirty days of the date of the Closing Date and as required thereafter. Taking and passing the test are a condition of the Executive’s employment. (b) Compensation. (i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary of $225,000.00, which shall be reviewed by the Bank in January, 2008 and during each January during the Employment Period thereafter (such salary, at the time of this Agreement or if it is increased by the Bank, “Annual Base Salary”). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced at any time (including after any such increase), without the prior written consent of the Executive, other than as part of an across-the-board salary reduction applicable to senior officers of the Bank and then only by the average percentage salary reduction applicable to such senior officers. (ii) Short Term Incentive. During the Employment Period, the Executive shall be eligible to participate in the Short Term Incentive Plan (“STI Plan”). The Executive’s target bonus pursuant to the STI Plan is $100,000.00; provided, however that any payout pursuant to the STI Plan will be determined by the Bank in its discretion after considering the Executive’s individual performance and the overall business performance of area, the Bank and the Royal Bank of Canada as established from time to time. Any bonus under the STI Plan will be payable in accordance with the terms of such plan, as in effect from time to time.   -2- -------------------------------------------------------------------------------- (iii) Long Term Incentive. Commencing in 2007 (and normally granted in November or December for the following year) and subject to approval of the Board of Directors of the Royal Bank of Canada for years subsequent to November/December 2007, the Executive shall be eligible to participate in the Long Term Incentive Plan (“LTIP”) pursuant to the terms of the LTIP, or any replacement plan, in each case, as in effect from time to time. The Executive’s annual target pursuant to the LTIP is $80,000.00. Details of the provisions and guidelines are outlined in the plan document. (iv) Long-Term Cash Incentive Plan Replacement. In lieu of any benefit the Executive was eligible to receive under the Long-Term Cash Incentive Plan of Flag Bank, the Executive will be eligible to participate in the Bank’s special long term incentive program whereby common share units or awards of common stock (as determined by the Bank) of the Royal Bank of Canada are granted through the Functional Unit Plan (United States) (“FUP”). Such award in the sum of $750,000 will be payable after time of vesting, December 31, 2008. Such award will be paid whether or not the Executive remains an employee of the Bank. (v) Retention Bonus. If the Executive either remains in the active employment of the Bank at the time of payment or is terminated without Cause or resigns for Good Reason prior to the time of payment or the Executive is terminated for death or Disability, the Executive shall be entitled to receive the following retention bonus: $350,000 payable in cash on the second anniversary of the Closing Date. (vi) Signing Bonus. The Executive shall receive a signing bonus of $388,000 in cash payable in January 2007. (vii) Mortgage Payment. The Executive is entitled to a mortgage interest supplement of $23,625 payable in May 2007 and $23,625 payable in May 2008 provided that the Executive’s mortgage has not already been paid. (c) Benefits. During the Employment Period: (i) Business Reimbursement. The Bank shall reimburse the Executive for all reasonable travel and other expenses incurred by the Executive in performing the Executive’s duties under this Agreement, subject to the policies and procedures of the Bank for its officers and the Executive properly accounting therefor in accordance with the Bank’s policies, as in effect from time to time. (ii) Vacation. The Executive shall be entitled to such vacation and holidays, subject to the provisions of Section 3, other paid or unpaid leaves of absence as are consistent with the Bank’s normal policies, as in effect from time to time.   -3- -------------------------------------------------------------------------------- (iii) Club Membership & Automobile Allowance. The Bank shall pay or reimburse the Executive for personal club membership dues and automobile expenses up to a maximum in total of $7,000.00 per year upon presentation of the appropriate receipts. (iv) Other Employee Benefit Plans. Except as otherwise expressly provided in this Agreement, the Executive shall be eligible to participate in all employee benefits, welfare and other plans, practices, policies and programs generally available to similarly situated employees of the Bank, as in effect from time to time (collectively, “Employee Benefit Plans”), subject to the terms of such plans. The Bank shall have the right to amend or terminate any Employee Benefit Plan at any time. 3. Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Bank determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 8(c) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Bank shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall have the meaning ascribed under the Bank’s long term disability plan as from time to time in effect. (b) Termination by the Bank with or without Cause. The Bank may terminate the Executive’s employment during the Employment Period for any reason or for no reason, including for Cause. For purposes of this Agreement, “Cause” shall mean: (i) the Executive’s gross misconduct or neglect in carrying out his duties and responsibilities under this Agreement; (ii) the Executive’s violation of the RBC Financial Group’s Code of Conduct; (iii) the Executive’s conviction (including a plea of guilty or nolo contendere or its equivalent) of (A) any felony involving moral turpitude or (b) a misdemeanor involving dishonesty, fraud or theft; (iv) the Executive’s engagement in conduct that results in material harm to the Bank or any affiliate, including material reputational harm, unless such conduct was reasonably believed by the Executive in good faith to be in the best interests of the Bank; or   -4- -------------------------------------------------------------------------------- (v) the Executive’s commitment of a serious act intending to enrich himself or others at the expense of the Bank or any of its affiliates. (c) Termination by the Executive, for or without Good Reason. The Executive’s employment may be terminated during the Employment Period by the Executive for any reason or for no reason, including for Good Reason. For purposes of this Agreement, “Good Reason” shall mean in the absence of a written consent of the Executive: (i) the assignment to the Executive of any significant duties substantially inconsistent with the Executive’s position, other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Bank reasonably promptly after receipt of notice thereof given by the Executive; (ii) the failure by the Bank to comply with any of the provisions of Section 2(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Bank reasonably promptly after receipt of notice thereof given by the Executive; (iii) the Executive terminates his employment within 30days immediately following the occurrence of a Change in Control of the Royal Bank of Canada, which occurs during the Employment Period. For the avoidance of doubt, the merger with Flag Financial pursuant to the Merger Agreement does not constitute a Change in Control for the purposes of this Section 3(c)(iii). For purposes of this Section 3(c)(iii), a “Change in Control” means any person is or becomes a beneficial owner, directly or indirectly, of securities of the Royal Bank of Canada representing more than 50% of the total voting power of the Royal Bank of Canada’s then outstanding securities generally eligible to vote for the election of directors; provided, however, that any of the following acquisitions shall not be deemed to be a Change in Control: (1) by Royal Bank of Canada or any subsidiary or affiliate, (2) by any employee benefit plan (or related trust) sponsored or maintained by the Royal Bank of Canada or any subsidiary or affiliate, or (3) by any underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) the assignment of the Executive by the Bank to a location more than 50 miles from his current business location without the Executive’s written consent. (d) Notice of Termination. A termination by the Bank or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 8(c) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which indicates the Date of Termination. For purposes of this Agreement, “Date of Termination” means (i) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or Disability Effective Date, (ii) if the Executive’s employment is terminated by the Bank other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 90 days of such notice and (iii) if the   -5- -------------------------------------------------------------------------------- Executive’s employment is terminated by the Executive, 90 days after receipt of the Notice of Termination (provided, that, the Bank may accelerate the Date of Termination to an earlier date by providing the Executive with notice of such action, or, alternatively, the Bank may place the Executive on paid leave during such period). 4. Effect of Termination. (a) Death or Disability. If the Executive’s employment is terminated by reason of the Executive’s death or Disability during the Employment Period, the Executive’s employment shall terminate without further obligations to the Executive’s legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of: (i) the Executive’s Annual Base Salary through the Date of Termination, the Long Term Cash Incentive Payment in Section 2(b)(iv) and the Mortgage Payment in Section 2(b)(vii) and any prior fiscal year’s accrued but unpaid Short Term Incentive, in each case, to the extent not theretofore paid (the “Accrued Obligations”); and (ii) any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Bank and its affiliated companies through the Date of Termination, to the extent not theretofore paid or provided (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”); and (iii) any unpaid Retention Bonus. (b) Termination by the Bank without Cause or by the Executive for Good Reason. If the Executive’s employment is terminated during the Employment Period by the Bank without Cause or by the Executive with Good Reason, this Agreement shall terminate without further obligations to the Executive under this Agreement, other than for payment of: (i) the Accrued Obligations; (ii) the Other Benefits, if any; (iii) if the termination of employment occurs during the Initial Employment Period, the Executive’s Annual Base Salary and Short Term Incentive bonus, at target, that would have been payable during the remainder of the Initial Employment Period, payable in a lump sum, with a minimum payment of one-year’s Annual Base Salary and target Short Term Incentive bonus; and (iv) if the contract of employment is renewed following the Initial Employment Period, any subsequent termination of employment without Cause that occurs following the Initial Employment Period, the Executive’s Annual Base Salary and the average of the 3 previous annual bonus or STI awards (whether paid by the Bank or Flag Financial), payable in a lump sum; and   -6- -------------------------------------------------------------------------------- (v) any unpaid Retention Bonus. (c) Termination by the Bank for Cause or by the Executive without Good Reason. If the Executive’s employment is terminated during the Employment Period by the Bank for Cause or by the Executive without Good Reason, the Employment Period shall terminate without further obligation to the Executive under this Agreement, other than the obligation to pay the Accrued Obligations. (d) Condition. The Bank shall not be required to make the payments and provide the benefits specified in this Section 4 unless the Executive executes and delivers to the Bank (and does not revoke during any applicable revocation period) an agreement releasing the Bank, its affiliates and their respective officers, directors and employees from all liability (other than the payments and benefits under this Agreement) in a form reasonably specified by the Bank. 5. Covenants not to Compete or Solicit Bank Clients and Employees; Confidential Information. (a) Non-Competition. The Executive agrees that for a period of two (2) years following the Closing Date, he will not (except on behalf of or with the prior written consent of the Bank), either directly or indirectly, (whether acting alone or through any of his affiliates, as a member of a partnership or a joint-venture or an investor in, or a holder of securities of, any corporation or other entity, or otherwise), engage in any of the following activities within the Non-Competition Area: (A) conduct or be an employee or be actively involved in the management of any business or enterprise involved in banking; or (B) solicit, in competition with the Bank or any of its affiliates, or their respective successors, the business of any customer of the Bank or any of its affiliates. Notwithstanding anything to the contrary in this paragraph and subject to customary insider trading protocols, the Executive may own, for investment purposes only, up to five percent of the stock of any publicly-held corporation whose stock is either listed on a national securities exchange or on the NASDAQ National Market System if the Executive is not otherwise affiliated with such corporation. For purposes of this Section 5, the Executive acknowledges that the Business of the Bank is conducted in the Non-Competition Area. (b) Notwithstanding the foregoing, the Bank agrees that the Executive may engage in the following permissible activities during the period set forth in (a) above: (i) From and after the Closing Date, the Executive may own up to 5% of the voting shares of any financial institution engaged in the Business of the Bank in the Non-Competition Area; (ii) From and after the Closing Date, the Executive may directly or indirectly provide consulting services to businesses engaged in the Business of the Bank having aggregate assets of less than $1 Billion; and   -7- -------------------------------------------------------------------------------- (iii) From and after the Closing Date, the Executive may directly or indirectly provide merchant banking services, venture or mezzanine capital services or investment banking services to businesses engaged in the Business of the Bank having aggregate assets of less than $1 Billion in the Area. “Non-Competition Area” shall mean the Atlanta Metropolitan Statistical Area. It is the express intent of the parties that the Non-Competition Area as defined herein is the area where the Executive has performed services for the Bank. “Business of the Bank” shall mean the business conducted by Flag Financial and to be conducted by the Bank, which is the business of commercial banking, including without limitation the solicitation of time and demand deposits and the making of commercial, consumer, residential, corporate and other loans. (c) Non-solicitation. The Executive shall not, directly or indirectly, during the Non-Competition Period (i) take any action to solicit or divert any customers (or prospective customers) away from the Bank or its affiliates, (ii) induce customers, prospective customers, suppliers, agents or other persons under contract or otherwise associated or doing business with the Bank or its affiliates to terminate, reduce or alter any such association or business with or from the Bank or its affiliates and/or (iii) induce any person in the employment of the Bank or its affiliates or any consultant to the Bank or its affiliates to (x) terminate such employment, or consulting arrangement, (y) accept employment, or enter into any consulting arrangement, with anyone other than the Bank or its affiliates, and/or (z) interfere with the customers, suppliers, or clients of the Bank or its affiliates in any manner or the business of the Bank or its affiliates in any manner. For purposes of this paragraph (a), a “prospective customer” shall mean a person or entity that the Bank, Flag Financial or its affiliates, (A) as of the date the Executive’s employment terminates, is soliciting or considering soliciting (or has targeted for solicitation), and/or (B) has, at any time or from time to time, prior to the date the Executive’s employment terminates, been soliciting for or in respect of any current, actively pending or contemplated residential mortgage origination or servicing business. (d) Confidential Information. The Executive hereby acknowledges that, as an employee of the Bank, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Bank and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Bank, is material and confidential, and is critical to the successful conduct of the business of the Bank. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Bank only and shall not at any time, directly or indirectly, during the term of this Agreement and thereafter divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. (e) Non-disparagement. During the term of this Agreement and thereafter, neither Party shall, in any manner, make or publish any statement (orally or in writing) that would libel, slander, disparage, denigrate, ridicule or otherwise disparage the other party, any of its affiliates or any of their employees, officers or directors. However, this paragraph (d) shall in no way restrict or prevent the Executive from providing truthful testimony concerning any of the preceding to judicial, administrative, regulatory or other governmental authorities.   -8- -------------------------------------------------------------------------------- (f) Work Product. The Executive hereby assigns to the Bank all of Executive’s right, title and interest in and to, inventions, trade secrets, works of authorship, ideas, methods, improvements, databases, know-how, data, developments or discoveries, whether or not patentable or copyrightable (“Work Product”) that (i) will be, are or have been made, invented, conceived, reduced to practice, developed or created during the Employment Period or (ii) using the equipment, supplies, facilities and/or confidential or proprietary information of the Bank or Flag Financial. The Executive will take such action as may be necessary to assist the Bank in obtaining statutory or common law protections for the Work Product. (g) Survival. Any termination of the Executive’s employment or of this Agreement (or breach of this Agreement by the Executive or the Bank) shall have no effect on the continuing operation of this Section 5. (h) Validity. The terms and provisions of this Section 5 are intended to be separate and divisible provisions and, if for any reason any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 5 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 5 unreasonably broad, oppressive or unenforceable in an action, suit or proceeding before any federal or state court, such court (A) shall narrow the Non-Competition Period or the Non-Competition Area or shall otherwise endeavor to reform the scope of such agreements in order to ensure that the application thereof is not unreasonably broad, oppressive or unenforceable, and (B) to the fullest extent permitted by law, shall enforce such agreements as so reformed. (i) Consideration. The parties acknowledge that this Agreement would not have been entered into and the benefits described in Section 2 or 4 would not have been promised in the absence of the Executive’s promises under this Section 5 and that, should the Executive engage in any activity or conduct prescribed hereunder, all payments under this Agreement shall cease. (j) Notice to New Employers. Before the Executive either applies for or accepts employment with any other person or entity during the Non-Competition Period, the Executive will provide the prospective employer with written notice of the provisions of this Section 5 and will deliver a copy of the notice to the Bank. 6. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Bank shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.   -9- -------------------------------------------------------------------------------- (b) This Agreement shall inure to the benefit of and be binding upon the Bank and its successors and assigns. (c) The Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place. As used in this Agreement, “Bank” shall mean the Bank as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. Disputes. (a) Mandatory Arbitration. Subject to the provisions of this Section 7, any controversy or claim between the Executive and the Bank arising out of or relating to or concerning this Agreement (including the covenants contained in Section 5) or any aspect of your employment with the Bank or Flag Financial or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in North Carolina administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) the decision must not be a compromise but must be the adoption of the submission by one of the parties, (ii) each arbitrator will agree to treat as confidential evidence and other information presented to them, (iii) there will be no authority to award punitive damages (and the Executive and the Bank agree not to request any such award), (iv) the optional Rules for Emergency Measures of Protections will apply, (v) there will be no authority to amend or modify the terms of this Agreement except as provided in Section 5 (and the Executive and the Bank agree not to request any such amendment or modification) and (vi) a decision must be rendered within ten business days of the parties’ closing statements or submission of post-hearing briefs. (b) Injunctions and Enforcement of Arbitration Awards. The Executive or the Bank may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in North Carolina to enforce any arbitration award under Section 7(a). Also, the Bank may bring such an action or proceeding, in addition to its rights under Section 7(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 5. The Executive agrees that (i) violating any part of Section 5 would cause damage to the Bank that cannot be measured or repaired, (ii) the Bank therefore is entitled to an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 5, (iii) no bond will need to be posted for the Bank to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 5 would be difficult to calculate and that remedies at law would be inadequate. (c) Jurisdiction and Choice of Forum. The Executive and the Bank irrevocably submit to the exclusive jurisdiction of any state or federal court located in North Carolina over any Employment Matter that is not otherwise arbitrated or resolved according to Section 7(a). This includes any action or proceeding to compel arbitration or to enforce an arbitration award. Both the Executive and the Bank (i) acknowledge that the forum stated in this Section 7(c) has a reasonable relation to this   -10- -------------------------------------------------------------------------------- Agreement and to the relationship between the Executive and the Bank and that the submission to the forum will apply even if the forum chooses to apply non-forum law, (ii) waive, to the extent permitted by law, any objection to personal jurisdiction or to the laying of venue of any action or proceeding covered by this Section 7(c) in the forum stated in this Section 7(c), (iii) agree not to commence any such action or proceeding in any forum other than the stated in this Section 7(c) and (iv) agree that, to the extent permitted by law, a final and non-appealable judgment in any such action or proceeding in any such court will be conclusive and binding on the Executive and the Bank. However, nothing in this Agreement precludes the Executive or the Bank from bringing any action or proceeding in any court for the purpose of enforcing the provisions of Section 7(a) and this Section 7(c). (d) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Bank waive any and all rights to a jury trial with respect to any Employment Matter. (e) Governing Law. This Agreement will be governed by and construed in accordance with the law of the State of North Carolina applicable to contracts made and to be performed entirely within that State. 8. Miscellaneous. (a) It is understood that the executive will abide by and adhere to all required Insider trading protocols established from time to time by the Bank. (b) The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: During the Employment Term, to the Executive’s office address or facsimile number, and after the Employment Term, to the Executive’s primary residential address (in each case as shown on the records of the Bank) If to the Bank: Royal Bank of Canada Gary Dobbie, SVP Compensation and Benefits Facsimile Number: (416) 974-4383   -11- -------------------------------------------------------------------------------- or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Bank may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive’s or the Bank’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Bank may have hereunder, including, without limitation, the Bank’s right to terminate the Executive for Cause pursuant to Section 3(b), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) It is the parties’ intention that this Agreement not be construed more strictly with regard to the Executive or the Bank. (h) From and after the Closing Date, this Agreement shall supersede any other employment or severance agreement or arrangements between the Executive, on the one hand, and the Bank, Flag Financial or any of their affiliates, on the other hand and the Executive shall not be eligible for severance or other change in control payments or benefits under any other plan, agreement, program or policy of or with the Bank, Flag Financial or their affiliates including the Flag Financial Corporation Change in Control Agreement dated July 14, 2006. Any reference to a Section herein is a reference to a section of this Agreement unless otherwise stated. (i) This Agreement is entered into as a material inducement to the Bank’s subsidiary entering into the Merger Agreement and also is in consideration of the mutual covenants contained in this Agreement. Each party acknowledges the receipt and sufficiency of the consideration to this Agreement and intends this Agreement to be legally binding but only to the extent such amount would exceed such limits such that the resulting payments will be reduced but not eliminated. (j) Anything in this Agreement to the contrary notwithstanding, the Bank shall not be obligated to make any payment hereunder that would be prohibited as a “golden parachute payment” or “indemnification payment” under Section 18(k) of the Federal Deposit Insurance Act but only to the extent such amount would exceed such limits such that the resulting payments will be reduced but not eliminated. (k) If the Bank determines that any amounts to be paid to the Executive hereunder are subject to Section 409A of the Internal Revenue Code of 1986, as amended, then the Bank shall in good faith adjust the form or timing of such payments as it reasonably determines to be necessary or advisable to be in compliance with Section 409A.   -12- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Executive and the Bank have executed this Agreement as of the day and year first above written.   Kim Michael Childers /s/ Kim Michael Childers RBC Centura Bank By:   /s/ Scott M. Custer Name:   Scott M. Custer Title:   Chief Executive Officer   Acknowledged and Agreed Flag Financial Corporation By:   /s/ J. Daniel Speight Name:   J. Daniel Speight Title   Vice Chairman

UNITRIN, INC. 1997 STOCK OPTION PLAN Amended and Restated     1. PURPOSE The purpose of the Unitrin, Inc. 1997 Stock Option Plan is to secure for Unitrin, Inc. and its shareholders the benefits arising from stock ownership by selected executive and other key employees of Unitrin, Inc. or its subsidiaries or affiliates and such other persons as the Committee (as defined hereafter) may from time to time determine. 2. DEFINITIONS As used herein, the following words or terms have the meanings set forth below: "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. "Committee" means the Compensation Committee of the Board or any successor committee. The Committee shall be composed of two or more persons who qualify both as "outside directors" under Section 162(m) of the Code and related regulations and "non-employee directors" under Rule 16b-3 of the Securities Exchange Act of 1934, or any successor provisions. "Company" means Unitrin, Inc., a Delaware corporation. "Constructive or Actual Delivery" means either: (i) presentation to the Company of a recent brokerage account statement or other written evidence satisfactory to the Committee evidencing beneficial ownership by the Participant of shares of Stock other than shares held in 401(k), pension, IRA or similar accounts, or (ii) physical delivery of certificates evidencing shares of Stock, properly indorsed for transfer to the Company or with an appropriately executed stock power. "Disability" means a physical or mental disability of such a nature that it would qualify a Participant for benefits under the long-term disability insurance plan of Unitrin, Inc., or one of its subsidiaries or affiliates. "Exercise Price" means the price at which the Stock underlying an Option granted under this Plan may be purchased upon exercise of the Option. "Fair Market Value," as used to refer to the price of a share of Stock on a particular day, means the closing price for a share of the Stock for that day as subsequently reported in The Wall Street Journal, or if no prices are quoted for that day, the last preceding day on which such prices of Stock are so quoted (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the fair market value.) "ISO" means an Option that satisfies the requirements of Section 422(b) of the Code and any regulations promulgated thereunder from time to time, or any successor provisions thereto. "Mature Shares" means shares of Stock that satisfy the following requirements: (i) have been owned by a Participant free of any encumbrances, vesting requirements or similar restrictions for at least six (6) months; and (ii) have not been exchanged or surrendered by Constructive or Actual Delivery in full or partial payment of the Exercise Price and/or the related tax withholding obligations arising out of an Option exercise within the previous six months.   "Non-Qualified Option" means an Option that does not satisfy the requirements for an ISO. "Option" means an option, including a Non-Qualified Option, an ISO and a Restorative Option, granted to a Participant under this Plan to purchase a designated number of shares of Stock. "Option Agreement" means an agreement between the Company and a Participant evidencing the terms and conditions of a particular Option. "Participant" means an individual selected by the Committee to receive an Option under the Plan. "Representative" means an executor, administrator, guardian, trustee or other representative of a Participant who has legal authority to exercise such Participant's Options or Stock Appreciation Rights on behalf of such Participant or such Participant's estate. "Restorative Option" means an Option granted to a Participant under Section 8 of the Plan. "Retirement" means the termination of employment with the Company and/or its subsidiaries or affiliates by a Participant after attaining age 55, where such Participant does not continue to render services as a consultant, advisor or director to the Company or any such subsidiaries or affiliates. "Stock" means the Common Stock of the Company. "Stock Appreciation Right" means a stock appreciation right granted pursuant to Section 9 of the Plan. "Substantial Cause" means (a) the commission of a criminal act against, or in derogation of, the interests of the Company or its subsidiaries or affiliates; (b) knowingly divulging confidential information about the Company or its subsidiaries or affiliates to a competitor or to the public or using such information for personal gain; or (c) the performance of any similar action that the Committee, in its sole discretion, may deem to be sufficiently injurious to the interests of the Company or its subsidiaries or affiliates to constitute substantial cause for the termination of services by a Participant as an employee, director, consultant or advisor. Nothing in this Plan shall be construed to imply that a Participant's employment may only be terminated for Substantial Cause. 3. THE COMMITTEE a) Administration. The Plan shall be administered by the Committee, which shall have authority: (i) to construe and interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan, (ii) to make all determinations as to eligibility pursuant to Section 5 of the Plan, (iii) to grant Options and Stock Appreciation Rights as more fully described in Section 3(b) below, (iv) to approve and determine the duration of leaves of absence which may be granted to Participants without constituting a termination of their employment for the purposes of the Plan, and (v) to make all other determinations necessary or advisable for the administration of the Plan. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants and their Representatives, successors in interest and beneficiaries. Any action of the Committee with respect to administration of the Plan shall be taken by a majority vote or written consent of its members. b) Granting Authority. Subject to the provisions of the Plan, the authority and discretion to determine the Participants to whom and the time or times at which Options shall be granted, whether an Option will be an ISO or a Non-Qualified Option, whether to couple a Stock Appreciation Right with an Option and the terms of such Right, the number of shares of Stock to be subject to each Option, the Exercise Price, the number of installments, if any, in which each Option may vest, and the expiration date of each Option shall reside with the following persons: (i) the Committee; and (ii) if authorized by a resolution adopted by the Board, one or more executive officers of the Company may be delegated such authority and discretion, provided that no such officer may grant Options or Rights to himself or herself or to any officer of the Company who is subject to the reporting and short-swing liability provisions of Section 16 of the Securities Exchange Act of 1934. 4. SHARES SUBJECT TO PLAN Subject to adjustment as provided in Section 14 hereof, the maximum number of shares of Stock which may be issued pursuant to the exercise of Options and Stock Appreciation Rights granted under the Plan shall not exceed four million (4,000,000) shares in total. The maximum number of shares that may be granted to an individual Participant under the Plan shall be one-third of such total. If any Option granted under the Plan shall expire or terminate for any reason (other than surrender at the time of exercise of a related Stock Appreciation Right provided for in paragraph 9 hereof), without having been exercised in full, the unpurchased shares subject thereto shall again be available for Options to be granted under the Plan. Any shares of Stock that are used by Constructive or Actual Delivery as full or partial payment for the Exercise Price of an Option and/or the withholding taxes arising from the exercise of such Option, or that are withheld from the shares that would otherwise be issued upon exercise of such Option in full or partial payment of such withholding taxes, shall in each case be added to the aggregate number of shares of Stock available for issuance under this Plan. 5. ELIGIBILITY The following persons shall be eligible to receive grants of Options and Stock Appreciation Rights under this Plan: a) all executive and other key employees of the Company or of any subsidiary or affiliate of the Company who are designated as such by the Committee in its sole discretion; b) directors of the Company who are regular employees of the Company or any such subsidiary or affiliate; and c) key persons selected by the Committee in its sole discretion who render services to the Company or its subsidiaries or affiliates as consultants or advisors, but such persons shall only be eligible to receive Non-Qualified Options (including Restorative Options issued with respect to such Options). 6. TERMS OF OPTIONS a) Duration. Each Option and all rights associated therewith, shall expire on such date as the Committee may determine, subject to earlier termination as provided herein. All Options granted under this Plan shall be granted on or before December 31, 2006, except for Restorative Options which may continue to be granted after December 31, 2006 until the expiration dates of the original Options to which such Restorative Options relate, subject to the limitations in the last sentence of Section 8. b) Exercise Price . The Exercise Price of the Stock covered by each Option shall be determined by the Committee. c) Vesting. Each Option granted under this plan shall vest and be exercisable in such installments, if any, during the period prior to its expiration date as the Committee shall determine, and, unless otherwise specified in an Option Agreement, no Option shall be exercisable for at least six months after grant except in the case of the death or Disability of the Participant. d) Non-Transferability. Unless otherwise provided in an Option Agreement, an Option (and any accompanying Stock Appreciation Right) granted under the Plan shall not be transferable by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and shall be exercisable during the Participant's lifetime only by the Participant (or, in the case of the incapacity of the Participant, by the Participant's Representative) regardless of any community property interest therein of the spouse of the Participant, or such spouse's successors in interest. If the spouse of the Participant shall have acquired a community property interest in such Option (or accompanying Stock Appreciation Right), the Participant, or the Participant's Representative, may exercise the Option (or accompanying Stock Appreciation Right) on behalf of the spouse of the Participant or such spouse's successors in interest. e) Option Agreements. The terms of each Option granted pursuant to this Plan shall be evidenced by an Option Agreement in a form approved by the Committee and signed by both the Company and the Participant, except that a Restorative Option may be evidenced by a certificate or statement issued by the Company that recites the essential terms of such Option. 7. EXERCISE OF OPTIONS a) Notice by Participant. Each Participant (or such Participant's Representative) who desires to exercise an Option shall give advance written notice of such exercise to the Company in such form as may be prescribed from time to time by the Committee. b) Payment for Exercises. Before shares will be issued in connection with an Option exercise, the Exercise Price of an Option shall be paid in full by: (i) check payable to the order of the Company; (ii) Constructive or Actual Delivery of Mature Shares; (iii) wire transfer or other means acceptable to the Committee; or (iv) any combination of the foregoing. Mature Shares used by Constructive or Actual Delivery to satisfy the Exercise Price of an Option shall be valued at their Fair Market Value on the date of exercise. c) Partial Exercises. No Option may be exercised for a fraction of a share and no partial exercise of any Option may be made for less than fifty (50) shares unless the total number of shares covered by an Option is less than 50 at the time of exercise or unless an Option or Stock Appreciation Right is scheduled to expire within six months of the date of exercise. d) Withholding Taxes. Upon the exercise of a Non-Qualified Option or a Stock Appreciation Right, the Company shall have the right to: (i) require such Participant (or such Participant's Representative) to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such exercise, or (ii) deduct from all amounts paid in cash with respect to the exercise of a Stock Appreciation Right the amount of any taxes which the Company may be required to withhold with respect to such cash amounts. Subject to the limitation set forth in the next sentence, a Participant or such Participant's Representative may elect to satisfy all or any portion of the tax withholding obligations arising from the exercise of an Option or Stock Appreciation Right either by: (i) any of the methods described in Section 7(b), or (ii) directing the Company to withhold shares of Stock that would otherwise be issued pursuant to such exercise. With respect to exercises of Options and Stock Appreciation Rights granted on or after May 5, 1999, no Participant or Participant's Representative shall have the right to utilize Constructive or Actual Delivery of Mature Shares or have shares of Stock withheld in excess of the minimum number required to satisfy applicable tax withholding requirements based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes. Shares of Stock used in either of the foregoing ways to satisfy tax withholding obligations will be valued at their Fair Market Value on the date of exercise. 8. GRANT OF RESTORATIVE OPTIONS a) Subject to Section 8(b), a Restorative Option to purchase shares of Stock will be granted to a Participant in connection with the exercise of an Option if: (i) the Participant elects to pay some or all of the Exercise Price of the Option (the "Underlying Option") and/or any related withholding taxes by Constructive or Actual Delivery of Mature Shares (or, in the case of such taxes, by directing the Company to withhold shares that would otherwise be issued upon exercise of such Underlying Option); and (ii) for Options under original grants made on or after February 1, 2006, and for Restorative Options relating to such original grants, the Fair Market Value of a share of Stock on the exercise date exceeds the Exercise Price of the Underlying Option by at least the percentage set forth in the Option Agreement. The number of shares of Stock subject to the Restorative Option shall be equal to the sum of: (a) any Mature Shares used by Constructive or Actual Delivery to pay the Exercise Price and/or the related withholding taxes, and (b) any shares withheld in connection with the exercise in payment of withholding taxes. The Exercise Price of the Restorative Option shall be equal to one hundred percent (100%) of the Fair Market Value of the Stock on the date the Underlying Option is exercised. The Restorative Option shall be fully vested beginning six months after the date of its grant and shall expire on the expiration date of the Underlying Option. All other terms of the Restorative Option shall be identical to the terms of the Underlying Option. b) No Restorative Option shall be granted: (i) to any Participant who is not actively employed by the Company or one of its subsidiaries or affiliates on the date of exercise of the Underlying Option or who is not then rendering services to the Company or any such subsidiaries or affiliates as a consultant, advisor or director; (ii) if, on the date of exercise of the Underlying Option such Option would be scheduled to expire within the period set forth in the Option Agreement or, if not specified in the Option Agreement, within six months; or (iii) for Options under original grants made on or after February 1, 2006, and for Restorative Options relating to such original grants, if the price of a share of Stock on the exercise date does not meet the appreciation requirement described in Section 8(a)(ii). 9. STOCK APPRECIATION RIGHTS If deemed appropriate by the Committee, any Option may be coupled with a Stock Appreciation Right at the time of the grant of the Option, or the Committee may grant a Stock Appreciation Right to any Participant at any time after granting an Option to such Participant but prior to the expiration date of such associated Option. Such Stock Appreciation Right shall be subject to such terms and conditions consistent with the Plan as the Committee shall impose, provided that: a) A Stock Appreciation Right shall be exercisable to the extent, and only to the extent, the associated Option is exercisable and shall be exercisable only for such period as the Committee may determine (which period may expire prior to the expiration date of the Option); b) A Stock Appreciation Right shall entitle the Participant to surrender to the Company unexercised the Option to which it is related, or any portion thereof, and to receive from the Company in exchange therefor that number of shares (rounded down to the nearest whole number) having an aggregate value equal to the excess of the Fair Market Value of one share over the Exercise Price per share specified in such Option, multiplied by the number of shares subject to the Option, or portion thereof, which is so surrendered; and c) The Committee may elect to settle, or the Stock Appreciation Right may permit the Participant to elect to receive (subject to approval by the Committee), any part or all of the Company's obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash equal to the aggregate Fair Market Value of that part or all of the shares it would otherwise be obligated to deliver, provided that in no event shall cash be payable to an officer or director of the Company upon exercise of a Stock Appreciation Right: (i) if the Stock Appreciation Right was exercised during the first six months of its term; or (ii) unless the transaction is otherwise exempt from the operation of Section 16(b) of the Securities Exchange Act of 1934. 10. HOLDING OF STOCK AFTER EXERCISE OF OPTION At the discretion of the Committee, any Option Agreement may provide that the Participant, by accepting such Option, represents and agrees, for the Participant and the Participant's permitted transferees, that none of the shares purchased upon exercise of the Option or any accompanying Stock Appreciation Right will be acquired with a view to any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or any applicable state "blue sky" laws, and the person entitled to exercise the same shall furnish evidence satisfactory to the Company (including a written and signed representation) to that effect in form and substance satisfactory to the Company, including an indemnification of the Company in the event of any violation of the Securities Act of 1933 or state blue sky law by such person. 11. CESSATION OF SERVICES Unless otherwise specified in an Option Agreement or approved in writing by the Committee, if a Participant ceases to provide services to any of the Company, its subsidiaries and affiliates as an employee, director, consultant or advisor, other than as a result of the Participant's Retirement, death or Disability, the Participant's outstanding Options (and any accompanying Stock Appreciation Rights) shall, to the extent such Options are already vested, be exercisable for a period of 90 days after the date such Participant ceases to provide all such services and shall thereafter expire and be void and of no further force or effect. A leave of absence approved in writing by the Committee shall not be deemed a cessation of services for purposes of this paragraph, but no Option (or accompanying Stock Appreciation Right) may be exercised during any such leave of absence, except during the first 90 days thereof unless otherwise agreed to in writing by the Committee. If a Participant's services as an employee, director, consultant or advisor are terminated for Substantial Cause, all of the Participant's outstanding Options (and accompanying Stock Appreciation Rights) will terminate as of the date of such termination. 12. RETIREMENT, DEATH OR DISABILITY OF PARTICIPANT a) Retirement. A Participant shall have one year from the date of Retirement in which to exercise all Options that are vested on the Retirement date, and all such Options which are not exercised within such one-year period shall expire and be of no further force or effect. All Options that were not vested on the date of Retirement will immediately expire and be of no further force or effect. The foregoing provisions shall apply equally to any Stock Appreciation Rights held by the Participant. b) Death or Disability. Effective for original grants made hereunder on or after February 1, 2005, and for restorative grants relating to such original grants, upon a Participant's death or Disability while employed by the Company or one of its subsidiaries or affiliates or while such Participant was providing services thereto as a director, consultant or advisor, all Options granted to such Participant that were outstanding but not vested on such date shall immediately vest, and the Participant (or his or her Representative) shall have one year from the date of death or the date the Participant first became Disabled in which to exercise all vested Options held by such Participant on such date. For original grants made hereunder prior to February 1, 2005, and for restorative grants relating to such original grants, upon the death or Disability of a Participant while employed by the Company or one of its subsidiaries or affiliates or while such Participant was providing services thereto as a director, consultant or advisor, the Participant's outstanding Options shall expire one (1) year after the date of such death or Disability unless by their terms they expire sooner. During such period after the death of a Participant, such Options may, to the extent that they were vested but unexercised on the date of death, be exercised by the Participant's Representative. The provisions of this Section 12(b) shall apply equally to any Stock Appreciation Rights held by the Participant. 13. PRIVILEGES OF STOCK OWNERSHIP No Participant shall have any of the rights or privileges of a shareholder of the Company in respect of any shares of Stock issuable upon exercise of any Option or Stock Appreciation Right until shares of Stock shall have been issued and delivered (i) to the Participant in the form of certificates, (ii) to a brokerage or other account for the benefit of the Participant either in certificate form or via "DWAC" or similar electronic means, or (iii) to a book entry or direct registration account in the name of the Participant. No shares shall be issued and delivered upon the exercise of any Option or accompanying Stock Appreciation Rights unless and until there shall have been full compliance with all applicable requirements of the Securities Act of 1933 (whether by registration or satisfaction of exemption conditions), all applicable listing requirements of the New York Stock Exchange or any national securities exchange on which shares of the same class are then listed and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. 14. ADJUSTMENTS If the outstanding shares of the Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares of securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Options (and accompanying Stock Appreciation Rights) may be granted under this Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in an outstanding Option shall be made without change in the aggregate purchase price applicable to the unexercised portion of such Option but with a corresponding adjustment in the Exercise Price for each share or other unit of any security covered by the Option. The share limit in Section 4 of this Amended and Restated Plan has been restated in accordance with this Section 14 to reflect the Company's 2-for-1 stock split effective March 26, 1999. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty percent (80%) of the then outstanding Stock of the Company to another corporation, this Plan shall terminate; provided, however, that notwithstanding the foregoing, the Board shall provide in writing in connection with such transaction for any one or more of the following alternatives (separately or in combinations); (i) for each Option and any accompanying Stock Appreciation Rights theretofore granted to become immediately exercisable notwithstanding the provisions of Section 6(c) hereof, (ii) for the assumption by the successor corporation of the Options and Stock Appreciation Rights theretofore granted or the substitution by such corporation for such Stock Appreciation Rights theretofore granted or the substitution by such corporation for such Options and rights of new Options and rights covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by such successor corporation in which event the Plan and the Options and any accompanying Stock Appreciation Rights therefore granted shall continue in the manner and under the terms so provided; or (iv) for the payment in cash or stock in lieu of and in complete satisfaction of such Options and rights. Adjustments under this paragraph shall be made by the Committee, whose determination as to which adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the plan on any such adjustment. At the discretion of the Committee, any Option Agreement may contain provisions to the effect that upon the happening of certain events, including a change in control (as defined by the Committee in such Option Agreement) of the Company, any outstanding Options and accompanying Stock Appreciation Rights not theretofore vested shall immediately become vested and exercisable in their entirety, notwithstanding any of the other provisions of the Option. 15. AMENDMENT AND TERMINATION OF PLAN The Board may at any time suspend or terminate the Plan or amend the terms of the Plan. In the event that any provision of applicable law mandates that any such amendment be approved by the Company's shareholders, then such amendment shall be submitted to such shareholders for approval or ratification within a time period that satisfies such law. In the case of other laws that require shareholder approval of amendments as a condition to receiving or preserving certain benefits (e.g., deductibility of certain compensation under Section 162(m) of the Code) or achieving a "safe harbor" status, the Board shall have sole discretion to determine whether or not to submit amendments to the Company's shareholders for approval. The Committee may from time to time increase or decrease the six-month holding periods specified in the definition of Mature Shares in Section 2 above: (i) to satisfy applicable legal or accounting requirements; (ii) to secure advantageous treatment for the Company or the Participants under any provision of law or any accounting rule, pronouncement or interpretation applicable to financial statements prepared on the basis of accounting principles generally accepted in the United States; or (iii) for any reason determined by the Committee to be in the best interests of the Company or the Participants and not inconsistent with any applicable legal or accounting requirements. The Committee may eliminate such holding periods in the event that there are no legal or accounting requirements that they be imposed or if there is no longer any advantage to the Company or the Participants that they be imposed and such elimination is otherwise consistent with applicable legal and accounting requirements. The Committee may also reinstate holding periods in order to satisfy applicable legal or accounting requirements or to secure advantageous treatment for the Company or the Participants of the type contemplated in this paragraph. Notwithstanding the foregoing, no amendment, suspension or termination of the Plan by the Board, and no change related to holding periods made by the Committee pursuant to the foregoing paragraph, shall in any way adversely affect the rights of a holder of any outstanding Option, Restorative Option subsequently granted in connection with the exercise of an outstanding Option, or accompanying Stock Appreciation Right, without the prior written consent of such holder. 16. ARBITRATION. The Committee may, as a condition to granting Options or Stock Appreciation Rights, require that a Participant agree in writing to submit all disputes or claims arising out of or relating to any such Options or Stock Appreciation Rights to binding arbitration in accordance with such terms as the Committee shall prescribe.

Exhibit 10.25 FIFTH AMENDMENT TO CREDIT AGREEMENT THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of and effective as of this 31st day of December, 2005, by and between TREX COMPANY, INC., a Delaware corporation (sometimes hereinafter referred to herein as “Trex Inc.”), and BRANCH BANKING AND TRUST COMPANY OF VIRGINIA, a Virginia state banking corporation (hereinafter referred to herein as the “Bank”). Trex Inc., TREX Company, LLC, a Delaware limited liability company (“TREX LLC”), and the Bank are the original parties to that certain Credit Agreement dated as of June 19, 2002, as amended by a First Amendment to Credit Agreement dated as of August 29, 2003, as further amended by a Second Amendment to Credit Agreement dated as of September 30, 2004, as further amended by a Third Amendment to Credit Agreement dated as of March 31, 2005, as further amended by a Fourth Amendment to Credit Agreement dated as of July 25, 2005 (as so amended and as it may hereafter be amended, restated, supplemented, replaced or otherwise modified from time to time, the “Credit Agreement”). Subject to the terms and conditions contained in the Credit Agreement, the Bank agreed to extend to Trex Inc. and TREX LLC (i) a revolving credit facility, with a letter of credit subfacility, in the aggregate amount of $20,000,000 for working capital financing of Trex Inc.’s and TREX LLC’s accounts receivable and inventory, to purchase new equipment and/or for other general corporate purposes of Trex Inc. and TREX LLC, (ii) a term loan facility in the amount of $9,570,079.88 to refinance the Winchester Property (as defined in the Credit Agreement), and (iii) a term loan facility in the amount of $3,029,920.12 to finance existing improvements to the Winchester Property. Effective December 31, 2002, TREX LLC merged with and into Trex Inc., with Trex Inc. being the surviving entity. As a result of such merger, Trex Inc. is the sole borrower under the Credit Agreement and shall hereinafter sometimes be referred to in this Amendment as the “Borrower.” The Borrower has requested that the Bank increase the aggregate amount of the revolving credit facility for a specified period of time, and the Bank is willing to do so upon the terms and conditions contained herein. Accordingly, the Borrower and the Bank hereby agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. 2. Section 6.11 of the Credit Agreement is hereby deleted in its entirety and the following Section is substituted in its place: Section 6.11. Total Consolidated Debt to Consolidated EBITDA Ratio. The Borrower will not, as of the end of any fiscal quarter, permit the ratio of the Total Consolidated Debt to Consolidated EBITDA (the “Total Consolidated Debt to Consolidated EBITDA Ratio”) for the four-quarter period ended as of the end of such fiscal quarter to exceed 2.50 to 1; provided that the Total Consolidated Debt to Consolidated EBITDA Ratio shall not be measured for the fiscal quarters ending December 31, 2005 and March 31, 2006.   1 -------------------------------------------------------------------------------- 3. Section 6.12 of the Credit Agreement is hereby deleted in its entirety and the following Section is substituted in its place: Section 6.12 Fixed Charge Coverage Ratio. The Borrower will not (a) as of the end of any fiscal quarter of the Borrower during fiscal year 2005, permit the Fixed Charge Coverage Ratio for the four-quarter period ending as of the end of such fiscal quarter to be less than 1.3 to 1 and (b) as of the end of any fiscal quarter of the Borrower after fiscal year 2005, permit the Fixed Charge Coverage Ratio for the four-quarter period ending as of the end of such fiscal quarter to be less than 1.5 to 1; provided that the Fixed Charge Coverage Ratio shall not be measured for the fiscal quarters ending December 31, 2005 and March 31, 2006. 4. Article VI of the Credit Agreement is hereby amended by inserting the following new Section immediately following Section 6.26 of the Credit Agreement: Section 6.27 Maximum Consolidated Net Loss. The Borrower’s Consolidated Net Income for the four-quarter period ended December 31, 2005 shall not be less than negative $5,000,000.00. 5. The definition of the term, “Applicable Real Estate Term Loan Margin,” contained in the Definitions Appendix to the Credit Agreement is hereby deleted in its entirety and the following definition is inserted in its place: “Applicable Real Estate Term Loan Margin” means (i) 3.0% for the period from December 31, 2005 through and including the first day of the month following receipt by the Bank of the consolidated financial statements described in Section 6.01(a) for the period ending December 31, 2005 and (ii) thereafter shall be determined by reference to the Total Consolidated Debt to Consolidated EBITDA Ratio in accordance with the following table:   Total Consolidated Debt to Consolidated EBITDA Ratio    Applicable Real Estate Term Loan Margin Equal to or higher than 3.5 to 1    3.00% Equal to or higher than 3.0 to 1 but lower than 3.5 to 1    2.75% Equal to or higher than 2.5 to 1 but lower than 3.0 to 1    2.50% Equal to or higher than 2.0 to 1 but lower than 2.5 to 1    2.25% Equal to or higher than 1.5 to 1 but lower than 2.0 to 1    2.00% Equal to or higher than 1.0 to 1 but lower than 1.5 to 1    1.75% Lower than 1.0 to 1    1.50%   2 -------------------------------------------------------------------------------- Except during the initial period described in clause (i) above, the Applicable Real Estate Term Loan Margin will be automatically adjusted as of the first day of the month following receipt by the Bank of consolidated financial statements of the Borrower and its Consolidated Subsidiaries pursuant to Section 6.01(a) or Section 6.01(b) demonstrating to the Bank’s reasonable satisfaction that there has been a change in the Total Consolidated Debt to Consolidated EBITDA Ratio which would cause a change in the Applicable Real Estate Term Loan Margin in accordance with the preceding table. Any such change shall apply to Real Estate Term Loans 1, 2 & 3 outstanding on such effective date. At all times after and during the continuance of a Default with respect to the Borrower’s obligations under Section 6.01(a) or Section 6.01(b) until the delivery of the applicable financial statements required pursuant thereto, the Applicable Real Estate Term Loan Margin shall be 3.00%. 6. The definition of the term, “Applicable Revolving Loan Margin,” contained in the Definitions Appendix to the Credit Agreement is hereby deleted in its entirety and the following definition is substituted in its place: “Applicable Revolving Loan Margin” means (i) 2.75% for the period from December 31, 2005 through and including the first day of the month following receipt by the Bank of the consolidated financial statements described in Section 6.01(a) for the period ending December 31, 2005 and (ii) thereafter shall be determined by reference to the Total Consolidated Debt to Consolidated EBITDA Ratio in accordance with the following table:   Total Consolidated Debt to Consolidated EBITDA Ratio    Applicable Revolving Loan Margin Equal to or higher than 3.5 to 1    2.75% Equal to or higher than 3.0 to 1 but lower than 3.5 to 1    2.50% Equal to or higher than 2.5 to 1 but lower than 3.0 to 1    2.25% Equal to or higher than 2.0 to 1 but lower than 2.5 to 1    2.00% Equal to or higher than 1.5 to 1 but lower than 2.0 to 1    1.75% Equal to or higher than 1.0 to 1 but lower than 1.5 to 1    1.50% Lower than 1.0 to 1    1.25%   3 -------------------------------------------------------------------------------- Except during the initial period described in clause (i) above, the Applicable Revolving Loan Margin will be automatically adjusted as of the first day of the month following receipt by the Bank of consolidated financial statements of the Borrower and its Consolidated Subsidiaries pursuant to Section 6.01(a) or Section 6.01(b) demonstrating to the Bank’s reasonable satisfaction that there has been a change in the Total Consolidated Debt to Consolidated EBITDA Ratio which would cause a change in the Applicable Revolving Loan Margin in accordance with the preceding table. Any such change shall apply to the Revolving Loans outstanding on such effective date or made on or after such effective date. At all times after and during the continuance of a Default with respect to the Borrower’s obligations under Section 6.01(a) or Section 6.01(b) until the delivery of the applicable financial statements required pursuant thereto, the Applicable Revolving Loan Margin shall be 2.75%. 7. The definition of the term, “Revolving Commitment,” contained in the Definitions Appendix to the Credit Agreement is hereby deleted in its entirety and the following definition is substituted in its place: “Revolving Commitment” means (i) for the period June 19, 2002 to and including December 31, 2005, $20,000,000.00 or such lesser amount to which it is reduced pursuant to Section 2.07, (ii) for the period January 1, 2006 to and including June 30, 2006, $30,000,000.00 or such lesser amount to which it is reduced pursuant to Section 2.07 and (iii) for the period July 1, 2006 and at all times thereafter during the Revolving Credit Period, $20,000,000.00 or such lesser amount to which it is reduced pursuant to Section 2.07. 8. The definition of the term, “Revolving Credit Period,” contained in the Definitions Appendix to the Credit Agreement is hereby deleted in its entirety and the following definition is substituted in its place: “Revolving Credit Period” means the period from and including the Effective Date to but not including the Revolving Credit Termination Date. 9. Exhibit I-2 to the Credit Agreement is hereby deleted in its entirety and a new Exhibit, which is attached to this Amendment and labeled Exhibit I-3, is substituted in its place.   4 -------------------------------------------------------------------------------- 10. The Borrower hereby represents and warrants to the Bank (which representations and warranties shall survive the execution and delivery of this Amendment) that: (a) It is in compliance with all of the terms, covenants and conditions of the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents. (b) There exists no Default or Event of Default under the Credit Agreement, as amended by this Amendment, and no event has occurred or condition exists which, with the giving of notice or lapse of time, or both, would constitute such a Default or Event of Default. (c) The representations and warranties contained in Article V of the Credit Agreement are, except to the extent that they relate solely to an earlier date or except to the extent that they relate solely to TREX LLC, true in all material respects with the same effect as though such representations and warranties had been made on the date of this Amendment. (d) The execution, delivery and performance by the Borrower of this Amendment and the new promissory note (attached hereto as Exhibit I-3) are within its corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene or constitute (with or without the giving of notice or lapse of time or both) a default under any provision of applicable law or of the organizational documents of the Borrower or any Subsidiary or of any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting the Borrower or any Subsidiary or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. (e) This Amendment and the promissory note described in paragraph 10(d) of this Amendment constitute the valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and by equitable principles of general applicability (regardless of whether such enforceability is considered in a proceeding in equity or at law). (f) Except as set forth on Schedule 5.05 to the Credit Agreement, there is no material action, suit, proceeding or investigation pending against, or to the knowledge of the Borrower threatened against, contemplated or affecting, the Borrower or any of its Subsidiaries before any court, arbitrator or governmental body, agency or official which has, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or which in any manner draws into question the validity or enforceability of this Amendment, the promissory note described in paragraph 10(d) of this Amendment or any of the Loan Documents, and there is no basis known to the Borrower or any of its Subsidiaries for any such action, suit, proceeding or investigation.   5 -------------------------------------------------------------------------------- 11. The Bank’s agreement to enter into this Amendment is subject to the following conditions precedent: (a) The Borrower shall have executed and delivered to the Bank this Amendment and the promissory note described in paragraph 10(d) of this Amendment in the form of Exhibit I-3 attached hereto with the blanks therein appropriately completed. (b) The Borrower shall have executed and delivered, or caused to be executed and delivered, to the Bank such other and further documents, certificates, opinions and other papers as the Bank shall reasonably request; and the Borrower shall have paid all fees due to the Bank. (c) The Borrower, JPMorgan Chase Bank, N.A., as issuing bank (the “Issuing Bank”) and JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”) shall have executed and delivered an amendment to the Reimbursement and Credit Agreement dated as of December 1, 2004 by and between the Borrower, the Issuing Bank and the Administrative Agent, as amended (as so amended, the “Chase Credit Agreement”) in form and substance acceptable to the Bank. (d) The Bank shall have received a favorable opinion of counsel to the Borrower addressed to the Bank, dated as of the date hereof and satisfactory in form and substance to the Bank, as to the due authorization, execution, delivery and enforceability of this Amendment, the promissory note described in paragraph 10(d) of this Amendment, and such other matters as the Bank shall request. 12. Except as expressly amended hereby, the terms of the Credit Agreement shall remain in full force and effect in all respects, and the Borrower hereby reaffirms its obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents. The Borrower hereby waives any claim, cause of action, defense, counterclaim, setoff or recoupment of any kind or nature that it may assert against the Bank arising from or in connection with the Credit Agreement, as amended by this Amendment, any of the Loan Documents, or the transactions contemplated thereby or hereby that exist on the date hereof or arise from facts or actions occurring prior hereto or on the date hereof. Nothing contained in this Amendment shall be construed to constitute a novation with respect to the obligations described in the Credit Agreement. 13. All references to the Credit Agreement in any of the Loan Documents, or any other documents or instruments that refer to the Credit Agreement, shall be deemed to be references to the Credit Agreement as amended by this Amendment. 14 This Amendment and the promissory note described in paragraph 10(d) of this Amendment shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia. 15. Any Dispute arising out of or related to this Amendment, the promissory note described in paragraph 10(d) of this Amendment or any of the Loan Documents shall be   6 -------------------------------------------------------------------------------- resolved by binding arbitration as provided in Section 9.07 of the Credit Agreement. TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY DISPUTE. 16. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument. 17. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower shall not have the right to assign any of its rights or obligations under or delegate any of its duties under the Credit Agreement, as amended by this Amendment, or any of the other Loan Documents. 18. The Borrower hereby agrees that it will pay on demand all out-of-pocket expenses incurred by the Bank in connection with the preparation of this Amendment and any other related documents, including but not limited to the fees and disbursements of counsel for the Bank. 19. This Amendment and the promissory note described in paragraph 10(d) of this Amendment represent the final agreement between the Borrower and the Bank with respect to the subject matter hereof, and may not be contradicted, modified or supplemented in any way by evidence of any prior or contemporaneous written or oral agreements of the Borrower and the Bank. [Remainder of Page Intentionally Left Blank]   7 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their duly authorized officers under seal as of the date first written above.   TREX COMPANY, INC.   By:   /s/ Paul D. Fletcher   (SEAL) Name:   Paul D. Fletcher   Title:   Senior Vice President and     Chief Financial Officer   BRANCH BANKING AND TRUST COMPANY OF VIRGINIA By:   /s/ David A. Chandler   (SEAL) Name:   David A. Chandler   Title:   Senior Vice President   Exhibit I-3 - Promissory Note (Revolving Note)   8

CONSULTANT AGREEMENT This CONSULTANT AGREEMENT (the “Agreement”) is entered into by and between the Asia Global Holdings Corp., a Nevada corporation (the “Company”) and Mak, Choi Mei a natural person (“Consultant”), this 19th day of October, 2006, the date the Services (as defined herein) were first provided to the Company by Consultant. WHEREAS, the Company wishes to retain Consultant to provide the Services in exchange for which the Company agrees to issue to Consultant, during the term of this Agreement, Three Million Two Hundred Thousand (3,200,000) S-8 shares of its common stock; and WHEREAS, the Company acknowledges that Consultant’s services are of a special, unique, unusual and extraordinary character and which are of particular benefit and importance to the Company; and WHEREAS, this Agreement is made to set out the compensation, conditions and guidelines that will govern the relationship between the parties. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the receipt and sufficiency of which is expressly acknowledged by the parties hereto, the parties agree as follows: 1.   The Services.  For the term of this Agreement Consultant will use his best efforts to provide expansion opportunities, research and geographical oversight, within China,with respect to the activities of the Company’s subsidiary, SINO Trade Intelligent Development Corporation, Ltd., and provide other services as legally and reasonably directed by the Company’s Board of Directors. Such efforts by Consultant shall hereinafter be referred to as the “Services”. It is mutually understood and agreed that any fees for the Services provided by Consultant which result in some benefit for the Company in connection with a capital raising transaction shall be negotiated separately from this Agreement. 2.   Term of Agreement.  Unless otherwise terminated as provided hereunder, the mutual term of this Agreement shall be one (1) year beginning the date the Services were first performed, which was on or about October 19, 2006 through October 18, 2007. 3.   Costs and Expenses.  The Company understands that, in the course of Consultant’s efforts, it may be necessary for Consultant to incur certain costs or expenses. The Company will reimburse Consultant for the costs or expenses by Consultant in providing the Services to the Company, provided such expenses are approved by the Company in writing in advance.   --------------------------------------------------------------------------------   4.   Payment for Services.  In consideration for the Services, the Company agrees to pay Consultant a fee for Services, by way of the issuance to Consultant, during the term of this Agreement, of Three Million Two Hundred Thousand (3,200,000) shares of the Company’s common stock (the “Fee Shares”), herein the Fee Shares referred to herein as the “Consultant Fee”. 5.   Termination. Following the first anniversary of the Effective Date hereof, either party may terminate this agreement upon thirty (30) days notice by registered or certified mail, return receipt requested, addressed to the other party. The thirty (30) day notice shall be measured from the date the notice is mailed. If neither party elects to terminate the agreement pursuant to such written notice then the agreement shall automatically renew pursuant to the same terms and conditions for an additional twelve month time period. 6.   Assignment.  Notwithstanding anything contained herein to the contrary, the rights to the Consultanty Fee and the obligation to provide the Services set forth in this Agreement, may be assigned or transferred by Consultant to an Affiliate; otherwise, this Agreement and the rights and obligations hereunder shall not be assigned. For the purpose of this Agreement the term “affiliate” shall be defined as a person or enterprise that directly, or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control by Consultant. 7.   Counterparts; Facsimile.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A facsimile, telecopy or other reproduction of the original or any counterpart hereof and such executed the original or any counterpart hereof may be delivered by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties agree to execute an original of this instrument as well as any facsimile, telecopy or other reproduction hereof. 2 --------------------------------------------------------------------------------   8.   Further Documentation. Each party hereto agrees to execute such additional instruments and take such action as may be reasonably requested by the other party to effect the transaction, or otherwise to carry out the intent and purposes of this Agreement. 9.   Notices.  All notices and other communications hereunder shall be in writing and shall be sent by prepaid first class mail to the parties at the following addresses, as amended by the parties with written notice to the other: To Consultant:                                      Mak, Choi Mei    Rm 3206 Hing Fung House Hing Tung Estate Sai Wan Ho, Hong Kong Telephone: (852) 903-1540   To the Company:                                 Asia Global Holdings Corp. 1601-1604 CRE Centre 889 Cheung Sha Wan Road Kowloon, Hong Kong Telephone: (852) 2180-8666 Facsimile:  (852) 2180-8622 With Copy to:                                       Michael Mak 1601-3 CRE Centre 889 Cheung Sha Wna Road Kowloon Hong Kong Telephone: (852) 2180-8666 Telephone: (852) 2180-8622       10.   Governing Law.  This Agreement was negotiated and shall be governed by the laws of the United States, State of California, County of Los Angeles, notwithstanding any conflict-of-law provision to the contrary. 3 --------------------------------------------------------------------------------   11.   Entire Agreement.  This Agreement sets forth the entire understanding between the parties hereto and no other prior written or oral statement or agreement shall be recognized or enforced. 12.   Severability.  If a court of competent jurisdiction determined that any clause or provision of this Agreement is invalid, illegal or unenforceable, the other clauses and provisions of the Agreement shall remain in full force and effect and the clauses and provision which are determined to be void, illegal or unenforceable shall be limited so that they shall remain in effect to the extent permissible by law. 13.   Amendment or Waiver.  Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to a closing of the Initial Acquisition, this Agreement may be amended by a writing signed by all parties hereto. 14.   Headings.  The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement the effective date first written above. The “Company” Asia Global Holdings Corp.   By: /s/ Michael Mak   Michael Mak Title: CEO “Consultant” By: /s/ Mak, Choi Mei    Mak, Choi Mei        A natural person             4 --------------------------------------------------------------------------------    

EXECUTION COPY AMENDMENT NO. 1 TO THE MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT (JUMBO FIXED RATE MORTGAGE LOANS) (COUNTRYWIDE HOME LOANS, INC.-- BANC OF AMERICA MORTGAGE CAPITAL CORPORATION) This Amendment No. 1 (this "Amendment"), dated as of July 1, 2003, by and among BANK OF AMERICA, N.A., a national banking association (the "Assignee"), BANC OF AMERICA MORTGAGE CAPITAL CORPORATION, a North Carolina corporation (the "Purchaser"), and COUNTRYWIDE HOME LOANS, INC., a New York corporation (the "Company") is to that certain Master Mortgage Loan Purchase and Servicing Agreement (the "Agreement"), dated as of April 1, 2003, by and between the Purchaser and the Company. The Purchaser has previously assigned its interest in the Agreement with respect to certain Mortgage Loans purchased from the Company prior to the date hereof to the Assignee. With respect to the Agreement, the Company, the Assignee and the Purchaser hereby agree as follows: 1. The definition "Accepted Servicing Practices" is amended by inserting immediately after the language "and local law" the following, "and the Fannie Mae Single Family Servicing Guide". 2. The following Section is inserted into the Agreement (and the Table of Contents is amended accordingly): 4.19 AUTOMATED SERVICING SYSTEMS. Countrywide shall setup, format, maintain and transmit to the Purchaser Countrywide's mortgage servicer file and other electronic data storage and transmission systems related to the Mortgage Loans (collectively, the "Servicing Systems") in accordance with the guidelines and requirements set forth in Exhibit G attached hereto (the "Servicer Requirements"), and Countrywide shall cooperate with the Purchaser to receive data from the Purchaser that is to be incorporated in the Servicing Systems in accordance with the Servicer Requirements. 3. Section 5.02 is amended by inserting the following language as the first paragraph thereof: Not later than the fifth (5th) Business Day of each month, Countrywide shall furnish to the Purchaser, with respect to the preceding month, a monthly collection report, a monthly paid in full report that summarizes Mortgage Loans paid in full during the Due Period and a monthly trial balance report that provides a trial balance as of the last day of the month preceding such Remittance Date in electronic format agreed upon by Countrywide and the Purchaser. 4. The following Section is inserted into the Agreement (and the Table of Contents is amended accordingly): SECTION 6.07 COOPERATION WITH THIRD-PARTY SERVICE PROVIDERS. Countrywide shall cooperate with the Purchaser in servicing the Mortgage Loans in accordance with the usual and customary requirements of any credit enhancement, risk management and other service providers and shall otherwise cooperate with the Purchaser in connection with such third party service providers and the provision of third party services; provided, however, that such requirements are reasonably acceptable to Countrywide and pose no greater risk, obligation or expense to Countrywide than otherwise set forth in this Agreement. Any additional costs and/or expenses shall be paid by the requesting party." 5. Section 8.12 is amended by inserting the following language as the third paragraph thereof: Notwithstanding any other express or implied agreement to the contrary, the parties agree and acknowledge that each of them and each of their employees, representatives, and other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure, except to the extent that confidentiality is reasonably necessary to comply with U.S. federal or state securities laws. For purposes of this paragraph, the terms "tax treatment" and "tax structure" have the meanings specified in Treasury Regulation section 1.6011-4(c). 6. The language contained in Exhibit A hereto is inserted into the Agreement as Exhibit G thereto in its entirety. 2 7. Section 3.02(uu) is amended by deleting the word "and" following the semi-colon (;) at the end of such Section. 8. Section 3.02(vv) is amended by deleting the period (.) at the end of such Section and inserting in its place a semi-colon (;) followed by "and". Upon execution of this Amendment, the Agreement as it relates to Mortgage Loans sold to the Purchaser by the Company prior to the date hereof and owned by the Assignee as of the date hereof will be read to contain the above amendments, and any future reference to the Agreement will mean the Agreement as so modified. The parties hereto acknowledge that the Agreement has not been modified or amended, except as otherwise expressly described or provided for herein. Any capitalized terms not otherwise defined herein will have the meanings assigned to them in the Agreement. [SIGNATURES FOLLOW] 3 IN WITNESS HEREOF, the parties have caused their names to be signed to this Amendment No. 1 by their respective duly authorized officers as of the date first written above. COUNTRYWIDE HOME LOANS, INC. a New York corporation By: /s/ Celia Coulter ------------------------------------ Name: Celia Coulter Title: Executive Vice President BANC OF AMERICA MORTGAGE CAPITAL CORPORATION a North Carolina corporation By: /s/ Bruce W. Good ------------------------------------ Name: Bruce W. Good Title: Bruce W. Good BANK OF AMERICA, N.A. a national banking association By: /s/ Bruce W. Good ------------------------------------ Name: Bruce W. Good Title: Bruce W. Good [Signature Page to Amendment No. 1 to the CWHL MMLPSA (Jumbo)] 4 EXHIBIT A SERVICER REQUIREMENTS o LOADING/UPDATING INVESTOR HEADERS 1. Bank of America will provide investor matrix for input on Servicer system, if applicable. Updates/additions will occur monthly, including new investor header detail for each new deal that is settled. 2. The Servicer will load investor information upon receipt or before month end for inclusion on the next month-end file to Bank of America. 3. The Servicer will include the investor information on the Monthly Servicer File and the Monetary File. o LOADING ACCOUNT NUMBERS 1. Upon receipt of a funding schedule, Bank of America will deliver a cross reference of Servicer-to-Bank of America account numbers within 24 hours (or same day, if last day of the month). The account numbers will be delivered in an electronic format that is agreed upon. 2. The Servicer will load account numbers upon receipt or before month end to ensure inclusion with the next month-end files to Bank of America. o AUTOMATED MONETARY TRANSACTION FILE 1. The Servicer will establish a process to feed a Monthly Servicer File to Bank of America that contains loan information specified in the MSF layout provided. 2. The feed will include all new loans purchased in the previous month, as well as a maintenance file for all existing loans in the Bank of America LSBO portfolio. 3. The file will cut-off at month-end, including any changes or transactions that occur on the last day of the month. 4. The file will be transmitted from the Servicer to the specified mailbox at Bank of America. 5. Bank of America will receive and process the electronic file on the first business day of the month for the previous month-end file. 6. The Servicer will provide an email providing file details for balancing. o MONTHLY SERVICER FILE - ONGOING PROCESS 1. The Servicer will establish a process to feed a Monthly Servicer File (MSF) to Bank of America that contains loan information specified in the MSF layout provided. 5 2. The feed will include all new loans purchased in the previous month, as well as a maintenance file for all existing loans in the Bank of America LSBO portfolio. 3. The file will cut-off at month-end, including any changes or transactions that occur on the last day of the month. 4. The file will be transmitted from the Servicer to the specified mailbox at Bank of America. 5. Bank of America will receive and process the electronic file on the first business day of the month for the previous month-end file. 6. The Servicer will provide an email providing file details for balancing. o MONTHLY SERVICER FILE - TEST FILE For testing purposes, Bank of America requests a sample file that represents the Monthly Servicer File. 1. The Servicer will load/update investor header information received from Bank of America. 2. Bank of America will receive and process the file on the first business day of the month for the previous month-end file. 3. The Servicer will provide an email providing file details for balancing. o REPORTING REQUIREMENTS The Servicer will provide the following reports to Bank of America by the 1st business day of the month, unless otherwise specified. Reports will be provided in an electronic format, unless otherwise specified. The reports listed below are required for the LSBO project; reports in addition to these may also be required. The description of these reports is as follows: o COLLECTION REPORT - Report that summarizes the collections made during the reporting period. o PAID IN FULL REPORT - Report that summarizes paid in full loans made during the reporting period. o TRIAL BALANCE REPORT - Monthly statement of mortgage accounts or a trial balance as of the cutoff date. o SCHEDULED REMITTANCE REPORTS - Servicers send on a monthly basis. We would like this report by the 5th business day. o DELINQUENCY REPORT - Report from the servicer to be sent by the 5th business day. LSBO would like this report sent via e-mail or fax. 6

Exhibit 10.1 [Letterhead of Environmental Power Corporation] December 19, 2006 Mr. Joseph E. Cresci c/ o Environmental Power Corporation One Cate Street, 4th Floor Portsmouth, NH 03801 Dear Joe: The purpose of this letter is to set forth our understanding regarding your compensation for consulting services rendered by you to Environmental Power Corporation (the “Corporation”) since September 30, 2006, the date on which your Consulting Agreement, dated July 17, 2006 (the “Consulting Agreement”), expired, as well as compensation for services expected to be rendered by you through December 31, 2006. In consideration of your services in connection with the recently completed bond financing in Texas, as well as your continued services in connection with certain legislative initiatives through the end of this year, the Corporation will pay you the following amounts:     •   $41,666.66 in respect of services rendered for the month of October 2006;     •   $30,000.00 in respect of services rendered for the month of November 2006; and     •   $25,000.00 in respect of services rendered for the month of December 2006. These amounts will be paid to you in a lump sum on January 2, 2007 following the completion of your service through December 2006. If the foregoing accurately sets forth your understanding of the agreement between you and the Corporation with regard to the subject matter of this letter, please so indicate by executing a copy of this letter where indicated below and returning it to me.   Very truly yours, /s/ Richard E. Kessel Richard E. Kessel President and Chief Executive Officer Environmental Power Corporation ACCEPTED: /s/ Joseph E. Cresci Joseph E. Cresci Dated: December 19, 2006

  Exhibit 10.15 As of October 4, 2006 IXIS Real Estate Capital Inc. 9 West 57th Street, 36th Floor New York, New York 10019           Attention:   Mr. Raymond Sullivan               Re:   Fourth Amended Master Repurchase Agreement, dated as of October 11, 2005, as amended by Amendment No. 1, dated as of August 10, 2006, as further amended, modified and supplemented from time to time (the “Repurchase Agreement”), among IXIS Real Estate Capital Inc. (“Buyer”), New Century Mortgage Corporation (“NCMC”), NC Asset Holding, L.P. (f/k/a NC Residual II Corporation, “NCAH”), NC Capital Corporation (“NCCC”), New Century Credit Corporation (“New Century”) and Home123 Corporation (“Home123” and together with NCMC, NCAH, NCCC and New Century, the “Seller”) Ladies and Gentlemen:           The Termination Date, as defined in the Repurchase Agreement, is October 10, 2006, unless otherwise extended pursuant to Section 3(m) of the Repurchase Agreement, and the Seller has requested that the Buyer extend the Termination Date.           In consideration of the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows: 1.   Pursuant to Section 3(m) of the Repurchase Agreement, Buyer hereby extends the Termination Date until the close of business on October 31, 2006 (the period from and including October 10, 2006, to and including October 31, 2006, the “Extension Period”).   2.   Except as described herein, all of the terms of the Repurchase Agreement are hereby ratified and confirmed in all respects.   3.   All capitalized terms used herein and not defined herein shall have the respective meanings ascribed to them in the Repurchase Agreement.   4.   In the event that any provision of this agreement conflicts with any provision of the Repurchase Agreement or the Custodial and Disbursement Agreement, the terms of this agreement shall control.   --------------------------------------------------------------------------------   5.   This agreement shall not be assigned by the Seller without the prior written consent of the Buyer, which consent shall be in Buyer’s sole discretion.   6.   This agreement may be executed in any number of counterparts, each of which shall constitute an original agreement, and all of which together shall constitute one and the same instrument, and either party hereto may execute this agreement by signing any such counterpart.   7.   This agreement shall be governed and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles. [SIGNATURE PAGES FOLLOWS] -2- --------------------------------------------------------------------------------             Please indicate your acceptance and agreement by signing below where indicated and returning an originally executed copy of this agreement to Seller.                   Very truly yours,                   NEW CENTURY MORTGAGE CORPORATION, as Seller                   By:   /s/ Kevin Cloyd                   Name:   Kevin Cloyd         Title:   Executive Vice President                   NC ASSET HOLDING, L.P., as Seller                   By: NC DELTEX, LLC, its General Partner                   By: NC CAPITAL CORPORATION, its Sole Member                   By:   /s/ Kevin Cloyd                   Name:   Kevin Cloyd         Title:   President                   NC CAPITAL CORPORATION, as Seller                   By:   /s/ Kevin Cloyd                   Name:   Kevin Cloyd         Title:   President   --------------------------------------------------------------------------------                     NEW CENTURY CREDIT CORPORATION, as Seller                   By:   /s/ Kevin Cloyd                   Name:   Kevin Cloyd         Title:   President                   HOME123 CORPORATION, as Seller                   By:   /s/ Kevin Cloyd                   Name:   Kevin Cloyd         Title:   Executive Vice President Accepted and Agreed: IXIS REAL ESTATE CAPITAL INC., as Buyer               By:   /s/ Anthony Malanga                   Name:   Anthony Malanga         Title:   Managing Director                   By:   /s/ Christopher Hayden                   Name:   Christopher Hayden         Title:   Managing Director      -4-  

  Exhibit 10.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT      THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”), dated as of December 20, 2006, is between Natural Gas Services Group, Inc., a Colorado corporation (the “Company”), and Stephen C. Taylor, an individual residing in Midland, Texas (the “Employee”). RECITALS:      WHEREAS, the Company and the Employee previously entered into that certain Employment Agreement, dated as of August 24, 2005 (the “Employment Agreement”), pursuant to which the Company employed the Employee to serve as the Company’s President and Chief Executive Officer; and      WHEREAS, the Company and the Employee desire to amend the Employment Agreement as more particularly described below.      NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee agree to the following:      1.      Amendment to Section 4(c) of the Employment Agreement. Section 4(c) of the Employment Agreement is hereby deleted in its entirety and the following is substituted therefor:           “(c) Bonuses. In addition to base salary, the Employee shall be entitled to receive on an annual basis during the Employment Term a cash bonus of up to 50% of the Employee’s base salary, the amount of which will be based upon and subject to parameters established by the Board of Directors of the Company or its Compensation Committee. Any such bonuses shall be payable to the Employee in the manner specified by the Board of Directors of the Company or its Compensation Committee at the time such bonus is awarded.”      2.      No Additional Amendments. Except as amended by this Amendment, the Employment Agreement shall remain in full force and effect.      3.      Binding Effect. This Amendment shall inure to the benefit of, and be binding upon, each of the parties hereto and their respective successors and assigns.      4.      Counterparts. This Amendment may be executed in any number of counterparts and it is not necessary that each party to this Amendment execute each counterpart. [Signatures on Following Page]   --------------------------------------------------------------------------------   DATED as of December 20, 2006.             COMPANY: Natural Gas Services Group, Inc. a Colorado corporation       By:        /s/ William F. Hughes, Jr.         William F. Hughes, Jr.        Chairman of Compensation Committee                  EMPLOYEE:       By:        /s/ Stephen C. Taylor         Stephen C. Taylor              2

  EXHIBIT 10(e) AMENDMENT FOR INCREASED COMMITMENT      THIS AMENDMENT FOR INCREASED COMMITMENT (this “Amendment”) is made as of the 11th day of January, 2006, by and among Denbury Onshore, LLC, a Delaware limited liability company (“Borrower”), JPMorgan Chase Bank, N.A., as Administrative Agent under the Credit Agreement (as defined below) (“Administrative Agent”), and the Banks party hereto (“Supplemental Banks”).      Borrower, Administrative Agent and certain other Banks and Agents, as described and defined in the Credit Agreement, are parties to that certain Fifth Amended and Restated Credit Agreement dated as of September 1, 2004 (as amended, supplemented, or restated, the “Credit Agreement”). All terms used herein and not otherwise defined shall have the same meaning given to them in the Credit Agreement.      Pursuant to Section 15.10(f) of the Credit Agreement, Borrower has the right to increase the Total Commitment by obtaining additional Commitments upon satisfaction of certain conditions. This Amendment requires only the signature of Borrower, Administrative Agent and Supplemental Banks so long as the Total Commitment is not increased above the amount permitted by the Credit Agreement.      Each Supplemental Bank is an existing Bank which is increasing its Commitment.      In consideration of the foregoing, each such Supplemental Bank, from and after the date hereof, shall have a Commitment in the amount set forth on Schedule 1 attached hereto.      IN WITNESS WHEREOF, Administrative Agent, Borrower and Supplemental Banks have executed this Amendment as of the date shown above. (Remainder of Page Intentionally Left Blank)   --------------------------------------------------------------------------------                 BORROWER               DENBURY ONSHORE, LLC, a Delaware limited liability company               By:   /s/ Phil Rykhoek                   Phil Rykhoek, Senior Vice President and Chief Financial Officer [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 ADMINISTRATIVE AGENT:               JPMORGAN CHASE BANK, N.A., as Administrative Agent               By:   /s/ J. Scott Fowler               Name:   J. Scott Fowler     Title:   Vice President               SUPPLEMENTAL BANKS:               JPMORGAN CHASE BANK, N.A.               By:   /s/ J. Scott Fowler               Name: Title:   J. Scott Fowler Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               FORTIS CAPITAL CORP.               By:   /s/ David Montgomery               Name: Title:   David Montgomery Senior Vice President               By:   /s/ Darrell Holley               Name:   Darrell Holley     Title:   Managing Director [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               CALYON NEW YORK BRANCH               By:   signature illegible               Name:   signature illegible     Title:   signature illegible               By:   /s/ Michael Willis               Name: Title:   Michael Willis Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               COMERICA BANK               By:   /s/ Peter L. Sefzik               Name: Title:   Peter L. Sefzik Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               UNION BANK OF CALIFORNIA, N.A.               By:   /s/ Allison Fuqua               Name: Title:   Allison Fuqua Investment Banking Officer               By:   /s/ Kimberly Coil               Name: Title:   Kimberly Coil Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               WELLS FARGO BANK, N.A.               By:   /s/ Reed V. Thompson               Name: Title:   Reed V. Thompson Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               BANK OF AMERICA, N.A.               By:   /s/ Scott F. Davis               Name: Title:   Scott Davis Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               BANK OF SCOTLAND               By:   /s/ Karen Welch               Name: Title:   Karen Welch Assistant Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------                 SUPPLEMENTAL BANKS:               COMPASS BANK               By:   /s/ Dorothy Marchand               Name: Title:   Dorothy Marchand Senior Vice President [Signature Page to Amendment For Increased Commitment]   --------------------------------------------------------------------------------   SCHEDULE 1 Commitments                       Total         Banks   Commitment Amount     Commitment Percentage   JPMorgan Chase Bank, N.A.   $ 18,000,000.00       12.00 % Fortis Capital Corp.   $ 18,000,000.00       12.00 % Calyon New York Branch   $ 18,000,000.00       12.00 % Comerica Bank   $ 18,000,000.00       12.00 % Union Bank of California, N.A.   $ 18,000,000.00       12.00 % Wells Fargo Bank, N.A.   $ 15,000,000.00       10.00 % Bank of America, N.A.   $ 15,000,000.00       10.00 % Bank of Scotland   $ 15,000,000.00       10.00 % Compass Bank   $ 15,000,000.00       10.00 %               Totals:   $ 150,000,000.00       100.00 %               Schedule 1 - 1  

-------------------------------------------------------------------------------- EXHIBIT 10.9 FIRST AMENDMENT TO ANHEUSER-BUSCH EXECUTIVE DEFERRED COMPENSATION PLAN (Amended and Restated as of January 1, 2002) In accordance with the provisions of Article IX of the Anheuser-Busch Executive Deferred Compensation Plan (the “Plan”), the Plan is hereby amended as follows: The following new Section 3.05 is hereby inserted immediately following Section 3.04, effective December 1, 2005.   3.05. Optional Cancellation of 2005 Deferrals. Notwithstanding anything herein to the contrary, a Participant shall have the right to cancel all or part of the Participant’s prior election to defer his or her Base Salary for the Year commencing January 1, 2005 in accordance with the Company’s direction (which direction shall include the requirement that the election to cancel be made on or before December 31, 2005). If the Participant exercises this right to cancel, the Company shall distribute (prior to January 1, 2006) the applicable Deferral Amount cancelled pursuant to this Section 3.05 and any related hypothetical investment credited to his or her Account as of November 30, 2005 (subject to appropriate withholding of taxes). Such election to cancel and resulting distribution under this Section 3.05 shall be made in conformance with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), Internal Revenue Service Notice 2005-1, and proposed Treasury Regulations issued under Section 409A. IN WITNESS WHEREOF, Anheuser-Busch Companies, Inc. has executed this First Amendment this 13 day of December, 2005. ANHEUSER-BUSCH COMPANIES, INC. By: /s/ W. Randolph Baker                  W. Randolph Baker      Chief Financial Officer    

Exhibit 10.88 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of March 28, 2006, is entered into by and among CHELSEY FINANCE, LLC, a Delaware limited liability company (“Lender”), BRAWN, LLC, a Delaware limited liability company (“Brawn LLC”), HANOVER REALTY, INC., a Virginia corporation (“Hanover Realty”), THE COMPANY STORE FACTORY, INC., a Delaware corporation (“TCS Factory”), THE COMPANY OFFICE, INC., a Delaware corporation (“TCS Office”), SILHOUETTES, LLC, a Delaware limited liability company (“Silhouettes LLC”), HANOVER COMPANY STORE, LLC, a Delaware limited liability company (“HCS LLC”), DOMESTICATIONS, LLC, a Delaware limited liability company (“Domestications LLC”), KEYSTONE INTERNET SERVICES, LLC, a Delaware limited liability company (“KIS LLC”), and THE COMPANY STORE GROUP, LLC, a Delaware limited liability company (“CSG LLC” and, together with Brawn, Brawn LLC, Hanover Realty, TCS Factory, TCS Office, Silhouettes LLC, HCS LLC, Domestications LLC and KIS LLC, collectively, “Borrowers” and each, individually, a “Borrower”), HANOVER DIRECT, INC., a Delaware corporation (“Hanover”), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited liability company (“Clearance World”), SCANDIA DOWN, LLC, a Delaware limited liability company (“Scandia Down LLC”), LACROSSE FULFILLMENT, LLC, a Delaware limited liability company (“LaCrosse LLC”), D.M. ADVERTISING, LLC, a Delaware limited liability company (“DM Advertising LLC”), AMERICAN DOWN & TEXTILE, LLC, a Delaware limited liability company (“ADT LLC”), and HANOVER GIFTS, INC., a Virginia corporation (“Hanover Gifts” and, together with Hanover, Clearance World, Scandia Down LLC, LaCrosse LLC, DM Advertising LLC and ADT LLC, collectively, “Existing Guarantors” and each, individually, an “Existing Guarantor”) and Hanover Direct Memberships, Inc., a Delaware corporation (“HDMI”, as hereinafter further defined) and Scandia Down Online, LLC, a Delaware limited liability company (“Scandia Online”, as hereinafter further defined and together with HDMI and Existing Guarantors, collectively, “Guarantors” and each individually , a “Guarantor”). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender are parties to the Loan and Security Agreement, dated as of July 8, 2004, as amended (as so amended, the “Loan Agreement”), pursuant to which Lender has made loans and advances to Borrowers; WHEREAS, Borrowers and Guarantors have requested that Lender (a) revise the amounts of EBITDA that Borrowers are required to maintain in the first and second fiscal quarters of the fiscal year ending December 30, 2006, (b) so long as no Event of Default exists, (i) permit certain intercompany transactions as set forth herein, and (ii) permit the incurrence of contingent indebtedness arising under surety bonds, (c) include HDMI and Scandia Online as a Guarantor pursuant to the terms and conditions of the Loan Agreement and the other Financing Agreements, as amended hereby, and (d) agree to certain other amendments to and consents under the Financing Agreements;       1       --------------------------------------------------------------------------------     WHEREAS, the parties hereto desire to enter into this Amendment to evidence and effectuate such consents and amendments, in each case subject to the terms and conditions and to the extent set forth herein; and   WHEREAS, Lender is willing to agree to provide such consents and make such amendments, subject to the terms and conditions and to the extent set forth herein. NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. 1.1        Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions: (a)   ”Hanover 2005 Intercompany Transactions” shall mean, individually and collectively, the contributions, assumption and transactions effected under the Hanover 2005 Intercompany Transaction Agreements. (b)  “Hanover 2005 Intercompany Transaction Agreements” shall mean, collectively, the agreements, documents and instruments listed in Schedule 1 hereto and all related agreements, documents and instruments executed, delivered or filed in connection with, or otherwise evidencing, each of the transactions consented to in Section 3 hereof as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (c)  “HDMI” shall mean Hanover Direct Memberships, Inc., a Delaware corporation, and its successors and assigns. (d)  “Scandia Online” shall mean Scandia Down Online, LLC, a Delaware limited liability company, and its successors and assigns. (e)  “Wachovia” shall mean Wachovia Bank, National Association, as successor by merger to Congress. 1.2 Amendments to Definitions. (a)  Guarantors. All references to the term “Guarantor” or “Guarantors” in the Loan Agreement and the other Financing Agreements shall be deemed and each such reference is hereby amended to include, in addition and not in limitation, HDMI and Scandia Online. 1.3        Interpretation. All capitalized terms used herein and not defined herein shall have the meanings given to such terms in the Loan Agreement.       2       --------------------------------------------------------------------------------     2. Amendments and Modifications to Loan Agreement.     2.1 Intercompany Contributions and Disbursements. (a)  Notwithstanding anything to the contrary contained in Sections 6.5, 6.6 and 6.9 of the Loan Agreement or the other Financing Agreements, Borrowers and Guarantors may contribute, sell, transfer or assign assets and properties of a Borrower or Guarantor to another Borrower or Guarantor so long as (i) such Borrower or Guarantor sends Lender five (5) days’ prior written notice of the intention of such Borrower or Guarantor to effect such contribution describing the proposed transaction, (ii) no Event of Default exists or has occurred and is continuing, (iii) in the case of any contribution of an asset from a Borrower to another Borrower, any Collateral attributable to any Loans made to the Borrower that is transferring such Collateral to the other Borrower, such Loans shall be assumed by the Borrower that is the assignee of such Collateral, and (iv) in the case of any contribution of an asset from a Borrower to a Guarantor, any Collateral attributable to any Loans made to the Borrower that is transferring such Collateral to the Guarantor, (A) such Loans shall be repaid in full in cash other immediately available funds on terms and conditions acceptable to Lender or (B) such Guarantor shall be added as a Borrower on terms and conditions acceptable to Lender. (b)  Notwithstanding anything to the contrary contained in Sections 6.5, 6.6 6.9 of the Loan Agreement or the other Financing Agreements, Borrowers and Guarantors may make payments of intercompany indebtedness owed by a Borrower or Guarantor to another Borrower or Guarantor so long as (i) such Borrowers or Guarantors send Lender five (5) days’ prior written notice of the intention of such Borrowers or Guarantors to effect such contribution describing the proposed payment, (ii) no Event of Default exists or has occurred and is continuing, (iii) such payment shall constitute and be deemed a repayment of valid intercompany indebtedness and (iv) such payments remain subject to the terms and conditions of the Intercompany Subordination Agreement.   2.2 Surety Bonds. (a)  Notwithstanding anything to the contrary contained in Section 6.3 or 6.4 of the Loan Agreement, Borrowers and Guarantors may incur Indebtedness, and liens or encumbrances securing such Indebtedness, in connection with the issuance of surety bounds on behalf of Borrowers and Guarantors in the ordinary course of business of such Borrowers and Guarantors; provided, that: (i) the amount of such Indebtedness for all Borrowers and Guarantors at any one time shall not exceed $500,000 in the aggregate; (ii) such Borrower or Guarantor send Lender five (5) days’ prior written notice of the intention of such Borrowers or Guarantor to arrange for the issuance of such surety bonds setting forth the amount of the proposed bond and a description of the transaction, and (iii) no Event of Default exists or has occurred and is continuing. If at any time an Event of Default exists or has occurred and is continuing, Lender may require     3       --------------------------------------------------------------------------------   Borrower to eliminate the surety bond unless the person issuing such surety bond has agreed to waive or subordinate in writing in favor of Lender any right to payment of amounts owing to it.   3.    EBITDA. Sections 6.28 (c) of the Loan Agreement are hereby deleted in their entirety and replaced with the following: (c) Hanover and its Subsidiaries shall not, as to any fiscal quarter during the fiscal year 2006 of Hanover and its Subsidiaries and for each fiscal quarter thereafter in any fiscal year thereafter, permit EBITDA of Hanover and its Subsidiaries commencing on the first day of such fiscal year and ending on the last day of the applicable fiscal quarter set forth below on a cumulative YTD basis to be less than the respective amount set forth below opposite such fiscal quarter end YTD period:   Fiscal Quarter End YTD Periods for Fiscal Year 2006    Cumulative Minimum EBITDA   (i)           January 1, 2006 through April 1, 2006 $360,000 (ii)         January 1, 2006 through July 1, 2006 $3,600,000 (iii)        January 1, 2006 through September 30, 2006 $8,640,000 (iv)        January 1, 2006 through December 30, 2006 $13,950,000”     4.    Consents to Hanover 2005 Intercompany Transactions. Subject to the terms and conditions contained herein and in the Loan Agreement and in the other Financing Agreements, and notwithstanding anything to the contrary contained in Section 6.5, 6.6 or 6.7 of the Loan Agreement, to the extent such consent may be needed, Lender hereby consents, effective upon the earlier of the date hereof or the effective date of the applicable transaction of the Hanover 2005 Intercompany Transactions, to the following transactions: 4.1        the contribution by CSG LLC of the intercompany receivable payable by The Horn & Hardart Company, Inc. to CSG LLC in the amount of $330,025.73 and the cancellation of indebtedness owed by Horn & Hardart Company, Inc. to CSG LLC in the amount of $330,025.73 so long as such cancellation constitutes repayment of valid intercompany indebtedness; 4.2        the contribution by CSG LLC of the intercompany receivable payable by Hanover Realty to CSG LLC in the amount of $12,266,077.73 and the cancellation of indebtedness owed by Hanover Realty to CSG LLC in the amount of $12,266,077.73 so long as such cancellation constitutes repayment of valid intercompany indebtedness; 4.3        the declaration and payment by Hanover Gifts to CSG LLC of a dividend of in the amount of $175,000 in the form of an intercompany receivable payable by CSG LLC to     4       --------------------------------------------------------------------------------   Hanover Gifts in the amount of $175,000 so long as such intercompany receivable constitutes valid intercompany indebtedness and such indebtedness is cancelled; and 4.4        the dissolution of LaCrosse LLC by reason of the merger of LaCrosse LLC with and into CSG LLC, with CSG LLC as the surviving corporation of such merger. 5.    Assumption of Obligations; Amendments to Guarantees and Financing Agreements. Effective as of the earlier of the date hereof or effective date of completion of the Hanover 2005 Intercompany Transactions as to the respective parties thereto: 5.1        Each of HDMI and Scandia Online hereby expressly (a) assumes and agrees to be directly liable for all Obligations under, contained in, or arising out of the Loan Agreement, the Guarantee dated July 8, 2004 by Existing Guarantors (other than Hanover and Existing Borrowers) as of such date in favor of Lender, as heretofore amended, and the other Financing Agreements applicable to all Guarantors and as applied to HDMI and Scandia Online as a Guarantor, (b) agrees to perform, comply with and be bound by all terms, conditions and covenants of the Loan Agreement, the Guarantee and the other Financing Agreements applicable to all Guarantors and as applied to HDMI and Scandia Online as a Guarantor with the same force and effect as if each of HDMI and Scandia Online had originally executed and been an original Guarantor or Debtor, as the case may be, party signatory to the Loan Agreement, the Guarantee and the other Financing Agreements, and (c) agrees that Lender shall have all rights, remedies and interests, including security interests in the Guarantor Collateral granted pursuant to the Loan Agreement, the Guarantee, and the other Financing Agreements, with respect to each of HDMI and Scandia Online and its and assets with the same force and effect as if each of HDMI and Scandia Online had originally executed and had been an original Guarantor or Debtor, as the case may be, party signatory to the Loan Agreement, the Guarantee and the other Financing Agreements, and such agreements shall be deemed so amended. 5.2        The Guarantee dated July 8, 2004, executed by the Existing Guarantors (other than Hanover and the Existing Borrowers) as of such date, in favor of Lender, as heretofore amended (the “Guarantee”), shall be deemed further amended to include each of HDMI and Scandia Online as an additional Guarantor party signatory thereto. Each of HDMI and Scandia Online hereby expressly (a) assumes and agrees to be directly liable to Lender, jointly and severally with the other Guarantors signatories thereto and the Borrowers, for all Obligations (as defined in the Guarantee), (b) agrees to perform, comply with and be bound by all terms, conditions and covenants of the Guarantee with the same force and effect as if each of HDMI and Scandia Online had originally executed and been an original party signatory to the Guarantee, and (c) agrees that Lender shall have all rights, remedies and interests with respect to each of HDMI and Scandia Online and its properties with the same force and effect as if each of HDMI and Scandia Online had originally executed and been an original party signatory to the Guarantee. 5.3        Each Guarantor and each of HDMI and Scandia Online as a Guarantor pursuant hereto, hereby expressly and specifically ratifies, restates and confirms the terms and conditions of the Guarantee in favor of Lender and its liability for all of the Obligations (as defined in the Guarantee), and all other obligations, liabilities, agreements and covenants thereunder.       5       --------------------------------------------------------------------------------     5.4        Each Guarantor, including, without limitation, each of HDMI and Scandia Online, hereby agrees that all references to Guarantor or Guarantors or other terms intended to refer to a Guarantor or Guarantors, such as Debtor or Debtors, contained in any of the Financing Agreements are hereby amended to include each of HDMI and Scandia Online and each other person or entity at any time hereafter made a “Guarantor” under the Loan Agreement, as an additional Guarantor or Debtor, or other appropriate term of similar import, as the case may be. 6. Collateral. 6.1        Grant of Security Interest. Without limiting the provisions of Section 5 hereof, the Loan Agreement and the other Financing Agreements, to secure payment and performance of all Obligations, each of HDMI and Scandia Online hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, all personal and real property and fixtures, and interests in property and fixtures, of HDMI and Scandia Online, whether now owned or hereafter acquired or existing, and wherever located including without limitation the following (together with all other collateral security for the Obligations at any time granted to or held or acquired by Lender, collectively, the “Collateral”): (a) all Accounts;   (b) all general intangibles, including, without limitation, all Intellectual Property; (c) all goods, including, without limitation, Inventory and Equipment;   (d) all Real Property and fixtures;   (e)  all chattel paper, including, without limitation, all tangible and electronic chattel paper; (f) all instruments, including, without limitation, all promissory notes; (g) all documents;   (h) all deposit accounts;   (i)   all letters of credit, banker’s acceptances and similar instruments and including all letter-of-credit rights; (j)   all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (A) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (B) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (C) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (D) deposits by and property of Account Debtors or other persons securing the obligations of Account Debtors;       6       --------------------------------------------------------------------------------     (k)  all (A) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts) and (B) monies, credit balances, deposits and other property of HDMI or Scandia Online now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of HDMI or Scandia Online, whether for safekeeping, pledge, custody, transmission, collection or otherwise; (l) all commercial tort claims;   (m) to the extent not otherwise described above, all Receivables; (n) all Records; and   (o)  all products and proceeds of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral. Notwithstanding the foregoing, the Collateral does not include any leasehold interests of HDMI or Scandia Online in real property. 6.2        Acknowledgment. Each Borrower and Guarantor hereby acknowledges, confirms and agrees that on the date hereof, the security interests in and liens upon the assets and properties of each Borrower and Existing Guarantor in favor of Lender shall continue to be, and the security interests in and liens upon the assets and properties of HDMI and Scandia Online in favor of Lender shall be, valid and perfected liens and security interests. 7.    Acknowledgment regarding Dissolution of LaCrosse LLC. Each of Borrowers and Guarantors hereby acknowledges, confirms and agrees that, upon the effectiveness of the dissolution of LaCrosse LLC consented to under Section 4.4 hereof: 7.1        CSG LLC, as the surviving corporation pursuant to the merger of LaCrosse LLC with and into CSG LLC, has continued and shall continue to be directly and primarily liable in all respects for the Obligations of LaCrosse LLC arising prior to the effective time of such merger; 7.2        the dissolution of LaCrosse LLC shall not in any way limit, impair or adversely affect the Obligations now or hereafter owed to Lender by any continuing Borrower or Guarantor; and 7.3        Lender shall continue to have valid and perfected security interests, liens and rights in and to all of the assets and properties owned and acquired by CSG LLC as the surviving corporation of the merger of LaCrosse LLC with and into CSG LLC. Such assets and properties shall continue to be deemed included in the Collateral, and such security interests, liens and rights and their perfection and priorities shall continue in all respects in full force and effect. 8.    Representations, Warranties and Covenants. Borrowers and Guarantors represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and     7       --------------------------------------------------------------------------------   accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers:   8.1           This Amendment and each other agreement or instrument to be executed and delivered by Borrowers or Guarantors hereunder have been duly authorized, executed and delivered by all necessary action on the part of Borrowers and Guarantors which is a party hereto and thereto and, if necessary, their respective stockholders (with respect to any corporation) or members (with respect to any limited liability company), and is in full force and effect as of the date hereof, as the case may be, and the agreements and obligations of Borrowers or Guarantors, as the case may be, contained herein and therein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. 8.2           No action of, or filing with, or consent of any governmental or public body or authority, and no approval or consent of any other party, other than Chelsey, is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Amendment and each other agreement or instrument to be executed and delivered pursuant hereto.Neither the execution and delivery of the Hanover 2005 Intercompany Transaction Agreements, nor the consummation of the transactions contemplated by the Hanover 2005 Intercompany Transaction Agreements, nor compliance with the provisions of the Hanover 2005 Intercompany Transaction Agreements, shall result in the creation or imposition of any lien, claim, charge or encumbrance upon any of the Collateral or Guarantor Collateral, except in favor of Lender pursuant to this Amendment and the Financing Agreements as amended hereby. 8.3           Neither the execution and delivery of the Hanover 2005 Intercompany Transaction Agreements, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, (a)has violated or shall violate any Bulk Sales Act, Bulk Transfer Act or Article 6 of the UCC, if applicable, the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, if applicable, or any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect or (b)does, or shall conflict with or result in the breach of, or constitute a default in any respect under any material mortgage, deed of trust, security agreement, agreement or instrument to which any of Borrowers or Guarantor is a party or may be bound, other than conflicts or defaults under certain real estate leases, intellectual property licenses and equipment leases, or (c)shall violate any provision of the Certificate of Incorporation or Certificate of Formation, as applicable, or By-Laws or Operating Agreement, as applicable, of any Borrower or Guarantor. 8.4           None of the membership interests in Scandia Online have been evidenced by a membership certificate or other certificate, document, instrument or security. All of the membership interests in Scandia Online (a) are noted in the respective books and records of each such company, (b) have been duly authorized, validly issued and (c) are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind, except those security interests existing in favor of Lender and those permitted by the Loan Agreement.       8       --------------------------------------------------------------------------------     8.5           All of the outstanding shares of capital stock of HDMI have been duly authorized, validly issued and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind, except those security interests existing in favor of Lender and those permitted by the Loan Agreement. 8.6            As of the date hereof, (i) Scandia Online is a limited liability company, duly formed and validly existing in good standing under the laws of the State of Delaware, and HDMI is a corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and (ii) each of Scandia Online and HDMI (A) is duly licensed or qualified to do business as a foreign limited liability company or foreign corporation, as the case may be, and is in good standing in each of the jurisdictions set forth in Exhibit A annexed hereto other than in any such jurisdiction which is designated as “pending”, which are the all the jurisdictions wherein the character of the properties owned or licensed or the nature of the business of Scandia Online or HDMI makes such licensing or qualification to do business necessary and the failure to so qualify would have a material adverse effect on Scandia Online or HDMI or on the rights and interests of Lender in the Collateral; and (B) has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and will be conducted in the future. 8.7           The assets and properties of each of HDMI and Scandia Online are owned by it, free and clear of all security interests, liens and encumbrances of any kind, nature or description, as of the date hereof, except those security interests existing in favor of Lender and those granted pursuant hereto in favor of Lender, and except for Liens (if any) permitted under Section 6.4 of the Loan Agreement or the other Financing Agreements. 8.8           All actions and proceedings required by the Hanover 2005 Intercompany Transaction Agreements, applicable law and regulation, have been or shall be taken prior to the effectiveness of such transactions and all transactions required thereunder have been and shall be, or will be duly and validly consummated. 8.9           Neither the consummation of the transactions contemplated by the Hanover 2005 Intercompany Transaction, nor the execution, delivery or filing of the Hanover 2005 Intercompany Transaction Agreements or any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof before the date hereof or upon the effectiveness of such mergers (i) has violated or will violate any Federal or State securities laws, any State corporation law, or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect, or (ii) does or will conflict with or result in the breach of, or constitute a default in any respect under any material mortgage, deed of trust, security agreement, agreement or instrument to which any existing or former Guarantor or Borrower is a party or may be bound, other than conflicts or defaults under certain real estate leases, intellectual property licenses and equipment leases, or (iii) does or will violate any provision of the Certificate of Incorporation or Certificate of Formation, as applicable, or By-Laws or Operating Agreement, as applicable, of any Borrower or Guarantor. 8.10         No action of, or filing with, or consent of any governmental or public body or authority, other than the filing of UCC financing statements, and no approval or consent of     9       --------------------------------------------------------------------------------   any other party, is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Amendment. 8.11         All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects after giving effect to the provisions of this Amendment, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. 8.12         After giving effect to the waivers and consents set forth in this Amendment, no Incipient Default or Event of Default exists or has occurred on the date hereof.   9.    Conditions Precedent. Concurrently with the execution and delivery hereof (except to the extent otherwise indicated below), and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifications and amendments set forth in this Amendment: 9.1    Lender shall have received a photocopy of an executed original or executed original counterparts of this Amendment by electronic mail or facsimile (with the originals to be delivered within five (5) Business Days after the date hereof), as the case may be, duly authorized, executed and delivered by Borrowers and Guarantors; 9.2    Lender shall have received a photocopy of an executed original or executed original counterparts of the Guarantee and Waiver by HDMI and Scandia Online in favor of Lender with respect to the Obligations of Borrowers by electronic mail or facsimile (with the originals to be delivered within five (5) Business Days after the date hereof), as the case may be, duly authorized, executed and delivered by Borrowers and Guarantors; 9.3    Within sixty (60) days after the date hereof, Lender shall have received, in form and substance satisfactory to Lender, from HDMI, a secretary’s certificate evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by HDMI of this Amendment and the agreements, documents and instruments to be delivered pursuant to this Amendment; 9.4    Within sixty (60) days after the date hereof, Lender shall have received from HDMI (a)a copy of the Certificate of Incorporation for HDMI, and all amendments thereto, certificated by the Secretary of State of its jurisdiction of incorporation as of the most recent practicable date certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein, (b)a copy of its bylaws, certified by the Secretary of HDMI, and (c)a certificate from the Secretary of HDMI dated the date hereof certifying that each of the foregoing documents remains in full force and effect and have not been modified or amended, except as described therein; 9.5    Within sixty (60) days after the date hereof, Lender shall have received from Scandia Online (i) a copy of its Certificate of Formation or Articles of Organization, and all amendments thereto, certified by the Secretary of State of the State of Delaware as of the most     10       --------------------------------------------------------------------------------   recent practicable date certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein, (ii) a copy of its Operating Agreement, certified by the Secretary or Assistant Secretary of the company, and (iii) a certificate from its Secretary or Assistant Secretary dated the date hereof certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein; 9.6    Within sixty (60) days after the date hereof, Lender shall have received original good standing certificates (or its equivalent) from the Secretary of State (or comparable official) from each jurisdiction where HDMI and Scandia Online conducts business; and 9.7    each Borrower and Guarantor shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a reasonably acceptable to Lender; and 9.8        As of the date of this Amendment and after giving effect hereto, no Incipient Default or Event of Default shall exist or have occurred. 10.          Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement or any of the other Financing Agreements, or waivers of or consents under any provisions of any of the foregoing, are intended or implied by this Amendment, 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 conflicts with any provision of this Amendment, the provision of this Amendment shall control. 11.  Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 12.  Governing Law. The validity, interpretation and enforcement of this Amendment in any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise shall be governed by the internal laws of the State of New York, without regard to any principle of conflict of laws or other rule of law that would result in the application of the law of any jurisdiction other than the State of New York. 13.  Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.     11       --------------------------------------------------------------------------------     14.  Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]     13       --------------------------------------------------------------------------------     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written.     CHELSEY FINANCE, LLC       By: /s/ William Wachtel   Name: William Wachtel   Title: Manager               THE COMPANY STORE FACTORY, INC. THE COMPANY OFFICE, INC.       By: /s/ John Swatek   Name: John Swatek   Title: Senior Vice President & Chief Financial Officer               BRAWN, LLC SILHOUETTES, LLC HANOVER COMPANY STORE, LLC DOMESTICATIONS, LLC KEYSTONE INTERNET SERVICES, LLC THE COMPANY STORE GROUP, LLC       By: /s/ John Swatek   Name: John Swatek   Title: Senior Vice President & Chief Financial Officer             By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment:         HANOVER DIRECT, INC.           By: /s/ Wayne P. Garten     Name: Wayne P. Garten     Title: Chief Executive Officer           14       --------------------------------------------------------------------------------     [SIGNATURES CONTINUED FROM PREVIOUS PAGE]     CLEARANCE WORLD OUTLETS, LLC SCANDIA DOWN, LLC D.M. ADVERTISING, LLC AMERICAN DOWN & TEXTILE, LLC             By: /s/ Wayne P. Garten     Name: Wayne P. Garten     Title: Manager                     HANOVER GIFTS, INC.           By: /s/ Wayne P. Garten     Name: Wayne P. Garten     Title: Chairman                     SCANDIA ONLINE, LLC           By: /s/ Wayne P. Garten     Name: Wayne P. Garten     Title: Manager                     HANOVER DIRECT MEMBERSHIPS, INC.           By: /s/ Wayne P. Garten     Name: Wayne P. Garten     Title: Chairman                     THE COMPANY STORE GROUP, LLC, successor by merger to LA CROSSE FULFILLMENT, LLC           By: /s/ Wayne P.Garten     Name: Wayne P. Garten     Title: Manager             15          

  9 West Watkins Mill Road/BioVeris Corporation - Page 1   LEASE AGREEMENT THIS LEASE AGREEMENT is made as of this day of September, 2006, between ARE-MARYLAND NO. 23, LLC, a Delaware limited liability company (“Landlord”), and BIOVERIS CORPORATION, a Delaware corporation (“Tenant”). BASIC LEASE PROVISIONS Address: 9 West Watkins Mill Road, Gaithersburg, Maryland 20878-4021   Premises: That portion of the Project, containing approximately 16,406 rentable square feet on the basement level and first (1st) floor of the Building, as determined by Landlord, as shown on Exhibit A. Gaudreau, Inc., Landlord’s architect, has measured the area of the Premises pursuant to the 1996 Standard Method of Measuring Floor Area in Office Buildings as adopted by the Building Owners and Managers Association (ANSI/BOMA Z65.1-1996) (“BOMA Standards”).   Project: The real property on which the building (the “Building”) in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B.   Base Rent:   Time Period Monthly Amount 8.1.06 to 1.31.07 $34,179.17 2.1.07 to 1.31.08 $35,204.54 2.1.08 to 1.31.09 $36,257.26 2.1.09 to 1.31.10 $37,350.99 2.1.10 to 1.31.11 $41,015.00 2.1.11 to 1.31.12 $43,516.92 2.1.12 to 1.31.13 $44,815.72 2.1.13 to 7.31.13 $46,155.55   Rentable Area of Premises: 16,406 sq. ft.   Rentable Area of Project: 92,449 sq. ft. Tenant’s Share of Operating Expenses: 17.75%   Security Deposit: $34,179.17 Target Commencement Date: August 1, 2006   Rent Commencement Date: Sixty (60) days after the Commencement Date   Rent Adjustment Percentage: 3% (Extension Term only)   Base Term: Beginning on the Commencement Date and ending 84 months from the first day of the first full month following the Rent Commencement Date   Permitted Use: research and development laboratory, related manufacturing and office and other related uses otherwise in compliance with the provisions of Section 7 hereof.   Address for Rent Payment: Landlord’s Notice Address: 385 E. Colorado Blvd., Suite 299 385 E. Colorado Blvd., Suite 299 Pasadena, California 91101 Pasadena, California 91101 Attention: Accounts Receivable Attention: Corporate Secretary   Tenant’s Notice Address: Bioveris Corporation Attn: Mr. Patrick Christmas, Esq., General Counsel 16020 Industrial Drive Gaithersburg, Maryland 20877   9 West Watkins Mill Road/BioVeris Corporation - Page 2   The following Exhibits and Addenda are attached hereto and incorporated herein by this reference: x EXHIBIT A - PREMISES DESCRIPTION x EXHIBIT B - DESCRIPTION OF PROJECT x EXHIBIT C – RULES AND REGULATIONS x EXHIBIT D - TENANT’S PERSONAL PROPERTY x EXHIBIT E – PERSONAL PROPERTY TO x EXHIBIT F – WORK LETTER BE TRANSFERRED TO TENANT 1.             Lease of Premises. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project (including Tenant) are collectively referred to herein as the “Common Areas.” The Common Areas include certain equipment for the non-exclusive use of tenants of the Project (including Tenant), such as glass washers and autoclaves. Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use. 2.             Delivery; Acceptance of Premises; Commencement Date. Landlord shall use reasonable efforts to make the Premises available to Tenant on or before the Target Commencement Date and Tenant’s delivery of evidence of the insurance required hereby (“Delivery” or “Deliver”). Tenant shall have 60 days after Landlord’s Delivery of the Premises to Tenant reasonably to identify any material defects related to the major Building Systems (as defined in Section 13) serving the Premises, and Landlord will promptly repair such identified defects. On or before Landlord’s Delivery of the Premises to Tenant, Landlord shall perform all necessary work to cause the Building and Common Areas and all points of ingress/egress to be in compliance with all applicable Legal Requirements, including ADA (as such phrases are defined in Section 7). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 60 days of the Target Commencement Date for any reason other than Force Majeure Delays, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. As used herein, “Force Majeure Delays” means delays arising by reason of any Force Majeure (as defined in Section 34). If Tenant does not elect to void this Lease within 30 days of the lapse of such 60 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect; provided, however, that if Landlord Delivers the Premises within such 30 day period and before Tenant elects to void this Lease, such right to void this Lease shall be waived and this Lease shall remain in full force and effect. The “Commencement Date” shall mean the date of this Lease. The “Rent Commencement Date” shall mean 60 days after the Commencement Date. The “Term” of this Lease shall be the Base Term, as defined above in the Basic Lease Provisions, and the Extension Term that Tenant may elect pursuant to Section 39. Except as set forth in this Lease, if applicable: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease. Tenant agrees and acknowledges that, except as may be expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein. Tenant and its contractors shall be allowed non-exclusive access to the Premises from and after the date of the full execution and delivery of this Lease that is before the Commencement Date (the “Early Access Period”) for the sole purpose of performing Tenant’s Work. Installations of Tenant’s fixtures and equipment and related activity   9 West Watkins Mill Road/BioVeris Corporation - Page 3   shall not be considered the commencement of use of the Premises by Tenant. Any installations and other related activity by Tenant or its contractors during the Early Access Period shall be coordinated with Landlord. During the Early Access Period, Tenant shall have the right to use (on a non-exclusive basis at times reasonably designated by Landlord) the loading dock, freight elevator, electricity, and heating, air conditioning and ventilation systems (“HVAC”). All terms and conditions of this Lease shall apply during the Early Access Period except for Tenant’s obligation to pay Base Rent, Operating Expenses, and any other charges payable by Tenant to Landlord under this Lease.   3. Rent. (a)           Base Rent. The first month’s Base Rent and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord. The first month’s Base Rent paid in advance shall be credited toward the Base Rent payable for the Term’s first full calendar month for which monthly Base Rent is due and payable. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof after the Rent Commencement Date, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due hereunder except as otherwise expressly provided in this Lease. (b)           Additional Rent. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“Additional Rent”): (i) Tenant’s Share of “Operating Expenses” (as defined in Section 5), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any Default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period. 4.             Base Rent Adjustments. Base Rent shall be increased on the dates and in the amounts shown in the table contained under the “Base Rent” heading set forth in the Basic Lease Provisions. Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar month shall be prorated. 5.             Operating Expense Payments. Not later than the commencement of each calendar year, Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “Annual Estimate”), which may be revised by Landlord from time to time during such calendar year. During each month of the Term, on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated. The term “Operating Expenses” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9), all Building and Project related costs in connection with the shell and core of the Building, site improvements, maintenance, utilities, insurance, capital repairs and improvements made to accomplish a reduction in the Operating Expenses or to comply with any changes in applicable Legal Requirements enacted after the Commencement Date (such capital repairs and improvements to be amortized over their useful life in accordance with generally acceptable accounting principles consistently applied (“GAAP”)), and the costs of Landlord’s third party property manager or, if there is no third party property manager, administration rent in the amount of 3.0% of the then applicable Base Rent), excluding only: (a)           the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation; (b)           capital expenditures except to the extent included within the definition of Operating Expenses; (c)           interest, principal payments of Mortgage (as defined in Section 27) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments of base rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Project;   9 West Watkins Mill Road/BioVeris Corporation - Page 4   (d)           depreciation of the Project (except for capital improvements, to the extent the cost of such capital improvements are includable in Operating Expenses); (e)           advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants and including costs incurred in connection with the marketing of the Project or any rentable space therein (including the costs of preparing, completing, fixturing, furnishing, renovating, or otherwise improving, decorating, or redecorating space in the common areas of the Project or in a tenant’s premises in connection with the marketing of the Project or any rentable space therein);   (f) legal and other expenses incurred in the negotiation or enforcement of leases; (g)           completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;   (h) costs of utilities outside normal business hours sold to tenants of the Project; (i)            costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid; (j)            salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project; (k)           general organizational, administrative and overhead costs relating to maintaining Landlord’s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses; (l)            costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building; (m)          costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7); (n)           penalties, fines or interest incurred as a result of Landlord’s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord’s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency; (o)           overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis; (p)           costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project; (q)           costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord; (r)            costs incurred in the sale, financing, or refinancing of the Project or costs incurred in connection with a change in the ownership of the Project (but Tenant shall nonetheless remain responsible for Tenant’s Share of any increases in Taxes resulting from, or attributable to, any such actions); (s)           net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein; (t)            the costs incurred by other tenants of the Building for utilities to the extent such costs are due to excessive consumption of utilities by such tenants as determined by Landlord in its sole but reasonable judgment;   9 West Watkins Mill Road/BioVeris Corporation - Page 5   (u)           costs to repair, restore, or replace any item in the Building, to the extent Landlord is actually reimbursed therefor by proceeds from insurance, warranties, or condemnation; (v)           profit paid to subsidiaries or affiliates of Landlord for services or materials provided to the Building to the extent that the cost of those items would not have been paid had the services and materials been provided by unaffiliated parties on a competitive basis or at market rates, (w)          any cost incurred by Landlord after the Commencement Date in connection with performing compliance actions on the Common Areas if required under the ADA; and (x)           any other costs or expenses for which Landlord actually receives reimbursement from any source, including without limitation, insurance, condemnation awards, warranties or tenants; (y)           costs incurred in connection with environmental clean up, response action, or remediation on, in or under or about the Project, to the extent such costs relate to matters existing before the Commencement Date; (z)           third party management fees in excess of 3.0% of then applicable Base Rent or, if there is not third party property manager, any management fee or administrative rent of any kind except as expressly provided for in this Lease;   (aa) reserves for future repairs and replacements; and (bb)         any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project. Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “Annual Statement”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenant’s questions (the “Expense Information”). If after Tenant’s review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant shall have the right to have an independent public accounting firm selected by Tenant from among the 5 largest in the United States, working pursuant to a fee arrangement other than a contingent fee (at Tenant’s sole cost and expense) and approved by Landlord (which approval shall not be unreasonably withheld or delayed), audit and/or review the Expense Information for the year in question (the “Independent Review”). The results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenant’s payments with respect to Operating Expenses for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review.   9 West Watkins Mill Road/BioVeris Corporation - Page 6   “Tenant’s Share” shall be the percentage set forth in the Basic Lease Provisions as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Any measurement performed by Landlord shall be performed in accordance with the BOMA Standards. Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service (e.g., liquid nitrogen system, reverse osmosis system, and other services or items that are unique to laboratory space) that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “Rent.” 6.             Security Deposit. As long as BioVeris Corporation remains the Tenant under this Lease, it shall not be required to deliver the security deposit (“Security Deposit”) to Landlord. If and when BioVeris Corporation assigns all of its right, title, and interest in this Lease to Wellstat Therapeutics, Inc. or Wellstat Biologics, Inc., all in accordance with the terms and conditions of this Lease, such assignee Tenant shall deposit with Landlord, effective as of date of the assignment of this Lease to Tenant, the Security Deposit in the amount set forth in the Basic Lease Provisions for the performance of all of Tenant’s obligations hereunder in the amount set forth in the Basic Lease Provisions, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the “Letter of Credit”): (i) in form and substance reasonably satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution reasonably satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the State of Maryland. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s Default. Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Upon any such use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth in the Basic Lease Provisions. Tenant hereby waives the provisions of any law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy Defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 60 days after the expiration or earlier termination of this Lease. If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming in writing Landlord’s obligations under this Lease, including its obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenant’s right to the return of the Security Deposit shall apply solely against Landlord’s transferee. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon. 7.             Use. The Premises shall be used solely for the Permitted Use set forth in the Basic Lease Provisions, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with   9 West Watkins Mill Road/BioVeris Corporation - Page 7   the regulations promulgated pursuant thereto, “ADA”) (collectively, “Legal Requirements” and each, a “Legal Requirement”). Tenant shall, upon 5 days’ written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in Section 9) having jurisdiction to be a violation of a Legal Requirement, provided that Tenant shall have the right at its sole cost and expense to contest any such declaration, and such non-compliance shall not be deemed a breach of this Lease during such contest provided such contest shall be diligently prosecuted with continuity and provided that (a) such noncompliance shall not (i) constitute a crime or an offense punishable by imprisonment of Landlord, (ii) will not endanger the Premises, (iii) will not subject Landlord to any civil or criminal fine or other financial penalty or forfeiture, and (iv) will not increase the insurance premiums for the Project, (b) Tenant furnishes to Landlord security, reasonably satisfactory to Landlord, against any loss or injury by reason of any such contest, and (c) Tenant keeps Landlord apprised from time to time on the status of such contest. Landlord will not be required to join any proceedings pursuant to this Section unless the provision of any applicable Legal Requirement at the time in effect requires that the proceedings be brought by or in the name of Landlord, or both. In that event Landlord shall join the proceedings or permit them to be brought in its name if Tenant pays all related expenses. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord within 30 days upon written demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises, provided such additional premium costs are substantiated by a reasonably detailed letter from Landlord’s insurance carrier or the applicable Insurance Rating Bureau. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed, or conditioned. Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use. Subject to the provisions of Section 5(b), Landlord shall, as an Operating Expense (to the extent such Legal Requirement is generally applicable to similar buildings in the area in which the Project is located) or at Tenant’s expenses (to the extent such Legal Requirement is applicable solely by reason of Tenant’s, as compared to other tenants of the Project, particular use of the Premises) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements, including the ADA. Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA). Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “Claims”) arising out of or in connection with the failure of Tenant to cause the Premises or Tenant’s use of the Premises to comply with the Legal Requirements, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises or Tenant’s use of the Premises to comply with any Legal Requirement. 8.             Holding Over. If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion,   9 West Watkins Mill Road/BioVeris Corporation - Page 8   in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly Base Rent shall be equal to 150% of the monthly Base Rent in effect during the last 30 days of the Term, and (B) from and after the date that is 30 days after the end of the Term, Tenant shall be responsible for all direct damages suffered by Landlord resulting from or occasioned by Tenant’s holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease. 9.             Taxes. Landlord shall pay, as part of Operating Expenses, all taxes, levies, assessments and governmental charges of any kind (collectively referred to as “Taxes”) imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “Governmental Authority”) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof, promulgated by, any Governmental Authority, or (v) imposed as a license or other fee on Landlord’s business of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord unless such net income taxes are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlord’s determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand. 10.           Parking. Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, in common with other tenants of the Project, to park in those areas designated for non-reserved parking at the rate of 1 space per 1,000 rentable square feet leased hereunder, subject in each case to Landlord’s rules and regulations. If the rentable area of the Premises is not exactly divisible by 1,000, the area of the Premises shall be rounded to the next highest number that is divisible by 1,000 and the calculation of the number of parking spaces shall be made on the basis of such higher number. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project.   11. Utilities, Services. (a)           Landlord shall provide, consistent with the standards of comparable first class mixed use (office/laboratory) buildings located in the Gaithersburg, Maryland area (“Comparable Buildings”) and subject to the terms of this Section 11, water, electricity, heat, light, power, telephone, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), and refuse and trash collection (collectively, “Utilities”). Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Tenant’s expense, any Utilities to be separately metered or charged directly to Tenant by the provider, and Landlord shall not assess or impose any   9 West Watkins Mill Road/BioVeris Corporation - Page 9   surcharge on any such Utilities. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or, except as provided in this Section 11, the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use. If any interruption of the Utilities shall continue for more than 5 consecutive business days, or 30 business days (whether consecutive or not) out of 45 consecutive business days, and shall render any material portion of the Premises unusable for the purpose of conducting Tenant’s business as permitted under this Lease, then to the extent (and only to the extent) that Landlord receives insurance proceeds from its carrier in respect of such interruption, all Base Rent payable hereunder with respect to the affected portion of the Premises shall be abated to such extent as follows: (i) in the case of an interruption of 5 consecutive business days, Base Rent shall abate for such portion of the Premises for the period beginning on the 6th consecutive business day of such failure, and shall continue until substantial use of the affected portion of the Premises is restored to Tenant; and (ii) in the case of an interruption of 30 business days out of 45 consecutive business days, Base Rent shall abate, during that calendar year, immediately for any additional business day after the 30th business day of interruption and shall continue until substantial use of the affected portion of the Premises is restored to Tenant. (b)           Landlord and Tenant acknowledge that an emergency power generator (the “Generator”) is located at the Building, which Generator supports the HVAC, the water pumps, and the fire detection, life and safety systems of the Building. Landlord shall contract with a third party contractor to maintain the Generator according to the manufacturer’s standard maintenance guidelines. Landlord shall oversee the operation and maintenance of the Generator, but Landlord shall not be responsible to Tenant for damages arising out of any failure of the Generator to operate properly. Landlord may permit any tenant of the Building to draw electrical power from the Generator, provided that no tenant draws more electrical power from the Generator than the amount set forth in the following table (in addition to that power used to support Building Systems):   Basement level 2 watts/rentable square foot First Floor 1.2 watts/rentable square foot Second Floor 1.8 watts/rentable square foot   Tenant shall have the right to draw electrical power from the Generator in accordance with the foregoing table, but not in excess of such amount. Landlord shall not be liable to Tenant for damages arising from the failure of the Generator to operate properly, or arising from any tenant in the Building drawing from the Generator more electrical power than such tenant is entitled to use. During any period of replacement, repair, or maintenance of the Generator or when the Generator is not operational, including any delays due to the inability to obtain parts or replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power. Landlord shall be responsible for requiring that each tenant lease at the Building limit the right of the tenant under any such lease to draw electrical power from the Generator to the amounts set forth in the foregoing table. Landlord shall install and monitor systems to verify that no tenant of the Building draws from the Generator more electrical power than permitted according to the foregoing table. Landlord shall provide Tenant with reasonable access to such systems at all times so that Tenant may verify such compliance by other tenants of the Building. If Landlord has actual knowledge of any tenant’s failure to comply with the limitations on use of power from the Generator as set forth in the foregoing table, Landlord shall make a commercially reasonable effort to cause such tenant to comply.   12.           Alterations and Tenant’s Property. Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 13) (“Alterations”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration materially and adversely affects the structure or Building Systems, but which shall otherwise not be unreasonably withheld or delayed. Tenant may construct nonstructural Alterations in the Premises without Landlord’s prior approval if the aggregate cost of all such work in any 12 month period does not exceed $50,000 (a   9 West Watkins Mill Road/BioVeris Corporation - Page 10   “Notice-Only Alteration”), provided Tenant notifies Landlord in writing of such intended Notice-Only Alteration, and such notice shall be accompanied by plans, specifications, work contracts, and such other information concerning the nature and cost of the Notice-Only Alteration as may be reasonably requested by Landlord, which notice and accompanying materials shall be delivered to Landlord not less than 15 business days in advance of any proposed construction. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord’s reasonable discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. Tenant shall pay to Landlord, as Additional Rent, within 30 days after receipt of a reasonably detailed invoice specifying any reasonable out of pocket costs incurred by Landlord in connection with any Alteration. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup. Tenant shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) “as built” plans for any such Alteration. (a)           Subject to Section 12(b), (i) all fixtures and personal property of any kind paid for with the TI Allowance, (ii) all Alterations and real property fixtures, and (iii) all built-in machinery and equipment, built-in casework and cabinets and other similar additions and improvements which are built into the Premises so as to become an integral part of the Premises such that they cannot be removed without causing material damage to the Premises (e.g., fume hoods which penetrate the roof or plenum area, built-in plumbing, electrical and mechanical equipment and systems) (the items referenced in clauses (i), (ii), and (iii) hereinafter collectively referred to as “Permanent Installations”), shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof in accordance with Section 28 following the expiration or earlier termination of this Lease; provided, however, that with respect to any proposed Permanent Installation, Landlord shall, at the time its approval of any such Permanent Installation is requested, notify Tenant if it has elected to cause Tenant to remove such Permanent Installation upon the expiration or earlier termination of this Lease. If Landlord so elects, Tenant shall remove such Permanent Installation upon the expiration or earlier termination of this Lease and restore any damage caused by or occasioned as a result of such removal, including, when removing any of Tenant’s Property which was plumbed, wired or otherwise connected to any of the Building Systems, capping off all such connections behind the walls of the Premises and repairing any holes. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. (b)           Notwithstanding anything to the contrary in this Lease, Tenant shall have the right to remove during the Term or at the end of the Term, any item of Tenant’s Property. For purposes of this Lease, “Tenant’s Property” means collectively (i) the items, if any, listed on Exhibit E attached hereto, (ii) any items agreed by Landlord in writing to be included on Exhibit E in the future, and (iii) all fixtures and personal property of any kind owned by Tenant and not paid for out of the TI Allowance (as defined in the Work Letter) that are not otherwise Permanent Installations. Tenant shall repair any damage resulting from the removal of Tenant’s Property (including capping or terminating utility hook-ups behind walls). Examples of Tenant’s Property include any of the following to the extent removal of the same would not cause material damage to the Premises: built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, electrical and mechanical equipment and systems, power generators and transfer switches,   9 West Watkins Mill Road/BioVeris Corporation - Page 11   backdraft tables, modular chillers, modular walk-in freezers, modular refrigerators, modular casework, countertops for modular casework, emergency/uninterrupted power generators/systems (including related electrical panels and transfer switches), wireless LAN, modular furniture and equipment, security systems not built into the Premises, and self-contained air conditioning units and fire suppression units not built into the Premises.   During the Term, Tenant shall have the right to use the office furniture (except office chairs) located in the technician’s office within the Premises and all surgical lighting systems in the storage room on the first floor of the Premises (collectively, the “Landlord Personal Property”). Tenant shall be responsible for any cleaning, decommissioning, and recertification of the Landlord Personal Property at Tenant’s sole cost and expense. At the expiration or earlier termination of the Term, Tenant shall return the Landlord Personal Property to Landlord in good working order and condition, ordinary wear and tear excepted. Landlord shall have no obligation for any defects in the Landlord Personal Property, and Tenant’s taking possession of the Landlord Personal Property shall be conclusive evidence that Tenant accepts the Landlord Personal Property and that the Landlord Personal Property was in good condition at the time possession was taken. Neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Landlord Personal Property, and/or the suitability of the Landlord Personal Property for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Landlord Personal Property is suitable for the Permitted Use.   On or about the Commencement Date, Landlord shall cause Gene Logic, Inc., a Delaware corporation and the current tenant of the Premises, to convey directly to Tenant the personal property identified on Exhibit E attached hereto in its then “as is, with all faults” condition by means of a bill of sale (“Transferred Personal Property”). Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of the Transferred Personal Property, and/or the suitability of the Transferred Personal Property for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Transferred Personal Property is suitable for the Permitted Use. WITHOUT LIMITING THE FOREGOING, LANDLORD MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRANSFERRED PERSONAL PROPERTY, EITHER AS TO ITS MERCHANTABILITY, FITNESS FOR USE, DESIGN, OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO COMPLIANCE WITH LEGAL REQUIREMENTS, AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT.   13.         Landlord’s Repairs. Landlord, as an Operating Expense, shall maintain in accordance with the standards of Comparable Buildings, all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“Building Systems”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “Tenant Parties”) excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) upon not less than 48 hours prior written notice, for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 24 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements. Landlord shall use commercially reasonable efforts to restore the interrupted service during any such period of interruption to the extent the restoration is within the reasonable control of Landlord. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall have a reasonable opportunity to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18.   9 West Watkins Mill Road/BioVeris Corporation - Page 12   14. Tenant’s Repairs. Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls, reasonable wear and tear and damage by insured casualty excepted. Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 15 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 30 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises. Tenant shall be responsible for air balancing the HVAC system serving the Premises.   15. Mechanic’s Liens. Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after Tenant receives notice of the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.   16.           Indemnification. Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or Default by Tenant in the performance of any of its obligations hereunder, unless caused solely by the willful misconduct or gross negligence of Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.   17.           Insurance. Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project, errors and omissions insurance and, to the extent commercially reasonable to do so, pollution legal liability insurance. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.   9 West Watkins Mill Road/BioVeris Corporation - Page 13   Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises, excess liability insurance in an amount not less than $10,000,000 (which coverage may be obtained through a “blanket policy” or “umbrella” coverage provided that the coverage afforded Tenant will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all of the requirements of this Lease), and pollution legal liability insurance with a minimum limit of not less than $1,000,000 per claim. The commercial general liability insurance policy shall name Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, “Landlord Parties”), as additional insureds. The commercial general liability and pollution legal liability insurance policies shall insure on an occurrence and not a claims-made basis; shall be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 30 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). Copies of such policies (if requested by Landlord), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenant shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates. If Tenant subleases a portion of the Premises to Advanced Vision Therapies, Inc. (“AVT”) as provided in Section 22, AVT shall be required to maintain the types and scope of insurance coverages specified in the Lease Agreement of even date herewith between Landlord and AVT for space located on the second floor of the Building in lieu of the types and scope of insurance coverages specified in this paragraph.   In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.   The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (“Related Parties”), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.   Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.   18.           Restoration. If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 45 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “Restoration Period”). If the Restoration Period is estimated to exceed 270 days (the “Maximum Restoration Period”), either party may, by notice to the other party within 10 days after the date of such notification by Landlord, elect to terminate this Lease as of the date that is 60 days after the date of discovery of   9 West Watkins Mill Road/BioVeris Corporation - Page 14   such damage or destruction. Unless either party so elects to terminate this Lease, Landlord shall (with any deductible payable in connection with the insurance proceeds to be treated as a current Operating Expense) promptly restore the Premises (including the improvements paid for by the Tenant Allowance but excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to receipt of sufficient insurance proceeds as approved by Landlord’s mortgagee or delays arising from the collection of insurance proceeds or from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises (collectively referred to herein as “Hazardous Materials Clearances”); provided, however, that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Tenant may terminate this Lease by notice to Landlord given any time after the expiration of the Maximum Restoration Period (but before the substantial completion of the repair or restoration of the Premises), in which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.   Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration to the improvements to the Premises paid for by Tenant and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Notwithstanding the foregoing, Landlord or Tenant may terminate this Lease if the Premises are damaged during the last 1 year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage, or if insurance proceeds are not available for such restoration. Rent shall be abated from the date of such casualty until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable for the temporary conduct of Tenant’s business. Such abatement shall be (i) the sole remedy of Tenant, and except as provided in this Section 18, Tenant waives any right to terminate the Lease by reason of damage or casualty loss, and (ii) conditioned on Tenant obtaining (or causing its subtenants or occupants of the Premises to obtain) those Hazardous Materials Clearances that are necessary to enable Landlord to begin and complete such repair and restoration.   The provisions of this Lease, including this Section 18, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.   19.           Condemnation. If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would in the reasonable judgment of Landlord (which judgment Landlord shall promptly communicate to Tenant) either prevent or materially interfere with Tenant’s use of the Premises or materially interfere with or impair Landlord’s ownership or operation of the Project, then upon written notice by Landlord or Tenant to the other this Lease shall terminate and Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to   9 West Watkins Mill Road/BioVeris Corporation - Page 15   Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.   20.           Events of Default. Each of the following events shall be a default (“Default”) by Tenant under this Lease: (a)           Payment Defaults. Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law. (b)           Insurance. Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 30 days before the expiration of the current coverage. (c)           Abandonment. Tenant shall abandon the Premises without (i) the release of the Premises of all Hazardous Materials Clearances and free of any residual impact from the Tenant HazMat Operations, and (ii) complying with the provisions of Section 28. (d)           Improper Transfer. Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action. (e)           Liens. Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after any such lien is filed against Landlord’s interest in the Premises. (f)            Insolvency Events. Tenant or any guarantor or surety of Tenant’s obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “Proceeding for Relief”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity). (g)           Estoppel Certificate or Subordination Agreement. Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 7 days after a second notice requesting such document. (h)           Other Defaults. Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 20 days after written notice thereof from Landlord to Tenant. Any notice given under Section 20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 20 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 20 day period and thereafter diligently prosecutes the same to completion; provided, however, that such cure shall be completed no later than 60 days from the date of Landlord’s notice.     21. Landlord’s Remedies.   (a)           Interest. Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “Default Rate”), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.   9 West Watkins Mill Road/BioVeris Corporation - Page 16   (b)           Late Payment Rent. Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum of 6% of the overdue Rent as a late charge (provided that Tenant shall not be required to pay such late charge upon the first occurrence of a late payment by Tenant of Rent). The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.   (c)           Re-Entry. Upon a Default by Tenant hereunder, Landlord shall have the right, immediately or at any time thereafter, without further notice to Tenant (unless otherwise provided herein), to enter the Premises, without terminating this Lease or being guilty of trespass, and do any and all acts as Landlord may deem necessary, proper or convenient to cure such Default, for the account and at the expense of Tenant, any notice to quit or notice of Landlord’s intention to re-enter being hereby expressly waived, and Tenant agrees to pay to Landlord as Additional Rent all damage and/or expense incurred by Landlord in so doing, including interest at the Default Rate, from the due date until the date payment is received by Landlord.   (d)           Termination. Upon a Default by Tenant hereunder, Landlord shall have the right to terminate this Lease and Tenant’s right to possession of the Premises and, with or without legal process, take possession of the Premises and remove Tenant, any occupant and any property therefrom, using such force as may be necessary, without being guilty of trespass and without relinquishing any rights of Landlord against Tenant, any notice to quit, or notice of Landlord’s intention to re-enter being hereby expressly waived. Upon a Default by Tenant hereunder, Landlord shall be entitled to recover damages from Tenant for all amounts covenanted to be paid during the remainder of the Term (except for the period of any holdover by Tenant, in which case the monthly rental rate stated at Section 8 herein shall apply), which may be accelerated by Landlord at its option, together with (i) all expenses of any proceedings (including, but not limited to, legal expenses and attorney’s fees) which may be necessary in order for Landlord to recover possession of the Premises, (ii) the expenses of the re-renting of the Premises (including, but not limited to, any standard market commissions paid to any real estate agent, advertising expense and the costs of such alterations, repairs, replacements or modifications that Landlord, in its sole judgment, considers advisable and necessary for the purpose of re-renting), and (iii) interest computed at the Default Rate from the due date until paid; provided, however, that there shall be credited against the amount of such damages all amounts received by Landlord from such re-renting of the Premises, with any overage being refunded to Tenant. Landlord shall in no event be liable in any way whatsoever for failure to re-rent the Premises or, in the event that the Premises are re-rented, for failure to collect the rent thereof under such re-renting and Tenant expressly waives any duty of the Landlord to mitigate damages. No act or thing done by Landlord shall be deemed to be an acceptance of a surrender of the Premises, unless Landlord shall execute a written agreement of surrender with Tenant. Tenant’s liability hereunder shall not be terminated by the execution of a new lease of the Premises by Landlord, unless that new lease expressly so states. In the event Landlord does not exercise its option to accelerate the payment of amounts owed as provided hereinabove, then Tenant agrees to pay to Landlord, upon demand, the amount of damages herein provided after the amount of such damages for any month shall have been ascertained; provided, however, that any expenses incurred by Landlord shall be deemed to be a part of the damages for the month in which they were incurred. Separate actions may be maintained each month or at other times by Landlord against Tenant to recover the damages then due, without waiting until the end of the term of this Lease to determine the aggregate amount of such damages. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or being dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease.   (e)           Lien for Rent. If and when this Lease is assigned to any Tenant Affiliate (as defined in Section 22(b)), upon any Default by such Tenant (which, for purposes of this paragraph (e) shall mean only the Tenant Affiliate) in the payment of Rent or other amounts owed hereunder, Landlord shall have a lien upon the property of Tenant in the Premises for the amount of such unpaid amounts, and Tenant hereby specifically waives any and all exemptions allowed by law. In such event, Tenant shall not remove any of Tenant’s property from the Premises except with the prior written consent of Landlord, and Landlord shall have the right and privilege, at its option, to take possession of all Tenant’s property in the Premises, to store the same on the Premises, or to remove it and store   9 West Watkins Mill Road/BioVeris Corporation - Page 17   it in such place as may be selected by Landlord, at Tenant’s risk and expense. If Tenant fails to redeem the personal property so seized, by payment of whatever sum may be due Landlord hereunder (including all storage costs), Landlord shall have the right, after twenty (20) days written notice to Tenant of its intention to do so, to sell such personal property so seized at public or private sale and upon such terms and conditions as may appear advantageous to Landlord, and after the payment of all proper charges incident to such sale, apply the proceeds thereof to the payment of any balance due to Landlord on account of rent or other obligations of Tenant pursuant to this Lease. In the event there shall then remain in the hands of Landlord any balance realized from the sale of said personal property, the same shall be paid over to Tenant. The exercise of the foregoing remedy by Landlord shall not relieve or discharge Tenant from any deficiency owed to Landlord which Landlord has the right to enforce pursuant to any of the provisions of this Lease. Tenant shall also be liable for all expenses incident to the foregoing process, including any auctioneer or attorney’s fees or commissions. At Tenant’s request, Landlord shall subordinate its lien rights as set forth in this paragraph to the lien, operation, and effect of any bona fide third party equipment financing pursuant to a subordination agreement in form and substance reasonably acceptable to Landlord. Such subordination shall be limited to specific items of equipment and shall not be in the form of a blanket lien subordination.   (f)            Other Remedies. Upon a Default by Tenant hereunder, in addition to the foregoing, Landlord, at its option, without further notice or demand to Tenant, shall have all other rights and remedies provided at law or in equity.   22. Assignment and Subletting.   (a)           General Prohibition. Without Landlord’s prior written consent subject to and on the conditions described in this Section 22, Tenant shall not, directly or indirectly, voluntarily or by operation of law (e.g., merger or conversion of Tenant’s legal form), assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 49% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22 unless otherwise provided in this Section 22.   (b)           Permitted Transfers. If Tenant desires to assign, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below, then at least 10 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “Assignment Date”), Tenant shall give Landlord a notice (the “Assignment Notice”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored, handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, or (ii) refuse such consent, in its reasonable discretion (provided that Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any such subletting). No failure of Landlord to deliver a timely notice in response to the Assignment Notice shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer. Tenant shall reimburse Landlord for all of Landlord’s reasonable out-of-pocket expenses in connection with its consideration of any Assignment Notice. Notwithstanding the foregoing, Landlord’s consent to a subletting of any portion of the Premises to any Affiliated User (as define below) shall not be required, provided that (A) Landlord shall have the right to approve the form of any such sublease (Landlord hereby approves the form of sublease agreement draft dated September 20, 2006 as long as no material changes are made thereto), and (B) Tenant delivers to Landlord prompt written notice thereof. For purposes of this Lease, “Affiliated User” means any entity that owns 25% or more of the issued and outstanding shares or other ownership interests in any of Wellstat Biologics, Inc., Wellstat Therapeutics, Inc., or AVT (collectively, “Tenant Affiliates”), any entity that is owned   9 West Watkins Mill Road/BioVeris Corporation - Page 18   25% or more by any of the Tenant Affiliates, or any entity the equity interests of which are owned 25% or more by Samuel Wohlstadter, Nadine Wohlstadter, or David Wohlstadter.   In addition, Tenant shall have the right to assign this Lease (in whole but not in part), upon 30 days prior written notice to Landlord but without obtaining Landlord’s prior written consent, to Wellstat Biologics, Inc., Wellstat Therapeutics, Inc., or AVT (“Wellstat Assignment”). On the date of the Wellstat Assignment, (a) such assignee shall deliver the Security Deposit to Landlord as provided in Section 6, and (b) BioVeris Corporation shall be released from any liability first accruing and arising under this Lease from and after the date of the Wellstat Assignment.   In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or a portion of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with GAAP) of the assignee is not less than $20,000,000 as of the date immediately preceding such merger, consolidation, corporate reorganization, or sale, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (the transfer described in this paragraph, together with the transfer described in the preceding paragraph as well as the subletting described in the last two sentences of Section 22(b) above, shall each constitute a “Permitted Assignment”).   In the case of an assignment or subletting requiring Landlord’s prior written consent, Landlord shall not unreasonably withhold, delay, or condition such consent. Among other reasons, it shall be reasonable for Landlord to withhold its consent in any of these instances:  (1) the proposed assignee or subtenant is a governmental agency that distributes governmental or other payments, benefits, or information to persons who personally appear at the Premises or is an agency whose use of the Premises would be inconsistent with the type and quality of the first class nature of the Building; (2) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or subtenant would entail any alterations that would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (3) in Landlord’s reasonable judgment, the proposed assignee or subtenant lacks the creditworthiness to support the financial obligations it will incur under the proposed assignment or sublease; (4) in Landlord’s reasonable judgment, the character, reputation, or business of the proposed assignee or subtenant is inconsistent with the type and quality of the first class nature of the Building; (5) Landlord has received from any prior landlord to the proposed assignee or subtenant a substantively negative report dealing with material matters concerning such prior landlord’s experience with the proposed assignee or subtenant; (6) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (7) the use of the Premises by the proposed assignee or subtenant will violate any applicable Legal Requirement; (8) the proposed assignment or sublease will create a vacancy elsewhere in the Building; or (9) the assignment or sublease is prohibited by Landlord’s lender.   (c)           Additional Conditions. As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:   (i)            that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and   (ii)           A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including,   9 West Watkins Mill Road/BioVeris Corporation - Page 19   without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.   (d)           No Release of Tenant, Sharing of Excess Rents. Notwithstanding any assignment or subletting except as otherwise expressly provided in this Section 22, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease. If all sums due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment) to Tenant or its agent or on behalf of such sublessee or assignee under or on account of such sublease or assignment exceeds the sum of the Rent payable under this Lease (excluding however, the actual and reasonable brokerage fees, advertising and legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease or assignment and the expenses of improvements constructed in the space subject to such sublease or assignment and paid for by Tenant) (“Excess Rent”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. To the extent there is no Excess Rent based on such calculation, Tenant may retain all of the rental due and payable by such sublessee or assignee. If Tenant has provided any rental abatement to such subtenant or assignee, for purposes of determining the amount of any Excess Rent the amount of such rental abatement shall not be factored into the rental payable under such sublease or assignment. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent. The provisions of this paragraph shall not apply to any space within the Premises occupied by an Affiliated User.   (e)           No Waiver. The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor, except as otherwise expressly provided in this Section 22, shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.   (f)            Prior Conduct of Proposed Transferee. Notwithstanding any other provision of this Section 22, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.   23.           Estoppel Certificate. Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which   9 West Watkins Mill Road/BioVeris Corporation - Page 20   the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver such statement within such time shall, at the option of Landlord, be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.   24.           Quiet Enjoyment. So long as Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.   25.           Prorations. All prorations required or permitted to be made hereunder shall be made on the basis of the actual number of days in the year or month in question.   26.           Rules and Regulations. Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit C. If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.   27.           Subordination. This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder, Tenant’s rights under this Lease, including its right to possession of the Premises, shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. As of the Commencement Date, the Project is not subject to the lien of any Mortgage. On Tenant’s written request, Landlord shall use its commercially reasonable efforts (but with no obligation to pay any out-of-pocket fees or sums) to obtain from any Holder of a first lien Mortgage at any time hereafter during the Term covering any or all of the Project or the Premises a non-disturbance agreement on Holder’s standard form in favor of Tenant assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof. The term “Mortgage” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “Holder” of a Mortgage shall be deemed to include the beneficiary under a deed of trust.   28.           Surrender. Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “Tenant HazMat Operations”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 2 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”). Such Surrender Plan shall be accompanied by a current   9 West Watkins Mill Road/BioVeris Corporation - Page 21   listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s independent third party environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s independent third party environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $2,500. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s independent third party environmental consultant with respect to the surrender of the Premises to third parties.   If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.   Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or changing the lock or locks opened by such lost key; provided, however, that Landlord shall replace not more than 2 lost access cards at no charge to Tenant. Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.   29.           Waiver of Jury Trial. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.     30. Environmental Requirements.   (a)           Prohibition/Compliance/Indemnity. Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders   9 West Watkins Mill Road/BioVeris Corporation - Page 22   or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “Environmental Claims”) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project. Notwithstanding anything in this Lease to the contrary, Tenant shall have no obligation to remove or remediate contamination caused by any Hazardous Materials brought, discharged, or released onto the Premises by Landlord or that existed in the Premises as of the Commencement Date and were not brought, discharged, or released onto the Premises by Tenant or any Tenant Party. To the extent (and only to the extent) covered by Landlord’s pollution legal liability insurance, Landlord hereby agrees to indemnify, defend, and hold harmless Tenant from any and all Environmental Claims that existed, accrued, or arose prior to the Tenant’s occupancy of the Premises, and which Tenant did not cause, contribute to, or exacerbate (“Pre-Existing Environmental Claims”), and Environmental Claims arising during the term that Tenant can prove were caused by Landlord or Landlord’s agents (including, without limitation, any person for whom Landlord is responsible) and which Tenant did not cause, contribute to, or exacerbate (“Landlord Caused Environmental Claims”). Notwithstanding anything to the contrary in this Section 30(a), the use of the words “permit” or “permitted” in this Section 30(a) shall not be interpreted to impose any obligation on Tenant, and Tenant shall have no obligation, (i) to interfere with or otherwise take action to abate the migration of subsurface Hazardous Materials from or to the Project or (ii) to clean up, treat, remove, or otherwise remediate any subsurface Hazardous Materials that migrate onto the Project that Tenant did not cause, contribute to, or exacerbate (provided that if Tenant has caused, contributed to, or exacerbated any condition, Tenant’s liability shall be limited to the extent that Tenant caused, contributed to, or exacerbated such condition), or (iii) to indemnify Landlord with respect to any Environmental Claims related to the migration of subsurface Hazardous Materials onto the Project that Tenant did not cause, contribute to, or exacerbate (provided that if Tenant has caused, contributed to, or exacerbated any condition, Tenant’s liability shall be limited to the extent that Tenant caused, contributed to, or exacerbated such condition).   (b)           Business. Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“Hazardous Materials List”). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also notify Landlord before any new Hazardous Material is brought onto, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises. Tenant shall deliver to Landlord true and correct copies of the following documents (the “Haz Mat Documents”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and   9 West Watkins Mill Road/BioVeris Corporation - Page 23   absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 2 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors. Landlord shall maintain the confidentiality of the contents of the Hazardous Materials List, except to the extent that disclosure is required by any Legal Requirement or is made to Landlord’s consultants, advisors, prospective owners and tenants, and any Holder.   (c)           Tenant Representation and Warranty. Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord determines that this representation and warranty was not true as of the Commencement Date, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.   (d)           Testing. Landlord shall have access to, and a right to perform inspections and tests of, the Premises and the Project to determine Tenant’s compliance with Environmental Requirements, its obligations under this Section 30, or the environmental condition of the Premises and the Project. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. Access shall be granted to Landlord upon Landlord’s prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant’s operations. Such inspections and tests shall be conducted at Landlord’s expense, unless such inspections or tests are conducted pursuant to Section 21 hereof or reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such inspection and tests. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord may have against Tenant.   (e)           Underground Tanks. If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks. As of the Commencement Date, Landlord has not installed or placed any underground storage tanks on or about the Project.   (f)            Tenant’s Obligations. Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be prorated daily.   (g)           Definitions. As used herein, the term “Environmental Requirements” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of   9 West Watkins Mill Road/BioVeris Corporation - Page 24   any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term “Hazardous Materials” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the “operator” of Tenant’s “facility” and the “owner” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.   (h)           Indemnity. Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any Environmental Claims which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable law as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project.   31.           Tenant’s Remedies/Limitation of Liability. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.   Notwithstanding the foregoing, if any claimed Landlord default hereunder will immediately, materially, and adversely affect Tenant’s ability to conduct its business in the Premises (a “Material Landlord Default”), Tenant shall, as soon as reasonably possible, but in any event within 5 business days of obtaining knowledge of such claimed Material Landlord Default, give Landlord written notice of such claim and telephonic notice to Tenant’s principal contact with Landlord. Landlord shall then have 2 business days to commence cure of such claimed Material Landlord Default and shall diligently prosecute such cure to completion. If such claimed Material Landlord Default is not a default by Landlord hereunder, or if Tenant failed to give Landlord the notice required hereunder within 5 business days of learning of the conditions giving rise to the claimed Material Landlord Default, Landlord shall be entitled to recover from Tenant, as Additional Rent, any costs incurred by Landlord in connection with such cure in excess of the costs, if any, that Landlord would otherwise have been liable to pay hereunder. If Landlord fails to commence cure of any claimed Material Landlord Default as provided above, Tenant may commence and prosecute such cure to completion (but in no event shall Tenant perform any curative work that affects the Building Systems, Common Areas, or other portions of the Project located outside of the Premises), and shall be entitled to recover the costs of such cure (but not any consequential or other damages) from Landlord, to the extent of Landlord’s obligation to cure such claimed Material Landlord Default hereunder, subject to the limitations set forth in the immediately preceding sentence of this paragraph and the other provisions of this Lease.   9 West Watkins Mill Road/BioVeris Corporation - Page 25   All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term “Landlord” in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.   32.           Inspection and Access. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Tenant shall have the right to accompany Landlord during any such entry but shall not interfere with Landlord’s activities. Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant’s use or occupancy of the Premises for the Permitted Use. At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder.   33.           Security. Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts. Tenant shall have the right to install, at its expense, security cameras and other security systems within the Premises as long as such systems do not affect any Building System and do not prevent or delay Landlord’s entry onto the Premises as provided in Section 32. Tenant shall remove such systems on the expiration or earlier termination of the Term in accordance with the requirements of this Lease.   34.           Force Majeure. Neither party shall be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions, orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits, enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord (“Force Majeure”); provided, however, that in no event shall Force Majeure excuse Tenant from performing any monetary obligation under this Lease.   35.           Brokers, Entire Agreement, Amendment. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “Broker”) in connection with this transaction and that no Broker brought about this transaction. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.   36.           Limitation on Landlord’s Liability. NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER   9 West Watkins Mill Road/BioVeris Corporation - Page 26   ACTUAL OR CONSEQUENTIAL TO: TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.   37.           Severability. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.   38.           Signs; Exterior Appearance. Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering. Landlord will, at its cost, list Tenant’s name in the Building directory and install on one suite entry door Building standard lettering depicting the designated suite number of the Premises and Tenant’s trade name. The directory tablet shall be provided exclusively for the display of the name and location of tenants.   39.           Right to Extend Term. Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:   (a)           Extension Right. Tenant shall have the right (“Extension Right”) to extend the term of this Lease for five (5) years (“Extension Term”) on the same terms and conditions as this Lease (other than Base Rent) by giving Landlord written notice of its election to exercise the Extension Right at least nine (9) months prior, and no earlier than twelve (12) months prior, to the expiration of the Base Term of the Lease. Base Rent shall be adjusted on the commencement date of such Extension Term and on each anniversary of the commencement of such Extension Term by multiplying the Base Rent payable immediately before such adjustment by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such adjustment.   (b)           Right Personal. The Extension Right may be assigned in connection with any Permitted Assignment of this Lease.   (c)           Exceptions. Notwithstanding anything set forth above to the contrary, the Extension Right shall not be in effect and Tenant may not exercise the Extension Right:   9 West Watkins Mill Road/BioVeris Corporation - Page 27   (i)            during any period of time that Tenant is in Default under any provision of this Lease; or (ii)           if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise the Extension Right, whether or not the Defaults are cured.   (d)           No Extensions. The period of time within which the Extension Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Extension Right.   (e)           Termination. The Extension Right shall terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Extension Right, if, after such exercise, but prior to the commencement date of the Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.   40.           Termination Option. Notwithstanding anything to the contrary contained herein, Tenant shall have a one-time option to terminate this Lease (“Termination Option”) in accordance with the following terms and conditions:   (a)           Tenant Gives Notice. If Tenant desires to exercise the Termination Option, Tenant shall give Landlord irrevocable written notice (“Termination Notice”) of Tenant’s exercise of the Termination Option. Landlord must receive the Termination Notice no later than the date that is 9 full months before the Termination Date. Time is of the essence with respect to Landlord’s receipt of the Termination Notice and all other deadlines in this Section.   (b)           Termination Date. If Tenant gives the Termination Notice and complies with all the provisions in this Section, this Lease shall terminate at midnight at the end of the fifth (5th) anniversary of the Commencement Date (the “Termination Date”).   (c)           Termination Fee Must Accompany Notice. For the Termination Notice to be effective, it must be accompanied by the Termination Fee (as defined below), which Termination Fee shall be payable only in certified funds. For purposes of this Section, “Termination Fee” means an amount equal to $28,570.   (d)           Tenant’s Obligation Survives Termination. Tenant’s obligations to pay Rent and Additional Rent under this Lease, and to perform all other Lease obligations for the period up to and including the Termination Date, shall survive the termination of this Lease.   (e)           Landlord May Cancel and Void Termination if Tenant in Default. Notwithstanding the foregoing provisions of this Section, if Tenant shall exercise the Termination Option (in accordance with clause (a) above) when it is in Default, then Landlord may elect, but is not obligated, to cancel and declare null and void Tenant’s exercise of the Termination Option and this Lease shall continue in full force and effect for the full Term unaffected by Tenant’s exercise of the Termination Option. If Landlord does not cancel Tenant’s exercise of the Termination Option after such Default, Tenant shall cure any Default within the period of time specified in this Lease and this obligation shall survive the Termination Date.   (f)            Tenant Shall Surrender Space by Termination Date. If Tenant exercises the Termination Option, Tenant shall surrender full and complete possession of the Premises to Landlord on or before the Termination Date vacant, broom-clean, in good order and condition, and in accordance with the provisions of this Lease (including, but not limited to, Section 28), and thereafter the Premises shall be free and clear of all leases, tenancies, and rights of occupancy of any entity claiming by, through, or under Tenant.   (g)           Failure to Surrender Makes Tenant a Holdover. If Tenant shall fail to deliver possession of the Premises on or before the Termination Date in accordance with the terms hereof, Tenant shall be deemed to be a holdover tenant from and after the Termination Date, and in such event, Tenant shall be subject to the provisions of Section 8 relating to holdover tenancies.   9 West Watkins Mill Road/BioVeris Corporation - Page 28   (h)           Lease Ceases After Termination. If Tenant properly and timely exercises the Termination Option and properly and timely satisfies all other monetary and non-monetary obligations under this Lease, this Lease shall cease and expire on the Termination Date with the same force and effect as if the Termination Date were the date originally provided in this Lease as the expiration date of the Term.   (i)            No Option After Sublet or Assignment. If this Lease has been assigned or all or a portion of the Premises has been sublet other than pursuant to a Permitted Assignment, the Termination Option shall be deemed null and void and neither Tenant nor any assignee or subtenant shall have the right to exercise the Termination Option during the term of such assignment or sublease.     41. Miscellaneous.   (a)           Notices. All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.   (b)           Joint and Several Liability. If and when included within the term “Tenant,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.   (c)           Financial Information. For any period during which Tenant’s shares are not traded upon a stock exchange or in the over-the-counter market, Tenant shall furnish Landlord with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 45 days of the end of each of Tenant’s fiscal years during the Term, (ii) Tenant’s most recent unaudited quarterly financial statements within 45 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term, (iii) at Landlord’s request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders.   (d)           Recordation. Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.   (e)           Interpretation. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.   (f)            Not Binding Until Executed. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.   (g)           Limitations on Interest. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.   9 West Watkins Mill Road/BioVeris Corporation - Page 29   (h)           Choice of Law. Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.     (i) Time. Time is of the essence as to the performance of each party’s obligations under this Lease.   (j)            Incorporation by Reference. All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.   (k)           Hazardous Activities. Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.   9 West Watkins Mill Road/BioVeris Corporation - Page 30   IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.   TENANT:   BIOVERIS CORPORATION, a Delaware corporation   By: /s/ Samuel J. Wohlstadter Its: Chief Executive Officer   LANDLORD:   ARE-MARYLAND NO. 23, LLC, a Delaware limited liability company     By: Alexandria Real Estate Equities, L.P., a Delaware limited partnership, its managing member     By: ARE-QRS CORP., a Maryland corporation, its general partner     By: /s/ Jennifer Pappas Title:       V.P. and Assistant Secretary 9 West Watkins Mill Road/BioVeris Corporation      

Exhibit 10.2 PRIVILEGED AND CONFIDENTIAL   RETENTION AND NONCOMPETITION AGREEMENT AGREEMENT by and between U.S. BANCORP (“Parent”), UNITED FINANCIAL CORP. (the “Company”), and Steve L. Feurt (the “Employee”), dated as of the 6th day of November, 2006 (the “Effective Date”). In the event that the Merger Agreement (as defined below) is terminated, this Agreement shall be void ab initio and of no further force and effect. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Merger Agreement. WHEREAS, the Employee is an employee of the Company and, pursuant to that certain Agreement and Plan of Merger, dated as of even date herewith, by and among Parent, Cascade Merger Corporation (“Merger Sub”), and the Company (the “Merger Agreement”), Merger Sub will be merged with and into the Company (the “Merger”) and the Company will, upon the closing of the transactions contemplated by the Merger Agreement, become a wholly-owned subsidiary of Parent. WHEREAS, Parent and the Company have determined that it is in the best interests of Parent and the Company and their respective shareholders to assure that the Company will have the continued dedication of the Employee pending the Merger and to provide the surviving corporation after the Merger with continuity of management. WHEREAS, as a condition to its willingness to enter into the Merger Agreement and in consideration of Parent’s acquisition for value of all of the Employee’s shares of capital stock of the Company pursuant to the Merger Agreement, Parent has requested that the Employee shall have executed and delivered this Agreement in favor of the Company and Parent and their respective affiliates and successors, and the Employee wishes to enter into this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1.            Retention Period. The Company and Parent wish to ensure that the Employee remains in the employ of the Company for the period beginning on the Effective Date and ending on the second anniversary thereof (the “Retention Period”). 2.            Retention Payments. (a) During the Retention Period, the Employee shall be entitled to receive cash retention payments in an aggregate amount (the “Aggregate Retention Amount”) equal to $125,000, subject to the Employee’s continued employment with the Company as of the applicable Payment Date (as defined below) and compliance with the covenants set forth in Section 4 of this Agreement. The Aggregate Retention Amount shall vest and be payable in the amounts and on the dates (the “Payment Dates”) set forth below:     -------------------------------------------------------------------------------- Payment Date Retention Amount Payable First anniversary of Effective Date $62,500 Second anniversary $62,500   To the extent any such Payment Date is not a regular pay day for the Company, the Company shall have the option to elect to postpone the payment of the portion of the Aggregate Retention Amount then payable until the regular pay day immediately following such Payment Date. (b)          Termination of Employment During the Retention Period. (i) If, during the Retention Period, the Company shall terminate the Employee’s employment other than for Cause (as defined herein), subject to the Employee’s continued compliance with the covenants set forth in Section 4 hereof, then (a) the unpaid portion of the Aggregate Retention Amount shall become vested and be paid in the installments and on the Payment Dates set forth above in Section 2(a) and (b) the Company shall continue to pay to the Employee the Employee’s base salary (as in effect on the date of the Employee’s termination of employment pursuant to this Section 2(b)(i)) from the date of such termination through the end of the Retention Period (the “Severance Payments”). Any amounts otherwise payable to the Employee pursuant to the terms of any severance plan, policy, program or agreement of any Company Entity (as defined below) shall be reduced (but not below zero) by the aggregate amount of the Severance Payments. Notwithstanding anything herein to the contrary, the Severance Payments may be paid at the time and in the manner determined by the Company to the extent necessary to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. (ii)          If, during the Retention Period, the Company shall terminate the Employee’s employment by reason of the Employee’s Disability (as defined herein), or the Employee shall terminate employment due to his death, the Employee or his estate or beneficiary, as applicable, shall be paid in a lump sum, within thirty (30) days of the date of termination of the Employee’s employment, the portion of the Aggregate Retention Amount that would have vested and been paid on the Payment Date next following the date of termination due to death or Disability. For purposes of clarity, to the extent the extent the date of termination due to death or Disability occurs prior to the first anniversary of the Effective Date, the first installment of the Aggregate Retention Amount shall vest and be paid and the second installment shall be forfeited.   3. Definitions. (a) Cause. For purposes of this Agreement, “Cause” shall mean: (i)           the failure of the Employee to perform the Employee’s duties with the Company or any Company Entity (other than as a result of physical or mental illness or injury), which failure continues for ten (10) days after a written demand for performance is delivered to the Employee by the Company or Parent;   (ii) breach of a covenant set forth in Section 4 of this Agreement;   (iii) illegal conduct or gross misconduct by the Employee;   -2- -------------------------------------------------------------------------------- (iv)         a material breach of policies or rules of the Company or Parent or a violation of laws or regulations material to the Employee’s employment; or (v)          the Employee’s conviction of, or plea of guilty or nolo contendere to a charge of commission of a felony. (b)          For purposes of this Agreement, “Company Entity” shall mean any entity controlled by, controlling or under common control with the Company or Parent. (c)          Disability. For purposes of this Agreement, “Disability” shall have the meaning specified in the long-term disability plan of the Company or Company Entity under which the Employee is covered. 4.            Restrictive Covenants. (a) The Employee acknowledges that the Employee will have knowledge of certain trade secrets of the Company. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to any of the Company Entities and their respective businesses, (including, without limitation, any client names, client lists, trade secrets, research, secret data, business methods, operating procedures or programs), which shall have been obtained by the Employee during the Employee’s employment by the Company or any Company Entity and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement) (collectively, the “Trade Secrets and Confidential Information”). After termination of the Employee’s employment with the Company or any Company Entity the Employee shall not, without the prior written consent of Parent or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company or Parent and those designated by it. For the purposes of this Section 4(a), information shall not be deemed to be publicly available merely because it is embraced by general disclosures or because individual features or combinations thereof are publicly available. All records, files, memoranda, reports, customer lists, documents and the like that the Employee uses, prepares or comes into contact with during the course of the Employee’s employment shall remain the sole property of the Company or one the Company Entities, as applicable, and shall be turned over to the Company or such Company Entity upon termination of the Employee’s employment. (b)          Noncompetition. During the Restricted Period (as defined below), the Employee shall not engage in or become associated with a Competitive Activity. For purposes of this Section 4(b): (i) the “Restricted Period” means the two-year period following the Closing Date (as defined in the Merger Agreement); (ii) a “Competitive Activity” means any business or other endeavor, in any county in Montana, that is engaged in the banking business, whether through a bank, a savings and loan, a savings bank, a credit union, a mortgage company, bank holding company, savings and loan holding company or other depositary institution holding company in such jurisdiction as of the Effective Time or any time thereafter; and (iii) the Employee shall be considered to have become “associated with a Competitive Activity” if he becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative capacity with any individual, partnership, corporation or other organization that is engaged in a Competitive Activity. Notwithstanding the   -3- -------------------------------------------------------------------------------- foregoing, the Employee may make and retain investments during the Restricted Period in less than one percent (1%) of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market. (c)          Nonsolicitation. During the Restricted Period, the Employee shall not, directly or indirectly, on behalf of himself or on behalf of any other individual, association or entity, as an agent or otherwise (i) contact any of the customers of any Company Entity for whom the Employee directly performed any services or had any direct business contact for the purpose of soliciting business or inducing such client to acquire any product or service that currently is provided or under development by a Company Entity from any entity other than a Company Entity, (ii) contact any of the customers or prospective customers of any Company Entity whose identity or other customer specific information the Employee discovered or gained access to as a result of the Employee’s access to the Trade Secrets and Confidential Information of any Company Entity for the purpose of soliciting or inducing any of such customers or prospective customers to acquire any product or service that currently is provided or under development by any Company Entity from any entity other than a Company Entity or (iii) utilize the Trade Secrets and Confidential Information to solicit, influence, or encourage any customers or prospective customers of any Company Entity to divert or direct their business to the Employee or any other person, association or entity by or with whom the Employee is employed, associated, engaged as agent or otherwise affiliated. During the Restricted Period, the Employee shall not, directly or indirectly, encourage, induce or entice any employee of any Company Entity with access to or possession of Trade Secrets or Confidential Information to terminate employment with such Company Entity. (d)          Acknowledgement. The Employee acknowledges and agrees that: (i) the purposes of the covenants set forth in this Section 4, are to protect the goodwill and Trade Secrets and Confidential Information of the Company and Parent in connection with the acquisition of the Company by Parent and to prevent the Employee from interfering with the business and client relationships and employees of the Company Entities as a result of or following termination of the Employee’s employment with the Company or one of the Company Entities; and (ii) that the covenants set forth in this Section 4 are being given in consideration for (A) the payment being received by the Employee as a shareholder of the Company as a result of the Merger, which the Employee agrees is a transaction described in Section 28-2-704 of the Montana Code Annotated, (B) the Employee’s continued employment with the Company following the Merger, and (C) the Employee’s right to receive the Aggregate Retention Amount and the Severance Payments on the terms set forth in this Agreement. The Employee understands that he would not be entitled to any of the consideration set forth in this paragraph absent his execution of this Agreement. (e)          Enforcement. In the event of a breach or threatened breach of this Section 4, the Employee agrees that Parent and the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, and the Employee acknowledges that damages would be inadequate and insufficient. With respect to any provision of Section 4 finally determined by a court of competent jurisdiction to be unenforceable, the parties hereto hereby agree that such court shall have jurisdiction to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted   -4- -------------------------------------------------------------------------------- by law, and the parties agree to abide by such court’s determination. If any of the covenants of Section 4 are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the rights of Parent or the Company to enforce any such covenant in any other jurisdiction. (f)           Survival. Any termination of the Employee’s employment or of this Agreement shall have no effect on the continuing operation of this Section 4. 5.            Successors. This Agreement is personal to the Employee and, without the prior written consent of Parent, shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee’s legal representatives. This Agreement shall inure to the benefit of and be binding upon Parent, the Company and their successors and assigns. 6.            Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Minnesota without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b)          All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee:   At the most recent address on file at the Company. If to the Company: United Financial Corp. P.O. Box 2779 120 First Avenue North Great Falls, Montana 59403 Tel: (763) 542-3001 Fax: (763) 543-8617 Attention: Chairman If to Parent:   U.S. Bancorp 800 Nicollet Mall Minneapolis, Minnesota 55402 Attention: John Elmore, Vice President of Community Banking Tel: (913) 652-5126 Fax: (913) 652-5032   -5- -------------------------------------------------------------------------------- or to such other address as either party furnishes to the other in writing in accordance with this Section 6(b). Notices and communications shall be effective when actually received by the addressee. (c)          The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d)          The Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e)          The failure of the Employee, Parent or the Company to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f)           This Agreement contains all the understandings between the parties hereto, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them. The Employee represents that, in executing this Agreement, the Employee does not rely and has not relied upon any representation or statement not set forth herein with regard to the subject matter or effect of this Agreement. (g)          The Employee, the Company and Parent acknowledge that the employment of the Employee by the Company, Parent or the Company Entities is “at will” and that the Employee’s employment may be terminated by either the Employee or the Company or Parent at any time prior to the expiration of the Retention Period or thereafter. (h)          This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.   -6- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Employee has hereunto set the Employee’s hand and each of Parent and the Company have caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.     /s/   Steve L. Feurt   Steve L. Feurt       UNITED FINANCIAL CORP.     /s/   Kurt R. Weise     By:    Kurt R. Weise     Title:  Chairman       U.S. BANCORP           By:          Title:    -7- --------------------------------------------------------------------------------

Exhibit 10.2.1.2   TRANSMISSION OPERATING AGREEMENT   TABLE OF CONTENTS   ARTICLE I. DEFINITIONS; INTERPRETATIONS    2 1.01. Definitions; Interpretations    2 ARTICLE II. TRANSMISSION FACILITIES    3 2.01. Transmission Facilities    3 2.02. New Transmission Facilities and Transmission Upgrades    5 2.03. Merchant Facilities    6 2.04. Excluded Assets    6 2.05. Connection with Non-Parties    8 2.06. Review of Transmission Plans    10 2.07. Condemnation    11 ARTICLE III. OPERATING AUTHORITY    11 3.01. Grant of Operating Authority    11 3.02. Definition of ISO Operating Authority    12 3.03. Transmission Services and OATT Administration    16 3.04. Application Authority    20 3.05. The ISO’s Responsibilities    32 3.06. Each PTO’s Responsibilities    33 3.07. Reserved Rights of the PTOs    37 3.08. Repair and Maintenance of Transmission Facilities    39 3.09. Planning and Expansion    41 3.10. Invoicing, Collection and Disbursement of Customer Payments    41 3.11. Grandfathered Transmission Agreements    44   Page No. i -------------------------------------------------------------------------------- 3.12. Subcontractors    44 3.13. Municipal/Tax-Exempt Utilities    45 3.14. No Impairment of the ISO’s Other Legal Rights and Obligations    46 ARTICLE IV. REPRESENTATIONS AND WARRANTIES    46 4.01. Representations and Warranties of Each PTO    46 4.02. Representations and Warranties of the ISO    47 ARTICLE V. COVENANTS OF THE PTOS    48 5.01. Covenants of Each PTO    48 5.02. Financial Statements and Filings    48 5.03. Expenses    48 5.04. Consents and Approvals    48 5.05. Notice and Cure    49 ARTICLE VI. COVENANTS OF THE ISO    49 6.01. Covenants of the ISO    49 6.02. Financial Statements and Filings    49 6.03. Expenses    50 6.04. Consents and Approvals    50 6.05. Notice and Cure    50 6.06. Other PTOs    50 6.07. Management Agreements    51 6.08. ISO Line of Business; Non-Profit Status    52 ARTICLE VII. TAX MATTERS    52 7.01. Responsibility for PTO Taxes    52 7.02. Responsibility for ISO Taxes    52   Page No. ii -------------------------------------------------------------------------------- ARTICLE VIII. RELIANCE; SURVIVAL OF AGREEMENTS    52 8.01. Reliance; Survival of Agreements    52 ARTICLE IX. INDEMNIFICATION; INSURANCE; ASSUMPTION OF LIABILITIES    53 9.01. Indemnification    53 9.02. Notice of Proceedings    53 9.03. Defense of Claims    54 9.04. Subrogation    55 9.05. Insurance    55 9.06. Assumption of Liability    56 ARTICLE X. TERM; DEFAULT AND TERMINATION    57 10.01. Term; Termination Date    57 (a) Term    57 (b) PTO Withdrawal During The Term    58 (c) Remaining PTOs    59 (d) Termination by the ISO    59 (e) Actions Prior to Withdrawal or Termination    60 (f) Approvals    60 (g) Continuing Obligations    60 10.02. Release of Operating Authority    61 10.03. Events of Default of the ISO    61 (a) Events of Default of the ISO    61 (b) Remedies for Default    62 10.04. Events of Default of a PTO    63   Page No. iii -------------------------------------------------------------------------------- (a) Events of Default of a PTO    63 (b) Remedies for Default    64 ARTICLE XI. MISCELLANEOUS    65 11.01. Notices    65 11.02. Supersession of Prior Agreements    65 11.03. Waiver    65 11.04. Amendment; Limitations on Modifications of Agreement    65 11.05. Additional Participating Transmission Owners    69 11.06. Integration Charges    70 11.07. No Third Party Beneficiaries    70 11.08. No Assignment; Binding Effect    70 11.09. Further Assurances; Information Policy; Access to Records    71 11.10. Business Day    72 11.11. Governing Law    72 11.12. Consent to Service of Process    72 11.13. Specific Performance; Force Majeure    73 11.14. Dispute Resolution    73 11.15. Invalid Provisions    74 11.16. Headings and Table of Contents    74 11.17. Liabilities; No Joint Venture    74 11.18. Counterparts    74 11.19. Conditions Precedent    75 11.20. Preserved Rights    75   Page No. iv -------------------------------------------------------------------------------- Schedules   Schedule 1.01. Schedule of Definitions   Schedule 2.01(a). List of Each PTO’s Category A Facilities   Schedule 2.01(b). List of Each PTO’s Category B Facilities   Schedule 3.02(b). List of Interconnection Agreements with neighboring Control Areas and Tariff(s) Applicable to External Transactions   Schedule 3.02(d). List of Existing Operating Procedures   Schedule 3.09(a). Planning and Expansion – Participating Transmission Owner Rights and Obligations   1. PTOs Rights and Obligations to Build and Associated Conditions Including Cost Recovery   2. PTO Obligations   Schedule 3.09(b). List of Existing Planning Procedures   Schedule 3.11(b). List of Grandfathered Intertie Agreements   Schedule 3.11(c). List of Grandfathered Interconnection Agreements   Schedule 4.01(d). PTO New England Transmission Facilities Not Subject to this Agreement   Schedule 11.01. Notices   Schedule 11.02. Superseded Agreements   Schedule 11.04. PTO Administrative Committee   Schedule 11.19(c). Additional Conditions Precedent   Page No. v --------------------------------------------------------------------------------   TRANSMISSION OPERATING AGREEMENT   This Transmission Operating Agreement (this “TOA” or this “Agreement”), dated as of [            ], 2004, is made and entered into by and among [The names of the Initial PTOs will be submitted in a compliance filing prior to the Operations Date.] (herein collectively referred to as the “Initial Participating Transmission Owners”), and the Initial Participating Transmission Owners along with any Additional Participating Transmission Owners (as defined in Section 11.05 of this Agreement), are collectively referred to herein as the “PTOs” and individually each is referred to as a “PTO”), and ISO New England Inc. (“ISO”), a Delaware corporation (all PTOs and the ISO are collectively referred to herein as the “Parties”).   WHEREAS, each of the PTOs owns and/or operates certain transmission facilities that are interconnected with the transmission facilities of certain other PTOs within the New England Transmission System or otherwise provides transmission service within the New England Transmission System;   WHEREAS, the ISO is a regional transmission organization (“RTO”) authorized by the Federal Energy Regulatory Commission (“FERC”) to exercise the functions required of RTOs pursuant to FERC’s Order No. 2000 (“Order 2000”) and FERC’s RTO regulations;   WHEREAS, in accordance with the requirements of Order 2000, the ISO will be the transmission provider under the ISO Open Access Transmission Tariff (the “ISO OATT”) of non-discriminatory, open access transmission services over the transmission facilities of the PTOs (“Transmission Service”);   WHEREAS, the ISO OATT will be designed to provide for the payment by transmission customers for Transmission Service at rates designed to recover the revenue requirements of the PTOs in supporting the provision of such transmission service by the ISO under the ISO OATT;   WHEREAS, the ISO will be responsible for system planning within the ISO region subject to certain rights and obligations of the PTOs, all as set forth in this Agreement;   WHEREAS, the functions to be performed by the ISO and Order 2000 require that the ISO have the requisite operational authority over the PTOs’ transmission facilities;   WHEREAS, in accordance with the terms set forth herein, the PTOs desire for the ISO to exercise, and the ISO desires to exercise, Operating Authority (as defined in Section 3.02 of this Agreement) over the PTOs’ Transmission Facilities (as defined in this Agreement) consistent with the requirements of Order 2000;   WHEREAS, the PTOs will, among other things, continue to own, physically operate, and maintain their Transmission Facilities and Local Control Centers; and   WHEREAS, each PTO reserves the right to transfer certain rights and obligations to an Independent Transmission Company in accordance with Attachment M to the ISO OATT.   Page No. 1 -------------------------------------------------------------------------------- NOW, THEREFORE, in consideration of the promises, and the mutual representations, warranties, covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, each of the PTOs and the ISO agree as follows:   ARTICLE I   DEFINITIONS; INTERPRETATIONS   1.01 Definitions; Interpretations. Each of the capitalized terms and phrases used in this Agreement (including the foregoing recitals) and not otherwise defined herein shall have the meaning specified in Schedule 1.01. In this Agreement, unless otherwise provided herein:   (a) words denoting the singular include the plural and vice versa;   (b) words denoting a gender include all genders;   (c) references to a particular part, clause, section, paragraph, article, exhibit, schedule, appendix or other attachment shall be a reference to a part, clause, section, paragraph, or article of, or an exhibit, schedule, appendix or other attachment to, this Agreement;   (d) the exhibits, schedules and appendices attached hereto are incorporated herein by reference and shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein;   (e) a reference to any statute, regulation, proclamation, ordinance or law includes all statutes, regulations, proclamations, amendments, ordinances or laws varying, consolidating or replacing the same from time to time, and a reference to a statute includes all regulations, policies, protocols, codes, proclamations and ordinances issued or otherwise applicable under that statute unless, in any such case, otherwise expressly provided in any such statute or in this Agreement;   (f) a reference to a particular section, paragraph or other part of a particular statute shall be deemed to be a reference to any other section, paragraph or other part substituted therefor from time to time;   (g) a definition of or reference to any document, instrument or agreement includes any amendment or supplement to, or restatement, replacement, modification or novation of, any such document, instrument or agreement unless otherwise specified in such definition or in the context in which such reference is used;   (h) a reference to any Person (as hereinafter defined) includes such Person’s successors and permitted assigns in that designated capacity;   (i) any reference to “days” shall mean calendar days unless “Business Days” (as hereinafter defined) are expressly specified;   Page No. 2 -------------------------------------------------------------------------------- (j) if the date as of which any right, option or election is exercisable, or the date upon which any amount is due and payable, is stated to be on a date or day that is not a Business Day, such right, option or election may be exercised, and such amount shall be deemed due and payable, on the next succeeding Business Day with the same effect as if the same was exercised or made on such date or day (without, in the case of any such payment, the payment or accrual of any interest or other late payment or charge, provided such payment is made on such next succeeding Business Day);   (k) words such as “hereunder”, “hereto”, “hereof” and “herein” and other words of similar import shall, unless the context requires otherwise, refer to this Agreement as a whole and not to any particular article, section, subsection, paragraph or clause hereof;   (l) a reference to “include” or “including” means including without limiting the generality of any description preceding such term, and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned; and   (m) neither this Agreement nor any other agreement, document or instrument referred to herein or executed and delivered in connection herewith shall be construed against any Person as the principal draftsperson hereof or thereof.   ARTICLE II   TRANSMISSION FACILITIES   2.01 Transmission Facilities. As to any PTO, the transmission facilities over which the ISO shall exercise Operating Authority in accordance with the terms set forth herein shall be:   (a) those facilities of such PTO listed in Schedule 2.01(a) (hereinafter “Category A Facilities”), as such list of facilities may be added to or deleted from in accordance with Sections 2.01(d) and 2.02 below;   (b) those facilities of such PTO listed in Schedule 2.01(b) (hereinafter “Category B Facilities”), as such list of facilities may be added to or deleted from, in accordance with Sections 2.01(d) and 2.02 below; and   (c) those transmission facilities of such PTO within the New England Transmission System with a voltage level of less than 69 kV and all transformers that have no Category A Facilities or Category B Facilities connected to the lower voltage side of the transformer that are not listed on Schedule 2.01(a) and Schedule 2.01(b) (hereinafter “Local Area Facilities”), provided that any excluded facilities of such PTO listed on Schedule 4.01(d) shall not be Local Area Facilities.   (d) As to each PTO, the transmission facilities included on any of the lists of the Category A Facilities or the Category B Facilities contained in Schedule 2.01(a) and   Page No. 3 -------------------------------------------------------------------------------- Schedule 2.01(b), respectively, as of the Operations Date may be redesignated on another of these two lists, deleted from such list, or redesignated as a Local Area Facility without the necessity of an amendment to this Agreement, but only in the following manner:   (i) at the direction of a Governmental Authority with jurisdiction over the Transmission Facilities in question, provided that the ISO and all PTOs shall be provided prior written notice of such changes;   (ii) as agreed between the ISO and the PTO or PTOs owning the transmission facilities; or   (iii) where the operational characteristics of a transmission facility have been materially modified after the Operations Date (including a change from a radial transmission facility to a looped transmission facility that contributes to the parallel carrying capability of the New England Transmission System) in accordance with Section 2.01(e); provided that any such changes shall also be subject to ISO review consistent with Section 2.06.   (e) All transmission facilities to be redesignated as Category A Facilities, Category B Facilities, or Local Area Facilities or deleted from the lists in Schedule 2.01(a) and Schedule 2.01(b) in accordance with Section 2.01(d)(iii), and all transmission facilities to be added to the lists in Schedule 2.01(a) and Schedule 2.01(b) in accordance with Section 2.02 shall be classified in accordance with the following standards:   (i) Category A Facilities shall consist of: all transmission lines with a voltage level of 115 kV and above, except for those 115 kV transmission facilities specifically designated as Category B Facilities in accordance with Section 2.01(e)(ii); all transmission interties between Control Areas; all transformers that have Category A Facilities connected to the lower voltage side of the transformer; all transformers that require a Category A Facility to be taken out of service when the transformer is taken out of service; and all breakers and disconnects connected to, and all shunts, relays, reclosing and associated equipment, dynamic reactive resources, FACTS controllers, special protection systems, PARS, and other equipment specifically installed to support the operation of such transmission lines, interties, and transformers.   (ii) Category B Facilities shall consist of: all 115 kV radial transmission lines and all 69 kV transmission lines that are not interties between Control Areas; all transformers that have any Category B Facilities and no Category A Facilities connected to the lower voltage side of the transformer except to the extent such transformers are designated as Category A Facilities in accordance with Section 2.01(e)(i); and all breakers and disconnects connected to, and all shunts, relays, reclosing and associated equipment, dynamic reactive resources, FACTS controllers, special protection systems, PARS, and other equipment specifically installed to support the operation of such Category B Facilities.   Page No. 4 -------------------------------------------------------------------------------- (iii) Local Area Facilities shall consist of all transmission facilities with a voltage level of less than 69 kV and all transformers that have no Category A Facilities or Category B Facilities connected to the lower voltage side of the transformer.   (iv) To the extent there is any dispute between the ISO and a PTO or PTOs owning a transmission facility concerning classification of such transmission facility under these standards, such disagreement shall be subject to the dispute resolution provisions of this Agreement, provided that the ISO’s classification of a transmission facility under the standards shall govern pending resolution of the dispute.   (f) Collectively, all Category A Facilities, Category B Facilities, and Local Area Facilities shall hereinafter be referred to as the “Transmission Facilities,” provided that “Transmission Facilities” shall not include Excluded Assets as defined in Section 2.04 of this Agreement or Merchant Facilities. The ISO shall maintain on its OASIS a posting of the current versions of Schedule 2.01(a) and Schedule 2.01(b), in each instance, reflecting each such change promptly after such change is made.   (g) The classifications set forth in this Section 2.01 are for operational purposes. Rate treatment of Transmission Facilities shall be governed by the ISO OATT, provided that filings for rate treatment under the ISO OATT shall be subject to Section 3.04 of this Agreement.   2.02 New and Acquired Transmission Facilities and Transmission Upgrades.   (a) Any New Transmission Facility, any Transmission Upgrade, and any Acquired Transmission Facility shall be considered a “Transmission Facility” under this Agreement once it is placed into commercial operation by the applicable PTO(s); shall be designated as a Category A Facility, Category B Facility, or Local Area Facility in accordance with Section 2.01(e) unless otherwise agreed by the ISO and the PTO(s) owning the Transmission Facility; and shall be subject to the Operating Authority of the ISO in accordance with the terms of this Agreement.   (b) The designation of an Acquired Transmission Facility as a Category A, Category B or Local Area Facility shall not require the abrogation or modification of existing contractual arrangements for such Acquired Transmission Facility.   (c) Any Merchant Facility interconnected to or within the New England Transmission System shall not be the subject of this Agreement. Any Merchant Facility interconnected to or within the New England Transmission System constructed and placed in commercial operation after the Operations Date shall be subject to the authority of the ISO under a separate agreement in accordance with Section 2.03 and any applicable provisions of the ISO OATT.   Page No. 5 -------------------------------------------------------------------------------- 2.03 Merchant Facilities. The terms and conditions under which a PTO, an Affiliate of a PTO, or any other entity grants authority over any Merchant Facilities to the ISO shall not be governed by this Agreement, it being understood that such entities shall enter into operating agreements relating to their Merchant Facilities directly with the ISO in accordance with applicable provisions of the ISO OATT. Nothing in this Agreement is intended to limit or expand the right of a PTO, the Affiliate of a PTO, or any other entity to propose, construct, or own Merchant Facilities interconnected to the New England Transmission System.   2.04 Excluded Assets. The “Excluded Assets” of a PTO shall consist of those assets and/or facilities of a PTO set forth in Section 2.04(a) and (b). These Excluded Assets are expressly excluded from the definition of Transmission Facilities under this Agreement, and the ISO shall not have Operating Authority over a PTO’s Excluded Assets. Nothing in this Section 2.04 is intended to address the rate treatment of a PTO’s Transmission Facilities or any other asset of a PTO. Rate treatment of Transmission Facilities shall be governed by the ISO OATT, provided that filings for rate treatment under the ISO OATT shall be subject to Section 3.04 of this Agreement:   (a) Any assets, facilities, and/or portions of facilities owned by such PTO that are connected with or associated with those facilities defined as Category A Facilities, Category B Facilities or Local Area Facilities to the extent specifically excluded pursuant to the following items (i) through (vii) of this Section 2.04(a):   (i) proceeds from the use or disposition of Transmission Facilities;   (ii) any payment, refund or credit (1) relating to Taxes in respect of the Transmission Facilities of such PTO, (2) arising under any contracts or tariffs of such PTO and relating to services provided prior to the beginning of the Term, (3) arising under any contract or tariff that provides for rates that are subject to regulation by an agency other than FERC, or (4) relating to a Grandfathered Transmission Agreement;   (iii) any rights, ownership, title or interest any PTO may have with respect to telecommunications assets and equipment, provided that the ISO shall continue to have the right to use such telecommunication assets and equipment attached to or associated with Transmission Facilities solely to the extent needed for the exercise of the ISO’s Operating Authority in accordance with practice prior to the Operations Date and further provided that such use right shall not be assignable by the ISO;   (iv) any existing contracts or contract rights of the PTOs related in any manner to Transmission Facilities unless such PTO agrees to assign or transfer such contracts to the ISO, provided that the PTOs shall exercise their rights and   Page No. 6 -------------------------------------------------------------------------------- responsibilities under Grandfathered Transmission Agreements in accordance with Section 3.11 and the applicable provisions of this Agreement;   (v) any assets, property rights, licenses, permits or facilities that are used for or in (1) the distribution, generation, trading or marketing of electricity (except for facilities specifically defined as Category A Facilities, Category B Facilities or Local Area Facilities that are used for such activities), (2) gas transportation, gas, water, petroleum, chemical, real estate development, or cable business, or (3) any other activity unrelated to the transmission of electricity located on, or making use of, the Transmission Facilities;   (vi) any causes of action or claims related to Transmission Facilities, provided, that, upon the written agreement of the PTO and the ISO to the assumption by the ISO of the management of such claims under mutually agreed terms and conditions, the ISO may manage a PTO’s causes of action or claims against a third party relating to such Transmission Facilities, and provided further that the ISO shall have the right to pursue causes of action or claims against third parties to the extent necessary for the ISO to fulfill its responsibilities for invoicing, collection and disbursement of customer payments in accordance with Section 3.10; and   (vii) any asset or facility for which Operating Authority may not be lawfully transferred or assigned.   (b) Any assets or facilities of such PTO that are not specifically defined as Category A Facilities, Category B Facilities or Local Area Facilities, including without limitation the facilities or portions of facilities described in items (i) through (xii) of this Section 2.04(b):   (i) all cash, cash equivalents, bank deposits, accounts receivable, and any income, sales, payroll, property or other Tax receivables;   (ii) proceeds from the use or disposition of any facilities or assets owned by the PTO;   (iii) certificates of deposit, shares of stock, securities, bonds, debentures, and evidences of indebtedness;   (iv) any rights or interest in trade names, trademarks, service marks, patents, copyrights, domain names or logos;   (v) any payment, refund or credit (1) relating to Taxes, (2) arising under any contracts or tariffs of such PTO and relating to services provided prior to the beginning of the Term, or (3) arising under any contract or tariff that provides for rates that are subject to regulation by an agency other than FERC;   Page No. 7 -------------------------------------------------------------------------------- (vi) any facilities, including transmission facilities, located outside the New England Transmission System;   (vii) any rights, ownership, title or interest any PTO may have with respect to telecommunications assets and equipment;   (viii) any existing contracts or contract rights of the PTOs unless such PTO agrees to assign or transfer such contracts to the ISO;   (ix) any assets, property rights, licenses, permits or facilities that are used for or in (1) the distribution, generation, trading or marketing of electricity or (2) gas transportation, gas, water, petroleum, chemical, real estate development, or cable business, or (3) any other activity unrelated to the transmission of electricity whether or not located on, or making use of, the Transmission Facilities;   (x) any causes of action or claims;   (xi) any asset or facility for which Operating Authority may not be lawfully transferred or assigned; and   (xii) any interests of any kind in each PTO’s real property, provided that nothing in this Section 2.04 shall: (a) supersede the rights and obligations of the Parties as set forth in the Control Center Lease or Back-up Control Center Lease or (b) restrict the PTOs from conveying interests in real property in any future written agreement into which the ISO and any PTO or group of PTOs may, in their sole discretion, enter.   2.05 Connection with Non-Parties.   (a) On or after the Operations Date, each PTO shall connect its Transmission Facilities with the facilities of any entity that is not a Party, including the facilities of a current or proposed Transmission Customer, and shall install (or cause to be installed) and construct (or cause to be constructed) any transmission facilities required to connect the facilities of a non-Party to a PTO’s Transmission Facilities to the extent such connection or construction is required by applicable law, including the Federal Power Act and any applicable regulations issued by FERC and provided that the construction of any such transmission facilities shall be subject to the conditions associated with the PTOs’ obligation to build set forth in Schedule 3.09(a). Any such connection shall be subject further to: (1) the receipt of any necessary regulatory approvals, (2) compliance with the procedures set forth in the ISO OATT for review of the reliability and operational impacts of a proposed interconnection (including the procedures for interconnection of a Generating Unit under the Interconnection Standard); and (3) execution of an Interconnection Agreement with such entity containing provisions for the safe and reliable operation of each interconnection with respect to such entity’s facilities in accordance with Good Utility Practice, applicable NERC/NPCC Requirements, and applicable Law (including the Federal Power Act); provided that   Page No. 8 -------------------------------------------------------------------------------- (i) Except as provided in 2.05(a)(ii) below, each PTO shall engage in good faith negotiations as to the terms and conditions of such Interconnection Agreement with any such non-Party, but, except as may be required pursuant to regulations issued by FERC, a PTO shall not be required to enter into any Interconnection Agreement containing terms and conditions unacceptable to such PTO and shall reserve the right to resolve any disputes, and/or make any filings with FERC, with respect thereto.   (ii) With respect to the interconnection of a Large Generating Unit to any Transmission Facility of a PTO the Interconnection Agreement shall be a three-party agreement among the PTO, the ISO, and the interconnecting non-Party based on the pro forma Large Generator Interconnection Agreement in the ISO OATT. With respect to the interconnection of other Generating Units to any Transmission Facility of a PTO, the ISO shall be a party to Interconnection Agreements if and to the extent that FERC regulations require the ISO to be a party. Either the ISO or the PTOs, acting jointly in accordance with the Disbursement Agreement among them, may initiate a filing to amend the pro forma Large Generator Interconnection Agreement under Section 205 of the Federal Power Act and shall include in such filing the views of the ISO and the PTOs, as applicable, provided that the standard applicable under Section 205 of the Federal Power Act shall apply only to the PTOs’ position on any financial obligations of the PTOs or the interconnecting non-Party, and any provisions related to physical impacts of the interconnection on the PTOs’ Transmission Facilities or other assets. If the PTO, the ISO and the interconnecting non-Party agree to the terms and conditions of a specific Large Generator Interconnection Agreement for a Large Generating Unit, or any amendments to such an Interconnection Agreement, then the PTO and the ISO shall jointly file the executed Interconnection Agreement, or amendment thereto, with FERC under Section 205 of the Federal Power Act. To the extent the PTO, the ISO and such interconnecting non-Party cannot agree to proposed variations from the pro forma Large Generator Interconnection Agreement applicable to a specific Large Generating Unit or cannot otherwise agree to the terms and conditions of the Interconnection Agreement for such Large Generating Unit, or any amendments to such an Interconnection Agreement, then the PTO and the ISO shall jointly file an unexecuted Interconnection Agreement, or amendment thereto, with FERC under Section 205 of the Federal Power Act and shall identify the areas of disagreement in such filing, provided that, in the event of disagreement on terms and conditions of the Interconnection Agreement related to the costs of upgrades to such PTO’s Transmission Facilities, the anticipated schedule for the construction of such upgrades, any financial obligations of the PTO, and any provisions related to physical impacts of the interconnection on the PTO’s Transmission Facilities or other assets, then the standard applicable under Section   Page No. 9 -------------------------------------------------------------------------------- 205 of the Federal Power Act shall apply only to the PTO’s position on such terms and conditions.   The costs of interconnection facilities shall be allocated in the manner specified in the ISO OATT.   (b) Each PTO shall also connect its Transmission Facilities with the facilities of any entity that is not a Party upon satisfaction of the “Elective Transmission Upgrade” provisions of the ISO OATT, provided that the PTO shall only connect the facilities of such entity (the “Elective Transmission Upgrade Applicant”) upon satisfaction of the following conditions:   (i) The Elective Transmission Upgrade Applicant shall enter into an Interconnection Agreement with the affected PTO(s) and, to the extent necessary and appropriate, enter into support agreements with the affected PTO(s), provided that the Elective Transmission Upgrade Applicant may request, upon providing the security, credit assurances, and/or deposits required by the affected PTO, the filing with the Commission by the PTO of unexecuted Interconnection Agreements and support agreements.   (ii) The Elective Transmission Upgrade Applicant shall obtain all necessary legal rights and approvals for the construction and maintenance of the upgrade and shall cooperate with the PTO(s) in obtaining all necessary legal rights and approvals for the construction and maintenance of additions or modifications, if any, required in conjunction with the upgrade.   (iii) The Elective Transmission Upgrade Applicant shall be responsible for 100% of all of the costs of said upgrade and of any additions to or modifications of the Transmission Facilities that are required to accommodate the Elective Transmission Upgrade. A request for rate treatment of an Elective Transmission Upgrade, if any, shall be determined by FERC in the appropriate proceeding.   2.06 Review of Transmission Plans. Each PTO shall submit to the ISO in such form, manner and detail as the ISO may reasonably prescribe: (i) any new or materially changed plans for retirements of or changes in the capacity of such PTO’s Transmission Facilities rated 69 kV or above or plans for construction of New Transmission Facilities or Transmission Upgrades rated 69 kV or above; and (ii) any new or materially changed plan for any other action to be taken by the PTO which may have a significant effect on the stability, reliability or operating characteristics of the PTO’s Transmission Facilities, the facilities of any Transmission Owner, or the system of a Participant. The ISO shall provide notification of any such PTO submissions to the appropriate Technical Committee(s). Unless prior to the expiration of ninety (90) days, the ISO notifies the PTO in writing that it has determined that implementation of the plan will have a significant adverse effect upon the reliability or operating characteristics of the PTO’s   Page No. 10 -------------------------------------------------------------------------------- Transmission Facilities, the facilities of any Transmission Owner, or the system of a Participant, the PTO shall be free to proceed. If the ISO notifies the PTO that implementation of such plan has been determined to have a significant adverse effect upon the reliability or operating characteristics of the PTO’s Transmission Facilities, the facilities of any Transmission Owner, or the system of a Participant, the PTO shall not proceed to implement such plan unless the PTO takes such action or constructs such facilities as the ISO determines to be reasonably necessary to avoid such adverse effect.   2.07 Condemnation. If, at any time, any Governmental Authority commences any process to acquire any Transmission Facilities or any other interest in Transmission Facilities then held by a PTO through condemnation or otherwise through the power of eminent domain, (i) such PTO shall provide the ISO with written notice of such process, (ii) such PTO shall, at its cost, direct any litigation or proceeding regarding such condemnation or eminent domain matter, (iii) such PTO shall have the right to settle any such proceeding without the consent of the ISO, and (iv) any award in condemnation or eminent domain shall be paid to such PTO without any claim to such award by the ISO.   ARTICLE III   OPERATING AUTHORITY   3.01 Grant of Operating Authority.(a) Subject to the terms set forth in this Agreement, including Article III and Article X hereof, effective as of the Operations Date, and with respect to Publicly-Owned PTOs, to the extent permitted by, or in a manner consistent with the laws of any State governing the organization or operation of such Publicly-Owned PTOs, each PTO hereby authorizes the ISO, through its officers, employees, consultants, independent contractors and other personnel, to exercise Operating Authority over the Transmission Facilities, including provision of Transmission Service over the Transmission Facilities under the ISO OATT, and the ISO hereby agrees to assume and exercise Operating Authority over such PTOs’ Transmission Facilities in accordance with this Agreement.   (b) The grant by the PTOs to the ISO and the assumption by the ISO of Operating Authority over the Transmission Facilities are solely for the purposes of allowing the ISO to fulfill the functions of an RTO as specified herein (including provision of Transmission Service under the ISO OATT) and do not constitute an assumption by the ISO of any liabilities with respect to the Transmission Facilities except as otherwise specifically provided herein (including as provided in Article IX of the Agreement).   (c) Nothing herein or elsewhere contained shall be construed as requiring or effecting a transfer of any PTO’s responsibility (or the assumption thereof by the ISO) for the physical control of the Transmission Facilities, including the physical operation, repair, maintenance and replacement of such Transmission Facilities, or as conveying to the ISO: (x) any right, ownership, title or interest in or to a PTO’s Transmission Facilities; (y) any right of access to any PTO’s real property, except as specified in Section 3.02(i); or (z) any rights or authority with respect to a PTO’s Excluded Assets, except as specifically provided herein.   Page No. 11 -------------------------------------------------------------------------------- 3.02 Definition of ISO Operating Authority. Consistent with the provisions of this Agreement, including Section 3.02(a) below, “Operating Authority” shall mean those functions set forth in Sections 3.02, 3.03, and 3.08 and those responsibilities set forth in Section 3.05, and shall not include those rights, responsibilities and functions set forth in Sections 3.06 and 3.07. Subject to the first sentence of this Section 3.02, the ISO shall exercise such Operating Authority in accordance with applicable Operating Procedures as specified in Section 3.02(d) below.   (a) The ISO shall perform the following functions with respect to each PTO’s Transmission Facilities, consistent with applicable NERC/NPCC Requirements and other applicable regulatory standards, including (as needed) issuing instructions to, or coordinating with, each PTO’s Local Control Center(s):   (i) centrally dispatch generation (and dispatchable and interruptible load) and implement real-time balancing, including meeting NERC control performance criteria;   (ii) determine Operating Limits based on forecasted or real-time system conditions and in accordance with the facility ratings established by the PTOs in collaboration with the ISO pursuant to Section 3.06;   (iii) take such actions as may be necessary to plan and maintain short-term (including real-time) reliability and system security (including curtailment of external transactions in accordance with FERC-accepted or -approved Market Rules and the applicable transmission tariff or transmission agreement);   (iv) consistent with the ISO Information Policy, exchange security information with applicable PTOs, non-PTO transmission operators and other neighboring systems and regional entities; and   (v) provide for an ISO Control Center and an independent Back-up Control Center, as the ISO deems necessary to comply with applicable NERC/NPCC Requirements and any applicable regulatory requirement.   (b) The ISO shall receive, confirm and schedule External Transactions for the New England Transmission System; enter into Coordination Agreements and operating arrangements with the operators of neighboring Control Areas; coordinate system operation and emergency procedures with neighboring Control Areas; and administer each PTO’s Interconnection Agreements with neighboring Control Areas and scheduling provisions of the tariff(s) applicable to External Transactions, in accordance with the terms of those agreements and tariffs; provided that as of the Operations Date, the applicable agreements and tariffs shall be set forth in Schedule 3.02(b).   (c) The ISO shall act as the Reliability Authority for the New England Transmission System. The ISO may intercede and direct appropriate near-term operational actions in order to protect reliability, provided that nothing in this Section 3.02(c) shall require   Page No. 12 -------------------------------------------------------------------------------- any PTO to undertake an action contrary to applicable Law or shall limit the right of each PTO pursuant to Section 3.07 to take any action(s) that it deems necessary to prevent loss of human life, injury to persons and/or damage to property.   (d) The ISO shall utilize the Operating Procedures relating to the exercise of Operating Authority over the Transmission Facilities. The Operating Procedures shall initially consist of the Operating Procedures in existence on the Operations Date (hereinafter “Existing Operating Procedures”). Such Existing Operating Procedures shall consist of those Operating Procedures listed in Schedule 3.02(d). The ISO shall develop any modifications to Operating Procedures (including Existing Operating Procedures) and any new Operating Procedures that it may deem necessary or appropriate: (i) in coordination with those PTOs (or their Local Control Centers, as applicable) whose Transmission Facilities will be operated in accordance with such Operating Procedures so as to ensure that that the PTO’s (or Local Control Center’s) knowledge of their Transmission Facilities is given due consideration in the development or modification of the transmission-related portions of such Operating Procedures and (ii) in consultation with other stakeholders. The ISO shall have the authority to modify Operating Procedures or develop new Operating Procedures without such coordination or consultation when the ISO does not have sufficient time to undertake such coordination or consultation due to emergent and unanticipated circumstances. In the event that the ISO and the applicable PTO(s) disagree about modifications to the transmission-related portions of Operating Procedures or any new Operating Procedures related to the operation of such PTOs’ Transmission Facilities, the affected PTO(s) will have the opportunity to submit the dispute for resolution in accordance with the dispute resolution provisions set forth in Section 11.14 herein. Pending such resolution, the ISO shall have the authority, as the system operator with ultimate authority for the real-time operation of the New England Transmission System, to implement any such new Operating Procedures or modified Operating Procedures. Notwithstanding anything in the foregoing, Operating Procedures related to the establishment of ratings for a PTO’s New Transmission Facilities and Acquired Transmission Facilities or related to changes to existing ratings of a PTO’s Transmission Facilities (collectively “Rating Procedures”) shall be developed and placed into effect pursuant to Section 3.06(a)(v).   To the extent the PTOs will be required to physically operate their Transmission Facilities in accordance with any operational documents in effect as of the Operations Date or as subsequently developed or amended by the ISO (other than the Operating Procedures), the ISO shall develop such operational documents and amendments thereto in coordination with those PTOs (or their Local Control Centers, as applicable) whose Transmission Facilities will be operated in accordance with such documents, provided that stakeholders shall have the right to consult in the development of such documents, subject to any limitations associated with the confidential nature of such documents consistent with confidentiality, that the ISO will have the right to place such operating documents into effect in the event of a dispute concerning such documents, and that the affected PTO(s) shall have the right to submit any such dispute for resolution in accordance with the dispute resolution provisions set forth in Section 11.14 herein. Any such coordination between any PTO and the ISO pursuant to this Section 3.04(d) shall be subject to applicable standards of conduct consistent with FERC Order No. 889.   Page No. 13 -------------------------------------------------------------------------------- (e) The ISO shall seek agreement with the PTOs, where time limitations do not make it impracticable to do so, on real-time operational decisions affecting the Transmission Facilities not otherwise specified in the Operating Procedures developed in accordance with Section 3.02(d). In the absence of such agreement, or if time limitations do not permit reaching agreement, the ISO shall implement its operational decision. If such ISO decision is disputed, the ISO’s position shall control pending resolution of the dispute.   (f) The ISO shall develop, maintain, and, if needed, implement the System Restoration Plan for the New England Transmission System, which shall include the existing PTO Local Restoration Plans. The ISO shall develop any modifications to the System Restoration Plan in consultation with the PTOs and shall incorporate into the System Restoration Plan any modifications developed by each PTO to their PTO Local Restoration Plans, provided that any modifications to the PTO Local Restoration Plans are subject to the ISO’s approval in order to coordinate and promote the reliability of the Restoration Plans.   (g) The ISO shall coordinate voltage and reactive dispatch of facilities to the extent normal schedules are unable to be maintained by Local Control Centers.   (h) The ISO shall direct the implementation of emergency procedures, including Load Shedding and voltage reduction, in coordination with the PTO Local Control Centers.   (i) The ISO shall have the authority to perform the following tasks in relation to compliance with current or future PTO responsibilities:   (i) perform all compliance and monitoring responsibilities of the ISO, including the issuance of sanction letters, with respect to existing or successor NERC or NPCC compliance programs associated with standards, criteria and measurements for which the PTOs are responsible and accountable to the ISO. To the extent that the ISO receives a sanction letter from NERC or NPCC that is substantially related to the actions of a PTO, the ISO may issue a sanction letter to such PTO;   (ii) perform all compliance and monitoring responsibilities of the ISO associated with Operating Procedures relating to standards, criteria and measurements that the PTOs are responsible for and accountable to the ISO. Such responsibilities shall include audits of PTOs for compliance with Operating Procedures to the extent the ISO determines such audits are necessary, and the issuance of sanction letters;   (iii) perform periodic audits of each Local Control Center’s and PTO’s performance of the functions listed in Sections 3.06 (a)(i), (ii), (iv), (vi), (vii), (viii), (ix) and (x) in accordance with applicable Operating Procedures and applicable reliability standards, including audits to monitor compliance of the Local Control Center (and PTO employees   Page No. 14 -------------------------------------------------------------------------------- interacting with the Local Control Centers) with the ISO Information Policy and applicable standards of conduct consistent with FERC Order No. 889 in performing these functions. Such Local Control Center audits shall generally be conducted no more frequently than once every three years, provided that the ISO shall have the authority to conduct an audit more frequently if it determines that circumstances so require.   All audits conducted pursuant to this Section 3.02(i) shall be conducted by the ISO or by an independent third party, with expenses of the ISO (or the third-party auditor) borne by the ISO and recovered through its administrative tariff. The PTO shall bear its own expenses in complying with the audit. Such audits shall be conducted during normal business or operational hours and with reasonable notice. The general scope of each audit and the general process for conducting the audit will be discussed with the affected PTO in advance. Nothing in this Section 3.02(i) shall imply that a sanction letter shall include any financial or other penalties. Nothing in this Section 3.02(i) shall limit the right of the ISO to separately file proposals at FERC to assess financial or other penalties against any entity or shall limit the right of the PTOs to comment on or protest any such proposals.   (j) In addition to the functions set forth in Sections 3.02(a) - (i), Operating Authority shall also consist of the following functions that the ISO shall perform with respect to each PTO’s Category A Facilities; provided, however, that the ISO (in the absence of the PTO’s consent) is not authorized to perform such functions with respect to any PTO’s Category B Facilities or Local Area Facilities, unless the outages of such facilities reasonably could be expected to result in a violation of reliability criteria:   (i) monitor and control, in accordance with the facility ratings established by the PTOs in collaboration with the ISO pursuant to Section 3.06, on a real-time basis, power flows on the system, voltage and system frequency; and   (ii) coordinate with the Local Control Centers on the settings for dynamic reactive resources, FACTS controllers, special protection systems, PARS, and other similar dynamic equipment that affects power flows, and approve or direct changes to such settings.   (k) If at any time, any Party provides notice to all of the other Parties that it believes NERC and NPCC documents that are not NERC/NPCC Requirements have been modified so as to expand the scope of the functions to be performed by the ISO or the PTOs, the Parties shall consider in good faith changes to this Agreement that will allow the Parties to follow such guidelines; provided, however, that, the Parties shall have no obligation to agree to such changes. If the Parties cannot agree to such changes, the dispute resolution procedures of Section 11.14 shall be utilized. Nothing in this Section 3.02(k) shall be construed to excuse any Party from complying with applicable NERC/NPCC Requirements.   Page No. 15 -------------------------------------------------------------------------------- 3.03 Transmission Services and OATT Administration.   (a) The ISO shall administer the ISO OATT in the manner specified in this Section 3.03. The ISO’s OATT administration responsibilities shall include those enumerated below:   (i) The ISO shall receive, post on OASIS as required by Commission regulations, and respond to all Transmission Service requests and requests to be interconnected to the New England Transmission System under the ISO OATT, including the Local Service Schedules. Except as provided in Section 3.03(a)(ii), the ISO shall perform the system impact studies and facilities studies (and execute and administer agreements for such studies) in connection with such requests; provided, however, that: (A) the ISO shall consult with a PTO prior to completion of system impact studies and facilities studies in connection with requests that affect such PTO’s Transmission Facilities and shall include in any such studies the PTO’s reasonable estimates of the costs of upgrades to such PTO’s Transmission Facilities needed to implement the conclusions of such studies and the PTO’s reasonable anticipated schedule for the construction of such upgrades; (B) nothing in this Agreement shall preclude the ISO from entering into an agreement(s) with a PTO for such studies, pursuant to the ISO’s supervision and the ISO’s authority to require modifications to such studies, to perform system impact studies and facilities studies in connection with requests that affect such PTO’s Transmission Facilities; (C) except as provided in Section 3.03(a)(ii) with respect to interconnection of Generating Units that would not have an impact on facilities used for the provision of regional transmission service, nothing in this Agreement shall preclude the performance of studies related to the interconnection of Generating Units by a third party consultant to the extent permitted by applicable procedures in the ISO OATT (including procedures governing the treatment of confidential information) and provided that such studies performed by any third party consultant must include the PTO’s reasonable estimates of the costs of upgrades to such PTO’s Transmission Facilities needed to implement the conclusions of such studies and the PTO’s reasonable anticipated schedule for the construction of such upgrades; and (D) each PTO shall, upon request by the ISO, conduct any necessary studies related to such PTO’s Transmission Facilities, including system impact studies and facilities studies, and shall assist in the performance of any such studies, including the provision of information and data in accordance with Section 11.09 of this Agreement.   (ii) The ISO shall forward to the appropriate PTO(s) applications for Local Service. The ISO shall review applications for Local Service or requests to be interconnected to the New England Transmission System to determine whether the service or interconnection would have an impact on facilities used for the provision of regional transmission service. If so, the ISO will perform a system   Page No. 16 -------------------------------------------------------------------------------- impact study and facilities study, as necessary to address the impacts on facilities used for the provision of regional transmission service. The PTO shall be responsible for reviewing and responding to requests for Local Service not having an impact on facilities used for the provision of regional transmission service and for interconnections not having an impact on facilities used for the provision of regional transmission service, and shall perform all system impact studies and facilities studies regarding such requests; provided, however, that the PTO shall consult with the ISO prior to completion of such system impact studies and facilities studies and further provided that the ISO will use reasonable efforts to assist the PTO and interconnecting party in resolving disputes arising regarding the performance of such studies. The PTOs shall provide the ISO with information necessary to evaluate any such dispute in accordance with Section 11.09 of this Agreement, and shall include provisions in each of their study agreements providing for reimbursement of the ISO’s costs incurred in these efforts.   (iii) The ISO shall calculate the TTC and ATC for all interties on the New England Transmission System and determine the TTC and ATC calculation methodologies for interties on the New England Transmission System (consistent with applicable NERC/NPCC Requirements and applicable regulatory standards), provided that modifications to calculation methodologies as they exist on the Operations Date shall be developed by the ISO in consultation with the PTOs and other interested stakeholders. To the extent that TTC and ATC on a PTO’s Local Network must be calculated in connection with the provision of Local Service, then the PTO shall calculate such TTC and ATC.   (iv) The ISO shall operate and maintain the OASIS (or a successor system) as required by FERC, including posting of TTC/ATC for interties on the New England Transmission System; provided, however, that such system shall conform to the requirements for such systems as specified by FERC. The PTOs shall provide updates to PTO-specific Local Service pages on the OASIS site, subject to the ISO’s review of such updates. The ISO shall have the authority to direct any changes to such PTO-specific Local Service pages that it deems appropriate to conform to FERC requirements and the terms and conditions of the ISO OATT.   (v) The ISO shall procure and act as supplier of last resort of Ancillary Services (including arranging for the sale and purchase of emergency capacity and energy with neighboring Control Areas), in accordance with the ISO OATT and FERC-accepted or -approved Market Rules.   (vi) The ISO shall provide regional Transmission Service to Transmission Customers over the Transmission Facilities in accordance with the   Page No. 17 -------------------------------------------------------------------------------- rates, terms and conditions of the ISO OATT, subject to Section 3.03(c) with respect to Local Service.   (vii) The ISO shall track inadvertent energy and administer inadvertent energy payback/accounting with neighboring Control Areas in accordance with the terms and conditions of the Interconnection Agreements or Coordination Agreements with neighboring Control Areas and applicable tariff provisions.   (viii) The ISO shall make informational filings with the Commission that are required of an RTO, provided that the relevant PTOs shall provide the ISO with all necessary information to make such filings, in such manner as the ISO shall reasonably prescribe and in accordance with Section 11.09 of this Agreement.   (b) Notwithstanding Section 3.03(a), generators requesting to interconnect with the distribution facilities of a PTO or a PTO’s distribution company Affiliate and retail load customers shall submit service requests to the applicable distribution company or the PTO, where applicable. The distribution company or, where applicable, the PTO shall execute and administer the agreements, and shall be responsible for billing, collections, dispute resolution and the performance of system impact studies and facilities studies, in coordination with the ISO as necessary, in connection with such requests.   (c) Local Service. Each PTO authorizes the ISO to act as its agent in the performance of its Transmission Service and OATT administration duties with regard to Local Service, including all ISO responsibilities with respect to Local Service and Local Area Facilities as set forth in Section 3.03(a) above. Each PTO agrees to perform all tasks and undertake all responsibilities necessary and appropriate to facilitate the provision of Local Service in accordance with its Local Service Schedule. Each PTO shall, in accordance with Section 11.09 of this Agreement, provide the ISO with information and data requested by the ISO to perform its Transmission Service and OATT administration duties with regard to Local Service, Each PTO shall maintain its Local Service Schedules in accordance with FERC regulations governing filed rate schedules, shall provide the ISO with copies of proposed changes to its Local Service Schedules when filed with the FERC, and shall notify the ISO when FERC approves or accepts changes to such Local Service Schedules. Each PTO shall be responsible for sending all invoices for Local Service to Transmission Customers and pursuing collections for outstanding payments due for Local Service. The ISO, by the execution of this Agreement, shall not assume any liability in connection with the provision of Local Service other than the liability which may result from an act or omission of the ISO related to the ISO’s rights and responsibilities under this Agreement, including an ISO directive and/or instruction to a Party. Nothing in this Section 3.03(c) shall affect the relative rights and responsibilities of the Parties pursuant to Article IX of this Agreement.   Page No. 18 -------------------------------------------------------------------------------- (d) Transmission Service Agreements. The ISO and the applicable PTOs shall enter into all agreements for Transmission Service over the Transmission Facilities that commence on or after the Operations Date; provided that:   (i) A pro forma service agreement (or service agreements) shall be attached to the ISO OATT and such pro forma service agreement(s) shall set forth the respective rights and responsibilities of the Transmission Customer, the ISO, and the PTOs. After the Operations Date, the ISO shall have the authority, pursuant to Section 205 of the Federal Power Act, to amend the pro forma service agreement(s) or the Market Participant Service Agreement (“MPSA”) or executed service agreements related to the terms and conditions of regional Transmission Service. After the Operations Date, the PTOs, acting jointly in accordance with the Disbursement Agreement among them, shall have the authority, pursuant to Section 205 of the Federal Power Act, to amend the pro forma service agreement(s) related to the terms and conditions of Local Service and each PTO shall have the authority, pursuant to Section 205 of the Federal Power Act, to amend executed service agreements related to the terms and conditions of Local Service.   (ii) On or after the Operations Date, the ISO shall be responsible for filing with the FERC, or electronically reporting to the FERC as applicable, all new agreements for Transmission Service over the Transmission Facilities. Such filings with respect to Local Service will be made by the ISO as agent for the applicable PTO. In the event of any dispute between the ISO or a PTO and a Transmission Customer concerning the terms and conditions of such service agreements, the ISO shall file an unexecuted copy of the pro forma service agreement set forth in the ISO OATT and shall include in such filing any statement provided by the affected PTO(s) and the Transmission Customers concerning their respective positions on any proposed changes or additions to the pro forma service agreement.   (iii) Notwithstanding the foregoing, the PTOs (or their affiliated distribution companies) shall be solely authorized to enter into service agreements for retail service and service to generators connected at the distribution facility level.   Nothing in this Section 3.03(d) shall limit the ISO’s obligations with respect to Grandfathered Transmission Agreements in accordance with Section 3.11 of this Agreement. The PTOs shall submit all required electronic reports with respect to such Grandfathered Transmission Agreements. If and to the extent that FERC regulations require the ISO to submit such electronic reports for the Grandfathered Transmission Agreements, the PTOs shall provide the ISO with assistance in developing and submitting such required reports.   Page No. 19 -------------------------------------------------------------------------------- (e) Local Networks. A “Local Network” shall consist of those networks of Transmission Facilities identified on Attachment E of the ISO OATT as of the Operations Date. The Local Networks shall only be changed to reflect the effectuation of a merger, acquisition, or consolidation and reorganization, to add a new PTO from outside of the New England Control Area, or to reflect the withdrawal from the ISO of a PTO.   3.04 Application Authority.   (a) Each PTO other than a Publicly-Owned PTO shall have the authority to submit filings under Section 205 of the Federal Power Act, and each Publicly-Owned PTO shall have the authority to the extent permitted by, or in a manner consistent with state law applicable to Publicly-Owned PTOs, to establish and to revise:   (i) the revenue requirements for all Transmission Facilities of such PTO used for the provision of Transmission Service (including Transmission Facilities leased to the PTO or to which the PTO has contractual entitlements);   (ii) any rates or charges for transmission services that are based solely on the revenue requirements of the Transmission Facilities of a single PTO (including Transmission Facilities leased to the PTO or to which the PTO has contractual entitlements) under such PTO’s FERC-accepted or -approved Local Service Schedule to the ISO OATT;   (iii) any terms and conditions for Local Network Service or Local Point-to-Point Transmission Service under such PTO’s Local Service Schedule to the ISO OATT;   (iv) any rates or charges for the recovery of such PTO’s investment in a New Transmission Facility or Transmission Upgrade that enters commercial service after the effective date of the ISO OATT and the construction of which was not required by, or approved in, an ISO System Plan; provided, however, that if the ISO OATT utilizes a formula-type transmission rate, the revenue requirement for such Transmission Facility shall not be rolled into such rate without a FERC order expressly permitting such roll-in;   (v) any terms and conditions for such PTO’s or such PTO’s affiliated distribution company’s retail access plans, whether such terms and conditions are included in the ISO OATT or in any other tariff applicable to that PTO filed with FERC, and including any such terms and conditions in the ISO OATT or in any other tariff applicable to that PTO that protect against bypass of any provision of that PTO’s retail access plan;   (vi) any rates or charges for the recovery of such PTO’s wholesale or retail stranded costs and any terms and conditions in the ISO OATT or in any   Page No. 20 -------------------------------------------------------------------------------- other tariff applicable to that PTO filed with FERC that protect against bypass of rates or charges for the recovery of that PTO’s wholesale or retail stranded costs;   (vii) any rates or charges, and terms and conditions related thereto, that implement an incentive or performance-based rate proposal made by one or more (but fewer than all) PTOs, applicable only to service provided by such PTO(s) under their Local Service Schedules; and   (viii) subject to the provisions of Section 2.05, any terms and conditions of Interconnection Agreements with any entities connecting with such PTO’s Transmission Facilities, provided that such Interconnection Agreements shall not include any operating arrangements and Coordination Agreements that the ISO may enter into with operators of neighboring Control Areas in accordance with Section 3.02(b).   A PTO shall not have the authority to revise such rates, terms and conditions in a manner that would abridge the rights granted to the ISO in Section 3.04(c). The PTO shall provide written notification to the ISO and stakeholders of any filing described in sub-paragraph (ii) through (viii), above, which notification shall include a detailed description of the filing, at least 30 days in advance of a filing. The PTO shall consult with interested stakeholders upon request. The PTO shall retain the right to modify aspects of any filing authorized by this Section 3.04(a) after it provides written notification to the ISO and stakeholders, and shall provide notification to the ISO and stakeholders of any material modification to such filings.   With respect to any filing described in sub-paragraph (ii) through (viii), above, the PTO shall include in any filing a statement that, in the good faith judgment of the PTO, the proposal will not be inconsistent with the design of the New England Markets, as accepted or approved by FERC. In the event the ISO believes that a proposed filing described in sub-paragraph (ii) through (viii), above, would have such an inconsistency, it shall so advise the PTO and such PTO and the ISO shall consult in good faith to resolve any ISO concerns, but, if such disagreement cannot be resolved, the PTO may submit a filing under Section 205, provided that the PTO’s filing (including the transmittal letter for such filing) to FERC shall include any written statement provided by the ISO setting forth the basis for the ISO’s concerns. With respect to any PTO whose transmission rates and revenue requirements are not subject to FERC jurisdiction under Section 205 or otherwise, such PTO shall have the right to establish its revenue requirements, and, where applicable, its rates and charges, in accordance with applicable law and submit such revenue requirements, rates and charges to FERC for a determination that inclusion of such revenue requirements, rates and charges in the ISO OATT will yield rates and charges for Transmission Service that satisfy the applicable standard under Section 205.   A PTO shall consult with the ISO to determine whether the ISO will need to make any software modifications in order to implement any filing authorized by this Section 3.04(a) and when any needed software modifications could reasonably be expected to be implemented. The PTO’s filing to FERC (and the transmittal letter for such a filing) shall include any written statement provided by the ISO setting forth the basis for any software-related implementation concerns   Page No. 21 -------------------------------------------------------------------------------- raised by the ISO. The ISO shall make Commercially Reasonable Efforts to implement any needed software modifications by the effective date accepted by the FERC for a filing authorized by this Section 3.04(a), provided that, if the ISO has exercised such Commercially Reasonable Efforts, a failure to implement needed software modifications by the FERC-accepted effective date shall not constitute an event of default by the ISO under this Agreement or subject the ISO to financial damages, and further provided that the ISO shall run retroactive settlements consistent with the FERC-accepted effective date for a filing authorized by this Section 3.04(a) once such software modifications have been implemented.   (b) The PTOs, acting jointly in accordance with the Disbursement Agreement among them, shall have the authority to submit filings under Section 205 of the Federal Power Act to establish and to revise:   (i) the rates and charges for Transmission Service pursuant to which the revenue requirements for all Transmission Facilities of the PTOs used for the provision of Transmission Service are recovered; including the design of any rates or charges for: (A) regional Transmission Service on the New England Transmission System involving the use of more than one PTO’s Transmission Facilities; (B) Transmission Service between the New England Transmission System and any other transmission system; (C) Transmission Service through the New England Transmission System between other transmission systems; (D) the recovery of any portion of the revenue requirements of the PTOs attributable to the elimination of any rates or charges (e.g., border charges) for any such Transmission Service; (E) the methodology by which the costs of Transmission Upgrades related to generator interconnections are allocated under the ISO OATT and (F) the methodology by which the costs of New Transmission Facilities and Transmission Upgrades are allocated under the ISO OATT.   (ii) the methodology for the recovery and allocation of the line losses on the New England Transmission System, if and to the extent that the calculation of locational marginal prices for energy is not designed to recover such losses; and   (iii) any rates or charges, and terms and conditions related thereto, that implement an incentive or performance-based rate proposal, applicable to the entire New England Transmission System.   The PTOs shall not have the authority to revise such rates, terms and conditions in a manner that would abridge the rights granted to the ISO in Section 3.04(c). The PTOs shall provide written notification of any proposed filing under this Section 3.04(b) to the ISO and stakeholders, which notification shall include a detailed description of the proposed filing, at least 30 days prior to the filing. The PTOs shall retain the right to modify aspects of any filing authorized by this Section 3.04(b) after they provide written notification to the ISO and stakeholders, and shall provide notification to the ISO and stakeholders of any material modification to such filings. If less than   Page No. 22 -------------------------------------------------------------------------------- all of the PTOs support the filing, the PTOs will advise the ISO and stakeholders of that fact and the dissenting PTOs shall advise the ISO and stakeholders of their concerns.   The PTOs and the ISO shall make every reasonable effort to agree upon the PTOs’ proposed filing under this Section. In the event the PTOs and the ISO are unable to agree on the PTOs’ filing under this Section, and the ISO in its good faith judgment concludes that the PTOs’ filing will:   (A) be inconsistent with the design of the New England Markets, including the congestion pricing methodology for the ISO region, as accepted or approved by FERC;   (B) have a material adverse effect on the efficiency or competitiveness of the New England Markets, or on the ability of the ISO to provide transmission access on a not unduly discriminatory or preferential basis; or   (C) have a material adverse effect on the reliability of the ISO bulk power system;   then, except as provided in the next sentence, the PTOs’ filing will not become effective until such time as FERC issues an order determining the proposal set forth in the filing to be consistent with the standard applicable under Section 205 of the Federal Power Act, and such a filing (including the transmittal letter for such a filing) shall include any written statement provided by the ISO setting forth the basis for the ISO’s concerns. In the case of a filing described in sub-paragraph (iii), above, the PTOs may request that FERC permit the filing to go into effect on an interim basis, notwithstanding the conclusion of the ISO. If FERC grants the PTOs’ request to permit the filing to go into effect on an interim basis, the filing will become effective, subject to refund, on the date specified in FERC’s order.   The PTOs shall consult with the ISO to determine whether the ISO will need to make any software modifications in order to implement any filing authorized by this Section 3.04(b) and when any needed software modifications could reasonably be expected to be implemented. The PTOs’ filing to FERC (and the transmittal letter for such a filing) shall include any written statement provided by the ISO setting forth the basis for any software-related implementation concerns raised by the ISO. The ISO shall make Commercially Reasonable Efforts to implement any needed software modifications by the effective date accepted by the FERC for a filing authorized by this Section 3.04(b), provided that, if the ISO has exercised such Commercially Reasonable Efforts, a failure to implement needed software modifications by the FERC-accepted effective date shall not constitute an event of default by the ISO under this Agreement or subject the ISO to financial damages, and further provided that the ISO shall run retroactive settlements consistent with the FERC-accepted effective date for a filing authorized by this Section 3.04(b) once such software modifications have been implemented.   Page No. 23 -------------------------------------------------------------------------------- (c) The ISO shall have the authority to submit filings under Section 205 of the Federal Power Act to establish and to revise:   (i) any terms and conditions of the ISO Tariff, and any separate ISO tariffs, relating to Transmission Service and/or the New England Markets , provided that: (A) the ISO shall not have the authority to revise such terms and conditions in a manner that would abridge the rights granted to the PTOs in Section 3.04(a) or Section 3.04(b); (B) the ISO shall not have the authority to eliminate Local Network Service or Local Point-to-Point Transmission Service provided under the Local Service Schedules; (C) the ISO shall not file to change the state or federally-accepted or -approved terms and conditions of any PTO’s retail access plan or the terms and conditions of any retail access plans of a PTO’s affiliated distribution company’s (including any such terms and conditions that protect against bypass of any provision of a PTO’s retail access plan) or the state or federally-accepted or -approved rates and other mechanisms for the recovery of a PTO’s wholesale or retail stranded costs in effect as of the Operations Date; and (D) the ISO shall not have the authority to transfer to any third party the ISO’s Section 205 rights to revise the terms and conditions of Transmission Service or the authority to enter into agreements with any group of stakeholders to submit filings under Section 205 of the Federal Power Act to change the terms and conditions of Transmission Service where such proposed changes are not supported by the ISO but are approved by a vote of the stakeholder group.   The ISO shall provide written notification of any proposed filing under this Section 3.04(c) to the PTOs and stakeholders, which notification shall include a detailed description of the proposed filing, at least 30 days prior to the filing. The ISO shall consult with the PTOs and stakeholders and will consider any comments any PTO or stakeholder provides in developing its filing. The ISO shall retain the right to modify aspects of any filing authorized by this Section 3.04(c) after it provides written notification to the PTOs and stakeholders and shall provide notification to the PTOs and stakeholders of any material modification to such filings. In addition, the ISO shall consult with the PTOs to determine whether the filing will have any adverse impact on any PTO’s revenue requirements, or on the ability of any PTO to recover its revenue requirements, or have a material adverse impact on the ability of any PTO to implement an incentive rate plan then in effect. If the affected PTOs conclude in their good faith judgment that the filing will have any of such effects, the ISO and the affected PTOs will make every reasonable effort to resolve the concerns of the affected PTOs. In the event that the affected PTOs’ concerns cannot be resolved, the ISO may, nevertheless, make a filing under Section 205 provided that, except as provided in the next sentence, such a filing will not become effective until such time as the Commission issues an order determining the proposal set forth in the filing to be consistent with the standard applicable under Section 205 of the Federal Power Act. The ISO may request that FERC permit a filing authorized by this Section 3.04(c) to go into effect on an interim basis, notwithstanding the conclusion of the affected PTOs, provided that the ISO shall include in such a filing (and the transmittal letter for such a filing) any written statement provided by the affected PTOs setting forth the basis for the affected PTOs’ concerns. If FERC grants the ISO’s request   Page No. 24 -------------------------------------------------------------------------------- to permit the filing to go into effect on an interim basis, the filing will become effective, subject to refund, on the date specified in FERC’s order. Notwithstanding the foregoing, in Exigent Circumstances , the ISO shall have the unilateral authority, upon written notice to the PTOs, the Participants Committee, and the individual Participants, to submit any filing under Section 205 of the Federal Power Act to modify any provision of the ISO Tariff as authorized in this Section 3.04(c), provided that such filing shall be subject to all conditions set forth in this Section 3.04(c) except for those conditions that would limit the ISO from submitting or implementing such an ISO unilateral filing on an expedited basis or that would require the consultation otherwise specified herein.   (d) Except as explicitly set forth in Section 3.04(e), with respect to certain items listed in Sections 3.04(a) and 3.04(b), the ISO shall have no authority to submit a filing under Section 205 of the Federal Power Act to modify any provision of the ISO OATT that implements any of the items listed in Section 3.04(a) or Section 3.04(b). The PTOs shall have no authority to submit a filing under Section 205 of the Federal Power Act to modify any provision of the ISO OATT that implements any of the items listed in Section 3.04(c). The ISO reserves its rights to intervene in, comment on or protest any filing made by the PTOs, and to submit proposals for the consideration of the PTOs and the PTOs reserve their rights to intervene in, comment on or protest any filing made by the ISO, and to submit proposals for the consideration of the ISO.   (e) In the event the ISO determines that a change in the design of any provision of the ISO OATT described in Section 3.04(a)(ii), (iii), (iv) or (vii) or 3.04(b) is required because the existing design of any rates or charges for Transmission Service is inconsistent with the design of the New England Markets, and such inconsistency will, if not remedied before relief would be available in a proceeding under Section 206 of the Federal Power Act, either: (i) substantially and adversely affect the efficiency or competitiveness of the New England Markets, or (ii) substantially and adversely affect the reliability of the ISO bulk power system, a senior officer of the ISO shall notify the affected PTO(s) of its determination. Upon receipt of such notification, the affected PTO(s) and the ISO shall diligently work together to arrive at appropriate changes in the rates to alleviate the conditions that led to this notification being given, while protecting the rights of the affected PTO(s) to fully recover their revenue requirements and the amount of incentive payments associated with FERC-accepted or -approved incentive arrangements for the PTO(s). If the affected PTO(s) and the ISO agree on a solution to this issue, the affected PTO(s) shall make a filing at FERC under Section 205 consistent with such agreement.   If the affected PTO(s) and the ISO cannot agree on a mutually acceptable Section 205 filing to address this issue within a period of thirty (30) days, and the affected PTO(s) do not make a Section 205 filing within the thirty (30) day period, then the ISO shall have the authority to submit a filing under Section 205 of the Federal Power Act as permitted herein. provided that such a Section 205 filing shall not be submitted until the PTOs have an opportunity to meet with representatives of the ISO Board of Directors if requested by any PTO with reasonable notice, and the ISO may, with the approval of FERC, place a replacement for such rate design into   Page No. 25 -------------------------------------------------------------------------------- effect, while the proceeding on the ISO’s filing is pending before FERC, for a period no longer than fifteen (15) months, provided that such filing shall not propose a modification that adversely affects the rights of the affected PTO(s) to fully recover their FERC-allowed revenue requirements and the amount of incentive payments associated with FERC-allowed incentive arrangements for the PTO(s) or that would result in any costs previously approved or accepted for recovery under either a federal or state-jurisdictional rate thereafter becoming unrecoverable under either a federal or state-jurisdictional rate, and the replacement rate design proposal of the ISO is subject to refund and surcharge, as necessary to restore the status quo ante if FERC does not ultimately approve that proposal. To place its replacement rate design proposal into effect, the ISO shall bear the burden of persuading FERC that: (i) the ISO’s replacement proposal is consistent with the standard applicable under Section 205 of the Federal Power Act; (ii) the ISO’s determination regarding the inconsistency of the existing rate design with the design of the New England Markets and the impact of that inconsistency, as set forth in the first sentence of this subsection, is correct; and (iii) the ISO’s proposal will not adversely affect the rights of the affected PTO(s) to fully recover their FERC-allowed revenue requirements or the amount of incentive payments associated with FERC-allowed incentive arrangements for the PTO(s) or to fully recover costs previously approved or accepted for recovery under either a federal or state-jurisdictional rate. Notwithstanding the foregoing, in Exigent Circumstances , the ISO shall have the unilateral authority, upon written notice to the PTOs, the Participants Committee and the individual Participants, to submit a filing under Section 205 of the Federal Power Act to modify any provision of the ISO Tariff described in this Section 3.04(e), provided that such filing shall be subject to all conditions set forth in this Section 3.04(e) except for those conditions that would limit the ISO from submitting or implementing such an ISO unilateral filing on an expedited basis or that would require the consultation otherwise specified herein.   (f) In the event the ISO concludes that a filing to establish or to revise the terms and conditions listed in Section 3.04(c) is required and that providing the notification or consultation required under Section 3.04(c) for such filing would result in an unanticipated material adverse effect on the efficiency or competitiveness of the New England Markets or the reliability of the ISO bulk power system in the circumstances, the ISO: (i) shall provide such notification to the PTOs and stakeholders or undertake such consultation with the PTOs and stakeholders as is possible under the circumstances; and (ii) may submit a filing under Section 205 to establish or to revise the terms and conditions listed in Section 3.04(c) upon issuance of a written statement setting forth the circumstances that do not permit such notification or consultation.   (g) In the event the PTO(s) conclude that a filing to establish or to revise the rates, terms and conditions listed in Section 3.04(a) or 3.04(b) is required and that providing the notification or consultation required under Section 3.04(a) or Section 3.04(b) for such filing would result in an unanticipated material under-recovery of the PTO(s)’ revenue requirements or other material adverse financial effect on the PTO(s), the PTO(s): (i) shall provide such notification to the ISO and stakeholders or undertake such consultation with the ISO as is possible under the circumstances; and (ii) may make a Section 205 filing to establish or to revise   Page No. 26 -------------------------------------------------------------------------------- the rates, terms and conditions listed in Section 3.04(a) or 3.04(b) upon issuance of a written statement setting forth the circumstances that do not permit such notification or consultation.   (h) Cost Allocation Moratorium   (i) During the five (5) year period commencing on the Operations Date (the “Moratorium Period”), neither the PTOs, pursuant to Section 3.04(b), nor the ISO, pursuant to Section 3.04(e), shall submit filings under Section 205 of the Federal Power Act to modify:   (A) the provisions and schedules of the ISO OATT governing the split between PTF and Non-PTF transmission facilities in effect prior to the Operations Date for purposes of allocating costs to Transmission Customers;   (B) the provisions and schedules of the ISO OATT establishing the methodology by which the costs of Transmission Upgrades and New Transmission Facilities related to generator interconnections are allocated under the ISO OATT; and   (C) the provisions and schedules of the ISO OATT establishing the methodology by which the costs of New Transmission Facilities and Transmission Upgrades are allocated under the ISO OATT;   (ii) The Parties’ agreement to forego submission of Section 205 filings during the Moratorium Period with respect to the items listed in Section 3.04(h)(i) (A) through (C) above shall not restrict in any way the rights of the PTOs, pursuant to and in accordance with Sections 3.04(b) or 3.04(a), to submit Section 205 filings to modify any elements of the rates applicable to Transmission Service other than those items listed in Section 3.04(h)(i) (A) through (C). Nothing in this Section 3.04(h) shall restrict in any way the rights of the PTOs to submit Section 205 filings to establish incentive or performance-based rates in accordance with Section 3.04(b)(iii) or to submit Section 205 filings to establish formula or stated rates in accordance with Section 3.04(b)(i), provided that such filings do not propose to modify the items listed in Section 3.04(h)(i) (A) through (C). Nothing in this Section 3.04(h) shall restrict in any way the rights of the ISO, pursuant to and in accordance with Section 3.04(e), to submit Section 205 filings to modify any elements of the rates applicable to Transmission Service other than, provided that such filings do not propose to modify the items listed in Section 3.04(h)(i) (A) through (C).   (iii) Notwithstanding Section 3.04(h)(i)(B) above, to the extent that the requirements for any New Transmission Facilities or Transmission Upgrades associated with new or existing generation set forth in the ISO OATT are modified during the Moratorium Period in a manner that creates a new or   Page No. 27 -------------------------------------------------------------------------------- modified category of generator-related transmission costs, the PTOs shall have the authority, in accordance with Section 3.04(b), to submit Section 205 filings during the Moratorium Period to establish the methodology by which such new or modified generator-related transmission costs are allocated.   (iv) Nothing in this Section 3.04(h) shall supersede or alter the effect of any FERC orders concerning the allocation of costs for specific transmission facilities in the New England region.   (v) Nothing in this Section 3.04(h) shall restrict in any way the rights of the ISO or of any PTO during the Moratorium Period to submit a filing under Section 206 of the Federal Power Act to modify the provisions and schedules described in Section 3.04(h)(i) (A) through (C).   (vi) After the end of the Moratorium Period, the PTOs may exercise their rights in accordance with Section 3.04(b)to submit Section 205 filings to modify the provisions and schedules described in Section 3.04(h)(i) (A) through (C); provided that:   (A) The PTOs must provide the ISO, the Regional State Committee established by the states in the ISO region (the “Regional State Committee”), and stakeholders no less than 90 days advance notification of the proposed filing, including a detailed description of any proposed change to the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto). The PTOs, the ISO and the Regional State Committee shall engage in a process of consultation and negotiation in order to attempt to reach consensus on such filing.   (B) At least 30 days prior to the proposed filing date the Regional State Committee may inform the PTOs that the Committee opposes the PTOs’ proposal to change the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto).   (C) If the Regional State Committee opposes the PTOs’ proposal to change the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto), the PTOs may make the Section 205 filing to modify the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto); provided that: (1) such filing may not go into effect until FERC has approved the filing; (2) the Regional State Committee will have the right to provide the PTOs with an alternative proposal to change the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the   Page No. 28 -------------------------------------------------------------------------------- successors thereto) which the PTOs will include in their Section 205 filing and which will be considered on an equal footing with the PTOs’ proposal in the FERC proceeding, and (3) such alternative proposal shall not adversely affect the rights of the affected PTO(s) to fully recover their FERC-allowed revenue requirements and the amount of incentive payments associated with FERC-allowed incentive arrangements for the PTO(s) or result in any costs previously approved or accepted for recovery under either a federal or state-jurisdictional rate thereafter becoming unrecoverable under either a federal or state-jurisdictional rate.   (D) If, notwithstanding the requirements of Section 3.04(h)(vi)(C), the Regional State Committee submits an alternative proposal to change the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto) that any PTO believes causes an under-recovery of costs when used in conjunction with the other elements of the rate design for transmission rates filed by the PTOs (or the one already in effect if the PTOs’ filing does not propose to change the rate design), the PTO(s) will have the right: (1) to include in such filing an explanation of why the PTO or PTOs believe the Regional State Committee proposal causes an under-recovery of costs contrary to the requirements of Section 3.04(h)(vi)(C); and (2) to file a modified rate design that eliminates such under-recovery (or a rate mechanism filed by one or more PTOs individually for that purpose, when the under-recovery affects them uniquely) in the event that the alternative proposal to change the cost allocation provisions set forth in Schedules 11 or 12 of the ISO OATT as of the Operations Date (or the successors thereto) is approved by the FERC placed into effect coincident with the effective date of such proposal.   (E) Any requirements established by this Section 3.04(h)(vi) with respect to the Regional State Committee shall not subject any PTO or ISO-NE to the jurisdiction or authority of any agent or agency of any state participating in the Regional State Committee.   (vii) After the end of the Moratorium Period, the ISO may exercise its rights in accordance with Section 3.04(e) to submit Section 205 filings to modify the provisions and schedules described in Section 3.04(h)(i) (A) through (C) if the PTOs fail to alleviate the conditions specified in Section 3.04(e).   (i) The ISO shall have sole authority to submit Section 205 filings to recover its administrative, capital and other costs (including the collection of funds from Transmission Customers to support payment of FERC annual charges with respect to transmission service for which the ISO is the Transmission Provider as defined in FERC rules and orders) including the design of any charges therefore (the “ISO Administrative Charge” ).   Page No. 29 -------------------------------------------------------------------------------- (j) Nothing in this Agreement shall restrict in any way the rights of the ISO or of any PTO to submit an application under Section 206 of the Federal Power Act for revisions to the rates, terms and conditions of service under the ISO OATT. Nothing in this Agreement shall subject any Publicly-Owned PTO to regulation of rates and charges applicable to its transmission facilities under Sections 205 or 206 of the Federal Power Act; provided, however, that the justness and reasonableness of regional transmission rates or charges may be evaluated in light of the levels of, and manner in which, the costs of Publicly-Owned PTOs’ transmission facilities are recovered under regional transmission rates.   (k) Nothing in this Agreement shall restrict in any way the rights of any PTO to submit a proposal under Section 205 of the Federal Power Act to participate in, join, or become an ITC pursuant to Attachment M to the ISO OATT and, upon approval of such proposal, to withdraw from this Agreement in accordance with Section 10.01 of this Agreement.   (l) Stakeholder Process for Regional Rate Filings.   (i) Absent unanticipated circumstances, every PTO proposal to modify regional rates in accordance with Section 3.04(b) shall be presented by the PTOs to the appropriate stakeholder Technical Committee(s) for consideration and an advisory vote. The Technical Committee, at its next meeting following the one at which the intial presentation is made (which shall be no later than 30 days after any proposal is made), shall: (i) vote on the merits of the proposal as presented or with changes accepted by the PTOs; or (ii) by motion and vote of 66-2/3%, defer action on any proposal presented if it reasonably determines that additional information should and could be provided to more adequately inform the members of such Technical Committee before a vote on the merits is taken. Any deferral shall be for no more than 30 days, after which the PTOs may move for an advisory vote upon their proposal at the next meeting of the Technical Committee (which shall be held within 30 days of the start of the deferral). At that time, the Technical Committee may vote on the merits of the proposal as presented or with changes approved by the Committee, or may vote to oppose the proposal on the grounds that sufficient information has still not been provided, but may not defer consideration of the proposal for any further period without the consent of the PTOs. Failure of the Technical Committee to vote within the time frames set forth in this paragraph shall advance the process to the next step, and in no event shall a period of longer than 60 days be required for the PTOs to submit a proposal to modify regional rate design in accordance with Section 3.04(b) to the Participants Committee.   (ii) Absent unanticipated circumstances and after the fulfillment of the procedures outlined in Section 3.04(l)(i), every PTO proposal to modify regional rates in accordance with Section 3.04(b) shall be presented by the PTOs to the stakeholder Participants Committee for an advisory vote, along with a report of any action, failure to act or advisory vote taken by any Technical Committee(s).   Page No. 30 -------------------------------------------------------------------------------- Such report shall be considered by the Participants Committee no later than the first regularly scheduled meeting following notification of that presentation. The Participants Committee shall: (i) vote on the merits of the proposal as presented or with changes accepted by the PTOs; or (ii) by motion and vote defer action on any proposal if it reasonably determines that the proposal presented is materially different from the proposal presented to the Technical Committee, and was not voted on by the Technical Committee. Any deferral shall result in a repeat of the processes outlined above. Notwithstanding the foregoing, the Participants Committee may, at its discretion, consider and vote upon any proposal submitted to it and such a vote shall have the same effect as if the proposal had first been voted upon by a Technical Committee. The Participants Committee may not defer action on any item that has been voted on by a Technical Committee and presented to the Participants Committee for an advisory vote unless the PTOs consent to such deferral. If the Participant Committee has not scheduled a meeting to vote on the merits of a PTO proposal to modify regional rates in accordance with Section 3.04(b) prior to date that the PTOs intend to submit such a proposal to the FERC, then the PTOs shall request that the Participants Committee schedule a special meeting to conduct an advisory vote on the merits of such proposal. In no event shall the PTOs be required to wait for a Participant Committee advisory vote for a period of longer than 90 days after initial notification of such proposal to stakeholders prior to submitting a proposal to modify regional rate design in accordance with Section 3.04(b) to the FERC.   (iii) An advisory vote by the Participants Committee on the merits of any proposal, whether in favor of or in opposition, terminates the stakeholder proceedings absent voluntary resubmission of the same or a modified proposal by the PTOs, at a future time. The PTOs shall report the results of such advisory vote in any relevant filing made by the PTOs with the FERC. A failure by the Participants Committee to vote within the time frames outlined above terminates the Participant proceedings absent voluntary resubmission of the same or a modified proposal by the PTOs at a future time.   (iv) Nothing in this Section 3.04(l) shall limit the ability of the PTOs to submit a filing pursuant to Section 3.04(g) to modify regional rates in the event the PTOs conclude that a filing to modify regional rates is required due to unanticipated circumstances, provided that the PTOs shall provide such notification to the stakeholder Participant Committee or undertake such consultation with the stakeholder Technical Committee(s) and Participant Committee as is possible under the circumstances and shall provide the Participants Committee with a written statement setting forth the circumstances that do not permit the notification or consultation otherwise required by this Section 3.04(l).   Page No. 31 -------------------------------------------------------------------------------- (v) The process set forth in this Section 3.04(l) shall not apply to filings related to regional rates submitted to the FERC on an informational basis. The applicable process for review of such informational filings shall be set forth in the ISO OATT.   (m) Highgate Transmission Facilities (HTF).   (i) The costs of the HTF shall be included in the transmission rates for Regional Network Service on a phased- in basis, in accordance with Appendix B to the Attachment F Implementation Rule of the ISO OATT, provided that:   (A) the costs of the HTF shall be fully phased into the transmission rates for Regional Network Service in year 5 as defined in Appendix B to the Attachment F Implementation Rule of the ISO OATT;   (B) the HTF shall not be classified as PTF for rate purposes under the ISO OATT; and   (C) the rate treatment of the HTF shall establish no precedent or presumption concerning rate treatment of any other HVDC transmission facilities.   (ii) the HTF shall be classified as Category A Facilities, provided, however, that the classification of the HTF as Category A facilities under this Agreement shall establish no binding precedent or presumption concerning the operational and other terms and conditions for other HVDC facilities over which the ISO may obtain operational and other authority under this TOA or other ISO operating agreements in the future.   3.05 The ISO’s Responsibilities.   (a) In addition to its other obligations under this Agreement, in performing its obligations and responsibilities hereunder, and in accordance with Good Utility Practice, the ISO shall:   (i) maintain system reliability;   (ii) in all material respects, act in accordance with applicable Laws and conform to, and implement, all applicable reliability criteria, policies, standards, rules, regulations, orders, license requirements and all other applicable NERC/NPCC Requirements, and other applicable reliability organizations’ reliability rules, and all applicable requirements of federal or state laws or regulatory authorities; and   (iii) act without undue preference to any Party.   Page No. 32 -------------------------------------------------------------------------------- (b) The ISO shall obtain and retain all necessary authorizations of FERC and other regulatory authorities to function as the New England RTO and shall possess the characteristics and perform the functions required for that purpose.   3.06 Each PTO’s Responsibilities.   (a) From and after the Operations Date, each PTO shall, in accordance with Good Utility Practice:   (i) direct, physically operate, repair, and maintain its Transmission Facilities and Local Control Centers in accordance with this Agreement, applicable Law, and applicable Operating Procedures;   (ii) operate and maintain, or arrange for a third party, approved by such PTO, in its sole discretion, to operate and maintain, one or more suitable Local Control Centers (including any Local Control Centers maintained as backup for a PTO’s primary Local Control Centers). Each PTO shall provide the ISO with reasonable notice of any change to its Local Control Center(s) and shall coordinate with the ISO to ensure that such a change will not adversely affect the reliable operation of the New England Transmission System. Each PTO shall have the responsibility to ensure that its Local Control Center(s) will: operate PTO Transmission Facilities on a 24 hour basis, implement the instructions, orders and directions received from the ISO in the exercise of its Operating Authority in accordance with Section 3.02, and perform the following functions in accordance with applicable Operating Procedures:   (A) switching and tagging;   (B) on- line monitoring;   (C) security analysis;   (D) dispatch voltage and reactive power, provided that the ISO shall dispatch voltage and reactive power to the extent the Local Control Centers are unable to maintain normal voltage schedules;   (E) coordinate the development of settings for dynamic reactive resources, FACTS controllers, special protection systems, PARS, and other similar dynamic equipment that affects power flows;   (F) implementation of the PTO Local Restoration Plan and development of modifications to such PTO Local Restoration Plans, subject to the approval of the ISO in   Page No. 33 -------------------------------------------------------------------------------- order to coordinate and promote the reliability of the Restoration Plans;   (G) operation and maintenance of communication systems and software;   (H) implementation of voltage reduction measures;   (I) implementation of Load Shedding;   (J) coordinate with the ISO and the other PTOs with respect to congestion management efforts and, to the extent applicable, demand-side management and distributed generation efforts, provided that a PTO employee who is engaged in such coordination and who is not a Local Control Center employee shall be subject to the same standards of conduct and applicable provisions of the ISO Information Policy as a Local Control Center employee; and   (K) coordinate with other entities interconnected with the New England Transmission System.   (iii) cooperate with the ISO’s performance of the monitoring and audits in connection with all monitoring and compliance provisions detailed in Section 3.02(i) of this Agreement;   (iv) consistent with practice prior to the Operations Date, designate its Local Control Centers to serve as back up to the ISO reliability functions until the ISO re-establishes operational control at its own Back- up Control Center; provided that, in such situations, necessary information will be made available to such Local Control Centers to facilitate the continued operation of the New England Transmission System and that each PTO will comply with Section 11.09 and the ISO Information Policy on file with FERC to prevent such information from reaching any unauthorized person or entity;   (v) collaborate with the ISO with respect to:   (A) the development of Rating Procedures,   (B) the establishment of ratings for each PTO’s New Transmission Facilities;   Page No. 34 -------------------------------------------------------------------------------- (C) the establishment of ratings for each PTO’s Acquired Transmission Facilities that do not have an existing rating as of the Operations Date, and   (D) the establishment of any changes to existing ratings for Transmission Facilities in effect as of the Operations Date.   To the extent there is any disagreement between the ISO and any PTO or PTOs concerning Rating Procedures or the rating of a Transmission Facility owned by such PTO or PTOs, such disagreement shall be the subject of good faith negotiations between the applicable PTO or PTOs and the ISO, provided that; (x) the applicable PTOs’ position concerning such Rating Procedures or Transmission Facility ratings shall govern until the applicable PTOs and the ISO agree on a resolution to such disagreement; and (y) nothing in this Section 3.06(a)(v) shall limit the rights of the ISO or of any PTO to submit a filing under Section 206 of the Federal Power Act with respect to Transmission Facility ratings or Rating Procedures. During any collaboration or discussions concerning Transmission Facility ratings, the PTOs shall continue to provide the ISO with up-to-date ratings information in accordance with the applicable Rating Procedures.   (vi) undertake operating actions in accordance with any tariffs or rate schedules approved or accepted by FERC;   (vii) provide the ISO with the right to use a level of communications capacity (and maintain the equipment associated with this capacity in accordance with Good Utility Practice) on its telecommunication assets and equipment attached to or associated with Transmission Facilities consistent with practice prior to the Operations Date in order to supply reliability-related data including meter, voice and data communications; continue to receive and send (for Regulation purposes) telemetry to and from existing generators and transmission substations; provide for the receipt of such information from generators and substations, and provide metering data and/or telemetry to the ISO (including providing the infrastructure for Regulation and Frequency Response Service), as reasonably necessary for the ISO to perform its obligations under this Agreement and the ISO OATT; provided that a PTO shall have the unfettered right to use communications capacity on its telecommunication assets and equipment attached to or associated with Transmission Facilities for other business purposes to the extent such capacity is not being used by the ISO as of the Operations Date; and provided further that: (1) as required by the pro forma Large Generator Interconnection Agreement in the ISO OATT, each PTO shall include provisions in its Interconnection Agreements with generators after the Operations Date providing for the installation and maintenance of sufficient communications capability to allow the ISO to exercise its Operating Authority with respect to   Page No. 35 -------------------------------------------------------------------------------- such generators, and (2) the ISO may include the installation of additional communications capacity as an identified need in the regional transmission expansion plan, in which case such installation may be included within the PTO obligation to build set forth in, and subject to the terms and conditions in, Section 7 of Schedule 3.09(a).   (viii) notify the ISO prior to making changes to the operational status of such PTO’s Category B Facilities and provide information on the operational status of Category B Facilities consistent with practice prior to the Operations Date;   (ix) operate or cause to be operated its Local Area Facilities in a manner that does not result in the violation of reliability standards applicable to the New England Transmission System;   (x) provide the ISO with revenue metering data or cause the ISO to be provided with such revenue metering data;   (xi) in all material respects, comply with all applicable laws, regulations, orders and license requirements, and with all applicable requirements, and with all applicable NERC/NPCC Requirements, other applicable reliability organizations’ local reliability rules, and all applicable requirements of federal or state laws or regulatory authorities.   (b) Operation of Transmission Facilities During A System Failure. Existing Operating Procedures for use during a System Failure shall be utilized by the ISO and the PTOs. Any modifications to the Existing Operating Procedures for use during a System Failure or new Operating Procedures for use during a System Failure shall be developed by the ISO in the manner specified in Section 3.02(d). The procedures for use during a System Failure shall provide that, in situations where immediate action is required, each PTO’s Local Control Center(s) shall have the authority to take the following reliability actions at a minimum, provided that each PTO shall coordinate with the ISO as soon as practicable upon taking such action:   (i) Undertake those operational functions with respect to Transmission Facilities undertaken by the ISO under non-System Failure conditions;   (ii) Re-energize transmission facilities following breaker trips;   (iii) Implement emergency Load Shedding and voltage reduction measures and subsequent restoration;   (iv) Implement Voltage/VAR control;   (v) Adjust PARS settings;   Page No. 36 -------------------------------------------------------------------------------- (vi) Dispatch generation as necessary to preserve system reliability; in accordance with applicable NERC/NPCC Requirements and ISO directives; and   (vii) Take such other measures necessary, consistent with Good Utility Practice, to respond to a System Failure.   Nothing in this Section 3.06(b) shall limit the right of each PTO pursuant to Section 3.07 to take any action(s) that it deems necessary to prevent loss of human life, injury to persons and/or damage to property.   3.07 Reserved Rights of the PTOs.   (a) Notwithstanding any other provision of this Agreement to the contrary, each PTO shall retain all of the rights set forth in this Section 3.07; provided, however, that such rights shall be exercised in a manner consistent with applicable NERC/NPCC Requirements and applicable regulatory standards. This Section 3.07 is not intended to reduce or limit any other rights of a PTO as a signatory to this Agreement or under the ISO OATT.   (i) Nothing in this Agreement shall restrict any rights: (A) of each PTO that is a party to a merger, acquisition or other restructuring transaction to make filings under Section 205 of the Federal Power Act with respect to such PTO’s reallocation or redistribution of revenues or the assignment of such PTO’s rights or obligations, to the extent the Federal Power Act requires such filings; or (B) of any PTO to terminate its participation in this Agreement pursuant to Article X of this Agreement, notwithstanding any effect its termination from the ISO may have on the distribution of transmission revenues among other PTOs.   (ii) Except as expressly provided in the grant of Operating Authority to the ISO, each PTO retains all rights that it otherwise has incident to its ownership of, and legal and equitable title to, its assets, including its Transmission Facilities and all land and land rights, including the right to build, acquire, sell, lease, merge, dispose of, retire, use as security, or otherwise transfer or convey all or any part of its assets, subject to the PTO’s compliance with Section 2.06 of this Agreement. Subject to Article X, a PTO may, directly or indirectly, by merger, sale, conveyance, consolidation, recapitalization, operation of law, or otherwise, transfer all or any portion of such PTO’s Transmission Facilities subject to this Agreement but only if such transferee or successors shall agree in writing to be bound by terms of this Agreement.   (iii) Any expansion or modification by a PTO of its Transmission Facilities, any facilities constructed by a PTO to connect the facilities of a current or proposed Transmission Customer to such Transmission Facilities, and/or any new transmission facilities constructed by a PTO pursuant to the ISO Planning Process shall be subject to such PTO’s right to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all costs prudently incurred or   Page No. 37 -------------------------------------------------------------------------------- prudently committed to be incurred, plus a return on invested equity and other capital, associated with constructing and owning or financing such facilities, expansions or modifications to its Transmission Facilities, in accordance with Schedule 3.09(a) hereof.   (iv) The responsibilities granted to the ISO under this Agreement shall not affect the rights of a PTO to modify or expand its Transmission Facilities, nor confer upon the ISO any authority to direct a PTO to modify or expand its Transmission Facilities except as provided in Schedule 3.09(a), and each PTO shall retain all rights and responsibilities specifically assigned to PTOs pursuant to Schedule 3.09(a).   (v) Each PTO shall have the right to adopt and implement, consistent with Good Utility Practice, procedures and to take such actions it deems necessary to protect its facilities from physical damage or to prevent injury or damage to persons or property.   (vi) Each PTO retains the right to take whatever actions, consistent with Good Utility Practice, it deems necessary to fulfill its obligations under applicable Law.   (vii) Nothing in this Agreement shall be construed as limiting in any way the rights of a PTO to make any filing with any applicable state or local regulatory authority.   (viii) Each PTO may request that the ISO commit additional generators (including specific output levels), or each PTO may take other actions permitted under the ISO OATT and Market Rules (including self-scheduling), if the PTO determines that additional generation is needed to ensure local area reliability, provided that the ISO shall make the final determination whether to commit additional generation in accordance with applicable provisions of the ISO OATT and Market Rules   (ix) Subject to Section 2.05, each PTO shall retain the right to enter into Interconnection Agreements with transmission owners, generators and other entities connecting with such PTO’s transmission facilities (including Transmission Facilities) and to file such agreements for approval or acceptance by FERC.   (x) Each PTO shall have the right to retain one or more subcontractors to perform any or all of its obligations under this Agreement. The retention of a subcontractor pursuant to the terms of this Section 3.07 shall not relieve the PTO of its primary liability for the performance of any of its obligations under this Agreement.   Page No. 38 -------------------------------------------------------------------------------- (b) Any and all other rights and responsibilities of a PTO related to the ownership or operation of its Transmission Facilities not expressly assigned to the ISO under this Agreement will remain with such PTO.   (c) Nothing in this Agreement shall be deemed to impair or infringe on any rights or obligations of the PTOs under the Federal Power Act and FERC’s rules and regulations thereunder, provided that any such rights are not inconsistent with the express terms of this Agreement. Nothing contained in this Agreement shall be construed to limit in any way the right of any PTO to take any position, including opposing positions, in any administrative or judicial proceeding or filing by other PTOs or the ISO, notwithstanding that such proceeding or filing may be undertaken or made, explicitly or implicitly, pursuant to this Agreement.   (d) Nothing in this Agreement shall be deemed to impair or infringe on the exemption of Publicly-Owned PTOs, under Section 201(f) of the Federal Power Act, from the obligations and requirements of the Federal Power Act. Notwithstanding anything to the contrary in this Agreement, nothing contained herein shall subject any Publicly-Owned PTO to any requirement or obligation imposed by the Federal Power Act that would not apply to such Publicly-Owned PTO in the absence of this Agreement.   3.08 Repair and Maintenance of Transmission Facilities.   (a) Planning, Scheduling, and Approval of Transmission Facility Outages.   (i) Each PTO shall submit to the ISO long-term plans for Transmission Facility outages, shall submit to the ISO schedules for Transmission Facility outages, and shall obtain ISO approval for Transmission Facility outages in accordance with, and to the extent required by, Market Rule 1.   (ii) Notwithstanding any of the foregoing, nothing in this Section 3.08 shall be construed to require a PTO to reschedule an outage of a Transmission Facility or to require a PTO to refrain from initiating switching and tagging procedures to take a Transmission Facility out of service or place it back into service to the extent a PTO determines that such outage or actions are necessary to prevent injury or damage to persons or property or to protect its facilities from physical damage, in accordance with Section 3.07(a)(v) of this Agreement.   (b) Recovery of Transmission Outage Rescheduling Costs. The PTO(s) shall have the right, either collectively pursuant to and in accordance with Section 3.04(b), or individually pursuant to and in accordance with Section 3.04(a), to file a schedule to the ISO OATT that will provide for reimbursement to the affected PTO(s) for any direct costs incurred by the PTO(s) due to the ISO’s rescheduling or revocation of a previously scheduled or approved Transmission Facility outage to the extent the ISO reschedules or revokes a previously scheduled or approved Transmission Facility outage in accordance with Market Rule 1.   Page No. 39 -------------------------------------------------------------------------------- (c) Annual Assessment of Outage Coordination Efforts. The ISO shall prepare and issue annual public reports on the scheduling and coordination of transmission outages. Each such annual report shall: (i) assess the accuracy of the ISO’s estimation of congestion and RMR cost impacts and the accuracy of PTO and other inputs used in such estimation; (ii) assess any long term impacts of the ISO’s exercise of its authority to require the rescheduling of transmission maintenance outages and (iii) include analyses and data which could allow a PTO to identify potential opportunities for incentives based on efficient coordination of outages and other operational measures that will reduce congestion costs or increase operational flexibility. The ISO shall provide a draft of each such annual report to the PTOs and interested stakeholders prior to issuing a final report and shall consider the input of the PTOs and interested stakeholders in preparing such reports, subject to any applicable restrictions set forth in the ISO Information Policy on file with FERC.   (d) Development of Incentive Proposals. Notwithstanding any other provision in this Agreement, the ISO will apply reasonable efforts to work actively with any interested PTO(s) to analyze alternatives including incentives adopted in other markets and to provide input for use by the interested PTO(s) in developing the design of incentive rates or mechanisms for regional congestion cost reduction. The ISO will work with other stakeholders in a similar fashion if so requested. Any such incentive proposal shall be filed by a PTO or PTOs with FERC in accordance with Section 3.04(a) or Section 3.04(b) as applicable. Such incentive mechanisms shall be designed to further improve coordination of outages or operational measures in a manner that will reduce overall congestion or RMR costs. Any PTO incentive must be approved or accepted by FERC. Each PTO developing an incentive proposal shall attempt to reach agreement with the ISO before filing an incentive proposal with FERC. The ISO may submit filings to the FERC (including a protest or a complaint under Section 206 of the Federal Power Act) raising any questions or concerns that it may have concerning a specific incentive proposal, provided that the ISO shall not contend that an incentive proposal is inappropriate or oppose the proposal on the ground that the PTOs have agreed to the provisions of Section 3.08 of this Agreement.   (e) Market Monitoring of Outage Scheduling. The Market Monitoring Unit of the ISO shall monitor the outage scheduling activities of the PTOs. The Market Monitoring Unit of the ISO shall have the right to request that each PTO provide information to the Market Monitoring Unit concerning the PTO’s scheduling of Transmission Facility outages, including the rescheduling or cancellation of any Planned, Scheduled or Approved Outage, and the PTO shall provide such information to the Market Monitoring Unit in accordance with Section 11.09(c) of this Agreement.   Page No. 40 -------------------------------------------------------------------------------- (f) Damage or Destruction of Transmission Facilities.   (i) If, at any time during the Term, any of a PTO’s Transmission Facilities are damaged or destroyed, then, such PTO shall determine, in its sole discretion, consistent with Good Utility Practice and applicable Law, whether or not (and if so, in what manner) to restore or cause the restoration of such damaged or destroyed Transmission Facilities to substantially the same condition, character or use as existed before the damage or destruction, if at all, provided that such PTO shall consult with the ISO prior to making such determination and shall comply with the requirements specified in Section 2.06.   (ii) Nothing in this Section 3.08(f) shall limit the authority of the ISO to direct a PTO to modify or expand its Transmission Facilities in accordance with the ISO Planning Process, subject to the terms and conditions of Schedule 3.09(a) hereof.   3.09 Planning and Expansion.   (a) Each PTO shall perform all of its responsibilities, and exercise each of its rights, with respect to the planning and expansion of the New England Transmission System in accordance with the ISO OATT and Schedule 3.09(a) hereto. The ISO shall perform all of its responsibilities pursuant to the ISO Planning Process set forth in the ISO OATT. Each PTO shall engage in planning for its Local Area Facilities in a manner that is consistent with applicable NERC/NPCC Requirements, Good Utility Practice and the ISO OATT. The ISO and each PTO shall perform all such responsibilities in accordance with applicable Laws and Good Utility Practice. Nothing in this Agreement shall be construed to impose on any PTO an obligation to build transmission facilities except as provided in Schedule 3.09(a) hereto.   (b) The ISO shall utilize the Planning Procedures relating to the planning and expansion of the New England Transmission System. The Planning Procedures shall initially consist of the Planning Procedures in existence on the Operations Date (hereinafter “Existing Planning Procedures”). Such Existing Planning Procedures shall consist of those Planning Procedures listed in Schedule 3.09(b). The ISO shall develop any modifications to Planning Procedures (including Existing Planning Procedures) and any new Planning Procedures that it may deem necessary or appropriate in coordination with the PTOs and other stakeholders. In the event that the ISO and the applicable PTO(s) disagree about modifications to the portions of the Planning Procedures related to the planning and expansion of Transmission Facilities or any new Planning Procedures related to the planning and expansion of Transmission Facilities, the affected PTO(s) will have the opportunity to submit the dispute for resolution in accordance with the dispute resolution provisions set forth in Section 11.14 herein. Pending such resolution, the ISO shall have the authority to implement any such new Planning Procedures or modified Planning Procedures.   3.10 Invoicing, Collection and Disbursement of Customer Payments.   (a) Invoicing as of Operations Date. Except as provided in Section 3.10(a)(ii) and beginning on the Operations Date, the ISO will administer its current net settlement system,   Page No. 41 -------------------------------------------------------------------------------- including invoicing of charges to Transmission Customers for Transmission Services on the Transmission Facilities as follows:   (i) The charges invoiced by the ISO shall include the following (each, an “Invoiced Amount”):   (A) any and all revenue requirements, rates, charges, fees and/or penalties for Transmission Service under the ISO OATT and related service agreements which the PTOs have filed with FERC pursuant to Section 3.04(b) and which have been accepted by FERC, including without limitation recovery of wholesale or retail stranded costs, other than amounts billed directly by PTOs pursuant to Section 3.10(a)(ii) below; and   (B) any and all rates, charges, fees and/or penalties under interconnection agreements which have been filed with and accepted by FERC, other than amounts billed directly by PTOs pursuant to Section 3.10(a)(ii) below.   (ii) Payments relating to Grandfathered Transmission Agreements, all services provided by a PTO pursuant to its Local Service Schedule on or after the Operations Date, interconnection agreements that provide for payment to PTOs, and any other payments made directly to the PTOs prior to the Operations Date shall continue to be invoiced by the PTOs and shall not be invoiced by the ISO; provided that, notwithstanding the foregoing, each PTO and the ISO may enter into separate agreements such that the ISO provides invoicing services for such payments.   (iii) The ISO shall remit or credit to the PTOs, consistent with the ISO Tariff and the net settlement system, any and all payments received or collected from Transmission Customers for Invoiced Amounts in accordance with this Agreement and directions provided to the ISO by the PTO Administrative Committee. The PTO Administrative Committee shall provide such directions to the ISO in accordance with the Disbursement Agreement among the PTOs. The PTO Administrative Committee (or such subcommittee as the PTO Administrative Committee shall designate for such purpose) shall also respond to any ISO questions or requests for clarification concerning such directions; provided that the ISO shall be able to rely upon the decision of the PTO Administrative Committee unless and until it receives notification from the PTO Administrative Committee or from a Governmental Authority of reversal of such direction by any Governmental Authority with jurisdiction over this Agreement.   (b) Changes to the ISO OATT After Operations Date. After the Operations Date, the ISO may file with FERC proposed amendments to the ISO OATT in accordance with Section 3.04 to effect changes in the invoicing and collection of the charges specified in   Page No. 42 -------------------------------------------------------------------------------- Section 3.10(a)(i), provided that the proposed amendments to the ISO OATT will not, without the consent of the PTOs:   (i) effect any changes relating to the ISO OATT requirements of letters of credit, deposits, and/or other financial assurances (collectively, the “Financial Assurances”) to be provided by any party providing payments to the ISO in connection with the purchase of any goods or services provided by PTOs or any Market Participants (such parties, collectively, “ISO Customers”) or the ISO that would in any way, individually or in the aggregate, materially reduce the level of collateral protection provided by Financial Assurances for Invoiced Amounts from that on the date of execution of this Agreement;   (ii) change the reallocation provisions under the ISO Tariff (including the ISO’s billing policy thereunder) for payment defaults for Transmission Service;   (iii) change any reallocation provisions under the ISO Tariff (including the ISO’s billing policy thereunder) for payment defaults for any services or products under the ISO Tariff other than Transmission Service in any way that imposes any obligation on the PTOs, in their capacity as owners of Transmission Facilities, to bear any costs of that reallocation of payment defaults;   (iv) lower the PTO’s priority in payments for amounts collected by the ISO; or   (v) be inconsistent with any provision of this Agreement.   (c) The ISO’s Collection Obligations and Application of Financial Assurances Policies.   (i) If a Transmission Customer defaults on any payment of any PTO Invoiced Amount (the “Owed Amounts”), the ISO shall take all necessary actions to execute or call upon any Financial Assurances held by the ISO attributable to such Transmission Customer.   (ii) In connection with a default on payment of an Invoiced Amount by a Transmission Customer, the ISO shall, upon the request of the PTO AC, take those actions necessary to suspend Transmission Services to such defaulting Transmission Customer, including making a filing under Section 205 of the Federal Power Act to seek consent to suspend such Transmission Services; provided that the ISO need not suspend Transmission Services until FERC approval is first obtained. This provision shall not preclude the ISO from suspending service or making a filing under Section 205 of the FPA to seek to suspend Transmission Services or other services under the Tariff in any other circumstances.   Page No. 43 -------------------------------------------------------------------------------- (d) No Pledge of Invoiced Amounts. The ISO shall not create, incur, assume or suffer to exist any lien, pledge, security interest or other change or encumbrance, or any other type of preferential arrangement (including a banker’s right of set off) against any Invoiced Amounts, any accounts receivables representing Invoiced Amounts, the settlement account maintained by the ISO into which payments on Invoiced Amounts are made and from which remittances are made to the PTOs or any Financial Assurances.   3.11 Grandfathered Transmission Agreements.   (a) Notwithstanding any other provision of this Agreement, Excepted Transactions will remain in effect for the terms of such agreements. Consistent with practice prior to the Operations Date, the ISO shall exercise its Operating Authority and otherwise fulfill its responsibilities under this Agreement in a manner that is consistent with and does not modify or abrogate the terms and conditions of such Excepted Transactions.   (b) Notwithstanding any other provision of this Agreement, Grandfathered Intertie Agreements, as set forth in Schedule 3.11(b), will remain in effect for the terms of such agreements. Consistent with practice prior to the Operations Date, the ISO shall exercise its Operating Authority and otherwise fulfill its responsibilities under this Agreement in a manner that is consistent with and that does not modify or abrogate the terms and conditions of such Grandfathered Intertie Agreements.   (c) Nothing in this Agreement shall require the modification or abrogation of Grandfathered Interconnection Agreements, as set forth in Schedule 3.11(c). Consistent with practice prior to the Operations Date, the PTOs agree to exercise their rights under Grandfathered Interconnection Agreements with generators to direct or request that generators take certain actions as needed to facilitate the exercise of Operating Authority by the ISO and the reliable operation of the New England Transmission System.   (d) All payments due to the PTOs under Grandfathered Transmission Agreements shall continue to be invoiced and collected by the PTOs in accordance with the terms of those agreements and shall not be invoiced or collected by the ISO. Notwithstanding the foregoing, each PTO and the ISO may enter into separate agreements such that the ISO provides invoicing services for such payments.   (e) Nothing in this Agreement shall alter the standards, procedures or requirements applicable to the modification of any Grandfathered Transmission Agreement.   3.12 Subcontractors. Each PTO acknowledges and agrees that, subject to the terms set forth herein, including Section 6.07, the ISO has the right to retain one or more subcontractors to perform any or all of its obligations under this Agreement. The retention of a subcontractor pursuant to the terms of this Section 3.12 shall not relieve the ISO of its primary liability for the performance of any of its obligations under this Agreement.   Page No. 44 -------------------------------------------------------------------------------- 3.13 Municipal/Tax-Exempt Utilities.   (a) The Parties to this Agreement hereby recognize the tax-exempt status of any tax-exempt bonds or other evidence of indebtedness of Publicly-Owned PTOs used to finance any Publicly-Owned PTO’s Transmission Facilities. Nothing in this Agreement is intended to, and nothing in this Agreement should be construed in a manner that would, jeopardize the tax-exempt status of any tax-exempt bonds or other debt used to finance any Publicly Owned PTO’s Transmission Facilities. The Parties to this Agreement contemplate that, as to Publicly-Owned PTOs, this Agreement will be deemed to be a “contract for the operation of an electric transmission facility by an independent entity” which “does not constitute private business use” of their Transmission Facilities under regulations of the Internal Revenue Service appearing, inter alia, in 26 C.F.R. § 1.141-7(g)(1)(ii) and subsequently adopted regulations of similar intent and coverage.   (b) In the event of a change in the nature of this Agreement that would jeopardize the tax-exempt status of any tax-exempt bonds or other debt used to finance Publicly-Owned PTO’s Transmission Facilities, or a change in the state or federal income tax treatment of the arrangements contemplated by this Agreement, or any other set of circumstances, the effect of which would be to render the participation of Publicly-Owned PTOs in the arrangements established by this Agreement inconsistent with the maintenance of the tax-exempt status of bonds or other debt used to finance any Publicly-Owned PTO’s Transmission Facilities, the Parties agree, if so requested, to undertake Commercially Reasonable Efforts to develop revised or replacement arrangements that will enable the Publicly-Owned PTOs to authorize the ISO to exercise Operating Authority over the Publicly-Owned PTOs’ Transmission Facilities without incurring adverse state or federal income tax treatment of their outstanding bonds or other debt used to finance any Publicly-Owned PTO’s Transmission Facilities, and will otherwise maintain the tax-exempt status of Publicly-Owned PTOs’ outstanding bonds or other debt used to finance any Publicly-Owned PTO’s Transmission Facilities. If, and to the extent that, the Parties to this Agreement are not able to accommodate the changes described in this subparagraph (b), the Parties will undertake Commercially Reasonable Efforts to develop an alternative means for Publicly-Owned PTOs to (i) transfer Operating Authority as to its Transmission Facilities to ISO-NE, and (ii) recover the costs of its PTF facilities in the same manner and by the same means as PTOs under this Agreement.   (c) In the event that an electric cooperative or membership corporation that owns PTF and has debt financed or guaranteed by the Rural Utilities Service (“RUS”) of the United States Department of Agriculture (a “Cooperative TO”) becomes a signatory to this Agreement, this Agreement shall become effective as to that Cooperative TO only upon approval of such participation by the RUS, to the extent required by RUS regulations, including those regulations currently codified at 7 C.F.R. § 1717.608 and subsequently adopted regulations of similar intent and coverage. Should such approval be denied or conditioned by the RUS in a manner unacceptable to the Cooperative TO, the other PTOs or the ISO, the other PTOs and the ISO will consult with the affected Cooperative TO and, if so requested, will undertake Commercially Reasonable Efforts to resolve to the extent practicable the objections articulated (and/or   Page No. 45 -------------------------------------------------------------------------------- conditions imposed) by the RUS to the participation of the Cooperative TO in the arrangements contemplated by this Agreement. If, and to the extent that, the Parties to this Agreement are not able to accommodate the concerns expressed by the RUS as to the participation of such Cooperative TO, the Parties will undertake Commercially Reasonable Efforts to develop an alternative means for such Cooperative TO to (i) transfer Operating Authority as to its Transmission Facilities to ISO-NE, and (ii) recover the costs of its PTF facilities in the same manner and by the same means as PTOs under this Agreement.   (d) Nothing in this TOA or any other ISO agreement shall require any PTO on whose behalf Tax-Exempt Debt has been or will be issued, or which will issue Tax-Exempt Debt, to refund prior Tax-Exempt Debt or to violate restrictions applicable to facilities financed with Tax-Exempt Debt including contractual restrictions and covenants regarding use of such facilities.   (e) Nothing contained in this Agreement shall be construed to require any Publicly-Owned PTO: (i) to act in contravention of, or (ii) to refrain from acting where failure to act would be in contravention of, or (iii) to constitute consent or acquiescence by any Publicly-Owned PTO to any action or failure to act of any other Party in contravention of the laws of any State governing the organization or operation of the Publicly-Owned PTO.   3.14 No Impairment of the ISO’s Other Legal Rights and Obligations.   Nothing in this Agreement shall be deemed to impair or infringe on any rights or obligations of the ISO under the Federal Power Act and FERC’s rules and regulations thereunder, including the ISO’s rights and obligations to submit filings to recover its administrative, capital, and other costs, provided that any such rights are not inconsistent with the express terms of this Agreement. During the Term of this Agreement, the ISO shall:   (a) have the rights and obligations to design, develop, operate, maintain and administer the New England Markets and congestion pricing mechanisms (including the exclusive right to make Section 205 filings relating to the Market Rules in accordance with Section 3.04),   (b) have the rights to undertake actions relating to congestion pricing and management in accordance with this Agreement, ISO Market Rules, and applicable FERC orders.   Nothing in this Agreement shall be deemed to impair or infringe on such rights and obligations.   ARTICLE IV   REPRESENTATIONS AND WARRANTIES OF THE PARTIES   4.01 Representations and Warranties of Each PTO. As of the time of execution of this Agreement, each PTO, severally, represents and warrants to the ISO and each other PTO as follows:   (a) Organization. It is duly organized, validly existing and in good standing under the laws of the state of its organization.   Page No. 46 -------------------------------------------------------------------------------- (b) Authorization. It has all requisite power and authority to execute, deliver and perform this Agreement; the execution, delivery and performance by such PTO of this Agreement have been duly authorized by all necessary and appropriate action on the part of such PTO; and this Agreement has been duly and validly executed and delivered by such PTO and constitutes the legal, valid and binding obligations of such PTO, enforceable against such PTO in accordance with its terms; provided, however, that as to Massachusetts Publicly-Owned PTOs, this representation and warranty shall not be binding unless and until they shall have first obtained a finally adjudicated declaratory ruling from the Massachusetts courts that the transfer of Operating Authority over their Transmission Facilities is lawful and permissible under the Massachusetts General Laws.   (c) No Breach. The execution, delivery and performance by such PTO of this Agreement will not result in a breach of any terms, provisions or conditions of any agreement to which such PTO is a party which breach has a reasonable likelihood of materially and adversely affecting such PTO’s performance under this Agreement.   (d) Transmission Facilities. Except as set forth on Schedule 4.01(d), such PTO has listed on one of Schedule 2.01(a) or Schedule 2.01(b), all of the transmission facilities with a voltage level of 69 kV or greater that it owns in the New England Control Area as of the Operations Date and all of the transmission facilities leased to it with a voltage level of 69 kV or greater in the New England Control Area as of the Operations Date.   (e) NO WARRANTY REGARDING EACH PTO’S TRANSMISSION FACILITIES. IN CONNECTION WITH EACH PTO’S GRANT OF OPERATING AUTHORITY TO THE ISO OVER SUCH PTO’S TRANSMISSION FACILITIES PURSUANT TO THE TERMS OF THIS AGREEMENT, SUCH PTO’S TRANSMISSION FACILITIES ARE BEING MADE AVAILABLE PURSUANT TO THIS AGREEMENT TO THE ISO “AS IS, WHERE IS,” AND SUCH PTO IS NOT MAKING ANY REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH TRANSMISSION FACILITIES, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED. THE FOREGOING PROVISION IS NOT INTENDED TO LIMIT OR CONDITION ANY OBLIGATIONS OF THE PTOS EXPRESSLY PROVIDED FOR ELSEWHERE IN THIS AGREEMENT.   4.02 Representations and Warranties of the ISO. As of the time of execution of this Agreement, the ISO represents and warrants to each PTO as follows:   (a) Organization. It is duly organized, validly existing and in good standing under the laws of the state of its organization.   Page No. 47 -------------------------------------------------------------------------------- (b) Authorization. It has all requisite power and authority to execute, deliver and perform this Agreement; the execution, delivery and performance by the ISO of this Agreement have been duly authorized by all necessary and appropriate action on the part of the ISO; and this Agreement has been duly and validly executed and delivered by the ISO and constitutes the legal, valid and binding obligation of the ISO, enforceable against the ISO in accordance with its terms.   (c) No Breach. The execution, delivery and performance by the ISO of this Agreement will not result in a breach of any of the terms, provisions or conditions of any agreement to which the ISO is a party which breach has a reasonable likelihood of materially and adversely affecting the ISO’s performance under this Agreement.   ARTICLE V   COVENANTS OF THE PTOS   5.01 Covenants of Each PTO. Each PTO covenants and agrees that during (i) the Term, or (ii) the period expressly specified herein, as applicable, such PTO shall comply with all covenants and provisions of this Article V, except to the extent the ISO and the number of PTOs necessary to amend this Agreement pursuant to Section 11.04(a) consent in writing to waive such covenants or performance is excused pursuant to Section 11.13(b).   5.02 Financial Statements and Filings. If a PTO’s financial statements, permit applications or any other filing with any Governmental Authority are publicly available, such PTO shall, upon request by the ISO, provide the ISO information sufficient to allow the ISO to locate such financial statements, permit applications or other filings, including the date and place of the filing of the relevant documents.   5.03 Expenses. Except to the extent specifically provided herein, all costs and expenses incurred by a PTO in connection with the negotiation of this Agreement shall be borne by such PTO; provided that nothing herein shall prevent such PTO from recovering such expenses in accordance with applicable law.   5.04 Consents and Approvals.   (a) Each PTO shall exercise Commercially Reasonable Efforts to promptly prepare and file all necessary documentation to effect all necessary applications, notices, petitions, filings and other documents, and shall exercise Commercially Reasonable Efforts to obtain (and will cooperate with each other in obtaining) any consent, acquiescence, authorization, order or approval of, or any exemption or nonopposition by, any Governmental Authority required to be obtained or made by such PTO in connection with this Agreement or the taking of any action contemplated by this Agreement.   (b) Each PTO shall exercise Commercially Reasonable Efforts to obtain consents of all other third parties necessary to the performance of this Agreement by such PTO.   Page No. 48 -------------------------------------------------------------------------------- Each PTO shall promptly notify the ISO of any failure to obtain any such consents and, if requested by the ISO, shall provide copies of all such consents obtained by such PTO.   (c) Nothing in this Section 5.04 shall require any PTO to pay any sums to a third party, including any Governmental Authority, excluding filing fees paid to any Governmental Authority in connection with a filing necessary or appropriate to further action.   5.05 Notice and Cure. Each PTO shall notify the ISO and each other PTO in writing of, and contemporaneously provide the ISO and each other PTO with true and complete copies of any and all information or documents relating to, any event, transaction or circumstance, as soon as practicable after it becomes Known to such PTO, that causes or shall cause any covenant or agreement of such PTO under this Agreement to be breached or that renders or shall render untrue any representation or warranty of such PTO contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. The PTO shall use all Commercially Reasonable Efforts to cure such event, transaction or circumstance as soon as practicable after it becomes Known to such PTO. No notice given pursuant to this Section 5.05 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein or shall in any way limit the ISO’s or any other PTO’s right to seek indemnity under Article IX.   ARTICLE VI   COVENANTS OF THE ISO   6.01 Covenants of the ISO. The ISO covenants and agrees that during (i) the Term, or (ii) the period expressly specified herein, as applicable, the ISO shall comply with all covenants and provisions of this Article VI, except to the extent the Parties consent in writing to a waiver of such covenants or performance is excused pursuant to Section 11.13(b).   6.02 Financial Statements and Filings.   (a) To the extent not provided to stakeholders generally or made publicly available by the ISO, the ISO shall make available to each PTO: (i) quarterly unaudited financial statements within sixty (60) days after each quarter end and (ii) annual audited financial statements within one hundred twenty (120) days after each fiscal year end. In each instance, the financial statements made available by the ISO pursuant to (i) and (ii) above shall be prepared in accordance with Generally Accepted Accounting Principles and shall be true and correct in all material respects.   (b) If financial statements, permit applications or any other filing with any Governmental Authority are publicly available, the ISO shall, upon request by a PTO, provide such PTO information sufficient to allow such PTO to locate such financial statements, permit applications or other filings including the date and place of the filing of the relevant documents.   Page No. 49 -------------------------------------------------------------------------------- 6.03 Expenses. Except to the extent specifically provided herein, all costs and expenses incurred by the ISO in connection with the negotiation of this Agreement shall be borne by the ISO; provided that nothing herein shall prevent the ISO from recovering such expenses in accordance with applicable law.   6.04 Consents and Approvals.   (a) The ISO shall exercise Commercially Reasonable Efforts to promptly prepare and file all necessary documentation to effect all necessary applications, notices, petitions, filings and other documents, and shall exercise Commercially Reasonable Efforts to obtain (and will cooperate with each PTO in obtaining) any consent, acquiescence, authorization, order or approval of, or any exemption or nonopposition by, any Governmental Authority required to be obtained or made by the ISO in connection with this Agreement or the taking of any action contemplated by this Agreement.   (b) The ISO shall exercise Commercially Reasonable Efforts to obtain consents of all other third parties necessary to performance of this Agreement by the ISO. The ISO shall promptly notify each PTO of any failure or anticipated failure to obtain any such consents and, if requested by such PTO, shall provide copies of all such consents obtained by the ISO.   (c) Nothing in this Section 6.04 shall require the ISO to pay any sums to a third party, including any Governmental Authority, excluding filing fees paid to any Governmental Authority in connection with a filing necessary or appropriate to discharge its obligations hereunder.   6.05 Notice and Cure. The ISO shall notify each PTO in writing of, and contemporaneously shall provide each PTO with true and complete copies of any and all information or documents relating to, any event, transaction or circumstance, as soon as practicable after it becomes Known to the ISO, that causes or shall cause any covenant or agreement of the ISO under this Agreement to be breached or that renders or shall render untrue any representation or warranty of the ISO contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. The ISO shall use all Commercially Reasonable Efforts to cure such event, transaction or circumstance as soon as practicable after it becomes Known to the ISO. No notice given pursuant to this Section 6.05 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein or shall in any way limit any right of a PTO to seek indemnity under Article IX.   6.06 Other PTOs.   (a) The ISO shall not perform, or enter into an agreement to perform, any Operating Authority or other RTO functions set forth in Section 3.02 or any other portion of this Agreement for any transmission utility in the New England Control Area subject to the jurisdiction of FERC unless such transmission utility enters into and becomes a Party to this   Page No. 50 -------------------------------------------------------------------------------- Agreement pursuant to Section 11.05; provided, however, that this Section 6.06 shall not apply to agreements with owners of ties to other Control Areas, agreements with owners of Merchant Facilities, agreements with generators (to the extent the ISO obtains operating authority over transmission tie lines owned by generators through such agreements), or agreements with Independent Transmission Companies.   (b) The ISO may enter into agreements to perform Operating Authority or other RTO functions for one or more transmission utilities in a Control Area outside of New England. If the ISO enters into an agreement to perform Operating Authority or other RTO functions for one or more transmission utilities in an area contiguous to the New England Control Area, such agreement shall not: (i) materially and adversely affect the ISO’s ability to perform Operating Authority for any PTO, or (ii) be unduly preferential to any transmission utility similarly situated to any PTO; provided that, if a PTO believes that a proposed agreement to perform Operating Authority or other RTO functions for one or more transmission utilities in a Control Area contiguous to the New England Control Area violates the immediately foregoing proviso, such PTO may notify the ISO, within thirty (30) days after the receipt of the proposed agreement, of its desire to negotiate the additional or modified terms and conditions of this Agreement necessary to relieve said adverse effect or undue preference and if such negotiation is not concluded within thirty (30) days after said notice, either Party may seek to resolve the dispute in accordance with Section 11.14 of this Agreement and may file the additional or modified terms and conditions of this Agreement necessary to relieve said adverse effect or undue preference for approval by the FERC. Notwithstanding anything else in this agreement, including Section 11.04, the PTO proposing any additional or modified terms and conditions of this Agreement shall not be required to demonstrate that the existing terms and conditions of this Agreement are unjust and unreasonable if the ISO has agreed to or the FERC approves the proposed additional or modified terms and conditions in an agreement with transmission utilities in a Control Area contiguous to the New England Control Area. The limitations and procedures in this Section 6.06(b) shall not apply to the ISO’s execution and performance of Coordination Agreements (or amendments thereto) with the operators of neighboring Control Areas, to the administration of Interconnection Agreements with neighboring Control Areas, or to the ISO’s provision of reliability services to New Brunswick Power Corporation.   (c) Nothing in this Agreement shall be construed as granting any FERC-jurisdictional Initial PTO or Additional PTO the right to recover the costs of its Transmission Facilities pursuant to the ISO OATT or any other regulated tariff absent approval or acceptance by the FERC for such cost recovery. The Parties hereto expressly reserve their rights to oppose a request for such cost recovery for any potential PTO that is not recovering its transmission costs pursuant to FERC regulated transmission tariffs prior to the Operations Date.   6.07 Management Agreements. The ISO shall not enter into any management agreement relating to the provision of transmission services with any Person, including a transmission-owning utility, unless such agreement: (a) has been approved by FERC; (b) does not violate the ISO’s Code of Conduct and is on an arms- length basis; or (c) if for an aggregate amount of $1,000,000 or more for a contract with any Participant in the New England Markets,   Page No. 51 -------------------------------------------------------------------------------- including PTOs, is the result of a competitive solicitation process, the outcome of which is based on factors that include, among others, skill, qualifications, costs, reputation, and associated risks.   6.08 ISO Line of Business; Non-Profit-Status. The ISO shall not be operated on a for-profit basis. This provision is not intended to require the ISO to maintain its status as an entity not subject to federal or state taxes, to require the ISO to remain a Delaware not-for-profit corporation or to assure that in any particular year that the ISO’s revenues do not exceed its expenses. The ISO shall not pay dividends or use its net earnings other than to offset ISO operating and capital expenses and maintain reasonable reserves.   ARTICLE VII   TAX MATTERS   7.01 Responsibility for PTO Taxes. Each PTO shall prepare and file all Tax Returns and other filings related to its Transmission Business and Transmission Facilities and pay any Tax liabilities related to its Transmission Business and Transmission Facilities. The ISO shall not be responsible for, or required to file, any Tax Returns or other reports for any PTO and shall have no liability for any Taxes related to any PTO’s Transmission Business or Transmission Facilities. No PTO shall be responsible for, or required to file, any Tax Returns or other reports for any other PTO and shall have no liability for any Taxes related to any other PTO’s Transmission Business or Transmission Facilities. The ISO and each PTO hereby agree that, for tax purposes, a PTO’s Transmission Facilities shall be deemed to be owned by such PTO.   7.02 Responsibility for ISO Taxes. The ISO shall prepare and file all Tax Returns and other filings related to its operations and pay any Tax liabilities related to its operations. No PTO shall be responsible for, or required to, file any Tax Returns or other reports for the ISO and shall have no liability for any Taxes related to the ISO’s operations.   ARTICLE VIII   RELIANCE; SURVIVAL OF AGREEMENTS   8.01 Reliance; Survival of Agreements. Notwithstanding any right of any Party (whether or not exercised) to investigate the accuracy of any of the matters subject to indemnification by any other Party contained in this Agreement, each of the Parties has the right to rely fully upon the representations, warranties, covenants and agreements of each other Party contained in this Agreement. The provisions of Sections 11.01, 11.09, 11.13 and 11.17 and Articles VII and IX shall survive the termination of this Agreement. With respect to Section 3.10 of this Agreement, the ISO will perform final billing consistent with Section 3.10 of this Agreement for all services provided until the Termination Date.   Page No. 52 -------------------------------------------------------------------------------- ARTICLE IX   INDEMNIFICATION; INSURANCE; LIMITATION OF LIABILITIES   9.01 Indemnification.   (a) Subject to Section 9.06(b) through 9.06(e), (i) each PTO shall severally release, indemnify, and hold harmless the ISO from and against any and all damages, losses, liabilities, obligations, claims, demands, suits, proceedings, recoveries, judgments, settlements, costs and expenses, court costs, attorney fees, and all other obligations (each, an “Indemnifiable Loss”) asserted against the ISO by a Person that is not a Party to this Agreement (a “Third Party”) including but not limited to any action by a PTO employee, to the extent alleged to result from, arise out of or be related to such PTO’s acts or omissions that give rise to such Indemnifiable Loss; and (ii) the ISO shall release, indemnify, and hold harmless each PTO from and against any Indemnifiable Loss asserted against such PTO by a Third Party, including but not limited to any action by an ISO employee, to the extent alleged to result from, arise out of or be related to the ISO’s acts or omissions that give rise to such Indemnifiable Loss, including an ISO directive and/or instructions to a Party.   (b) The indemnification by the ISO set forth in Section 9.01(a)(ii) above shall be limited to the extent that the liability of a PTO seeking indemnification would be limited by any applicable Law and arises from a claim by (i) such PTO in such PTO’s role as a Transmission Customer or (ii) a customer of such PTO.   (c) Each PTO shall severally release, indemnify, and hold harmless the ISO from and against any Environmental Damages that the ISO becomes subject to as a result of its exercise of Operational Authority over such PTO’s Transmission Facilities, to the extent such Environmental Damages arose prior to the Operations Date or did not result from the ISO’s acts or omissions.   (d) Each PTO and/or the ISO each hereby (i) waives any defense or immunity it might otherwise have under applicable workers’ compensation laws or any other statute, or judicial decision, disallowing or limiting such indemnification and (ii) consents to a cause of action for indemnity and/or contribution in connection with such indemnification.   9.02 Notice of Proceedings. Each party entitled to receive indemnification under this Agreement (each, an “Indemnitee”) shall promptly notify the party who holds an indemnification obligation hereunder (in each case, the “Indemnifying Party”) of any Indemnifiable Loss in respect of which such Indemnitee is or may be entitled to indemnification pursuant to Section 9.01. Such notice shall be given as soon as reasonably practicable after the Indemnitee becomes aware of the Indemnifiable Loss and that any such claim or proceeding may give rise to an indemnification obligation hereunder. Such notice shall describe the nature of the loss or proceeding in reasonable detail and shall indicate, if practicable, the estimated amount of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The delay or failure of such Indemnitee to provide the notice required pursuant to this Section 9.02 shall not release the   Page No. 53 -------------------------------------------------------------------------------- Indemnifying Party from any indemnification obligation which it may have to such Indemnitee except (a) to the extent that such failure or delay materially and adversely affects the Indemnifying Party’s ability to defend such action or increases the amount of the Indemnifiable Loss, and (b) that the Indemnifying Party shall not be liable for any costs or expenses of the Indemnitee in the defense of the claim, suit, action or proceeding during such period of failure or delay.   9.03 Defense of Claims.   (a) Unless and until the Indemnifying Party (i) acknowledges in writing its obligation within ten (10) calendar days of the Indemnitee’s notice of a claim, suit, action or proceeding, and (ii) assumes control of the defense of such claim, suit, action or proceeding in accordance with Section 9.03(b), the Indemnitee shall have the right, but not the obligation, to contest, defend and litigate, with counsel of its own selection, any claim, action, suit or proceeding by any third party alleged or asserted against such Indemnitee in respect of, resulting from, related to or arising out of any matter for which it is entitled to be indemnified hereunder, and the reasonable costs and expenses thereof shall be subject to the indemnification obligations of the Indemnifying Party hereunder.   (b) Upon acknowledging in writing its obligation to indemnify an Indemnitee to the extent required pursuant to this Article IX and paying all reasonable costs incurred by such Indemnitee in its defense, including reasonable attorney’s fees, the Indemnifying Party shall be entitled, at its option (subject to Section 9.03(d)), to assume and control the defense of such claim, action, suit or proceeding at its expense with counsel of its selection, subject to the prior reasonable approval of the Indemnitee.   (c) Neither the Indemnifying Party nor the Indemnitee shall be entitled to settle or compromise any such claim, action, suit or proceeding without the prior written consent of the other; provided, however, that such consent shall not be unreasonably withheld.   (d) Following the acknowledgment of the indemnification and the assumption of the defense by the Indemnifying Party pursuant to Section 9.03(b), the Indemnitee shall have the right to employ its own counsel and such counsel may participate in such action, but the fees and expenses of such counsel shall be at the expense of such Indemnitee, when and as incurred, unless: (i) the employment of counsel by such Indemnitee has been authorized in writing by the Indemnifying Party; (ii) the Indemnitee shall have reasonably concluded and specifically notified the Indemnifying Party that there may be a conflict of interest between the Indemnifying Party and the Indemnitee in the conduct of the defense of such action; (iii) the Indemnifying Party shall not in fact have employed independent counsel reasonably satisfactory to the Indemnitee to assume the defense of such action and shall have been so notified by the Indemnitee; (iv) the Indemnitee shall have reasonably concluded and specifically notified the Indemnifying Party that there may be specific defenses available to it which are different from or additional to those available to the Indemnifying Party or that such claim, action, suit or proceeding involves or could have a material adverse effect upon the Indemnitee beyond the scope of this Agreement; or (v) the Indemnifying Party shall not have taken reasonable steps necessary to defend diligently   Page No. 54 -------------------------------------------------------------------------------- such action within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps. If clause (ii), (iii), (iv) or (v) of the preceding sentence shall be applicable, then counsel for the Indemnitee shall have the right to direct the defense of such claim, action, suit or proceeding on behalf of the Indemnitee and the reasonable fees and disbursements of such counsel shall constitute indemnifiable legal or other expenses hereunder.   (e) If the amount of any Indemnifiable Loss incurred by an Indemnitee, at any time subsequent to the making of an indemnity payment by an Indemnifying Party in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the Prime Rate) shall promptly be repaid by the Indemnitee to the Indemnifying Party. In the event that the claim, demand or suit giving rise to an Indemnifiable Loss is ultimately adjudicated, if a Final Order confirms that the Indemnitee was not entitled to indemnification hereunder, then the amount advanced by the Indemnifying Party in respect of such Indemnifiable Loss (together with interest thereon from the date of payment thereof at the Prime Rate) shall promptly be paid by the Indemnitee to the Indemnifying Party.   9.04 Subrogation. Upon payment of any indemnification by a party pursuant to this Article IX, the Indemnifying Party, without any further action, shall be subrogated to any and all claims that the Indemnitee may have relating thereto, and such Indemnitee shall at the request and expense of the Indemnifying Party cooperate with the Indemnifying Party and give at the request and expense of the Indemnifying Party such further assurances as are necessary or advisable to enable the Indemnifying Party vigorously to pursue such claims.   9.05 Insurance.   (a) The ISO shall at all times, at its own cost and expense, carry and maintain or cause to be carried and maintained throughout the Term: (i) liability and errors and omissions insurance (including blanket coverage for contractual liability), insuring the ISO against liability for injury or death to persons, damage to property and environmental restoration, (ii) worker’s compensation insurance, (iii) property insurance and (iv) directors’ and officers’ insurance. The amount of the insurance coverages and deductibles shall generally be comparable to other independent system operators or RTOs, taking into consideration the relative size of the ISO and its contractual and tariff liabilities as compared to the other system operators or RTOs administering similar market structures. In assessing the comparable coverages and deductibles, the ISO may rely on the advice of its insurance consultants.   (b) Each PTO will maintain property insurance on its Transmission Facilities and liability insurance in accordance with good utility practice. Each PTO may self insure such amount to the extent it currently self insures similar policies and amounts.   Page No. 55 -------------------------------------------------------------------------------- (c) All insurance required under this Section 9.05 by outside insurers shall be maintained with insurers qualified to insure the obligations or liabilities under this Agreement and having a Best’s rating of at least B+ VIII (or an equivalent Best’s rating from time to time of B+ VIII), or in the event that from time to time Best’s ratings are no longer issued with respect to insurers, a comparable rating by a nationally recognized rating service or such other insurers as may be agreed upon by the PTOs and the ISO.   (d) The PTOs shall be listed as additional insured parties on the liability and errors and omissions insurance required to be maintained by the ISO and the ISO shall be listed as an additional insured party on the liability insurance maintained by each PTO. Upon execution of this Agreement, and when requested thereafter, each Party shall furnish each other Party with certificates of all such insurance policies setting forth the amounts of coverage, policy numbers, and date of expiration for such insurance in conformity with the requirements of this Agreement.   (e) The insurance policies maintained by the ISO hereunder shall not be canceled, terminated or the terms thereof modified or amended without at least thirty (30) days’ prior notice to the PTOs.   (f) If any insurance policy required to be maintained by the ISO hereunder shall not be available to the ISO on a commercially reasonable basis (taking into account both terms and premiums), the ISO shall obtain a written report of an independent insurance advisor of recognized national standing, chosen by the PTOs and reasonably acceptable to the ISO, confirming in reasonable detail that such insurance policy, in respect of amount or scope of coverage, is not available on a commercially reasonable basis from insurers of recognized standing. During any period with respect to which any insurance policy required by this Agreement is not commercially available, the ISO shall nevertheless maintain insurance that approximates such required insurance policy as closely as commercially practical, to the extent it is available on a commercially reasonable basis from insurers of recognized standing. If any insurance policy which was previously not held or discontinued because of its commercial unavailability later becomes available on a commercially reasonable basis, the ISO shall obtain or reinstate such insurance.   9.06 Assumption of Liability.   (a) (i) Each PTO shall be severally liable to the ISO, and the ISO shall be liable to each PTO, for losses, liabilities, damages, diminution in value, obligations, claims, proceedings, fines, deficiencies and expenses (collectively, “Losses”) caused by such Party’s grossly negligent acts or omissions or willful misconduct (including the grossly negligent acts or omissions or willful misconduct of such Party’s directors, Affiliates, members, officers, employees, agents, and contractors) in connection with the performance of such Party of its obligations under this Agreement; and (ii) no Party shall be liable to another Party for any incidental, indirect, special, exemplary, punitive or consequential damages, including lost revenues or profits, even if such damages are foreseeable or the damaged Party has advised such Party of the possibility of such damages and regardless of whether any such damages are deemed   Page No. 56 -------------------------------------------------------------------------------- to result from the failure or inadequacy of any exclusive or other remedy. The foregoing limitations shall not apply to the right of the Parties to seek indemnification under this Agreement in accordance with Section 9.01.   (b) Nothing in this Agreement shall be deemed to affect the right of the ISO to recover its costs due to liability under this Article IX through the ISO Participants Agreement or the ISO Administrative Tariff.   (c) The ISO shall not be liable to any PTO with respect to any damages incurred by such PTO that are directly attributable to the ISO’s reliance on facility ratings established by such PTO.   (d) No PTO shall be liable to any other PTO and/or the ISO by reason of this Agreement (whether based on contract, indemnification, warranty, tort, strict liability or otherwise) for: (i) any acts or omissions taken or done in compliance with, or good faith attempts to comply with, the directives and/or instructions of the ISO, except in cases of the gross negligence or willful misconduct of such PTO; and/or (ii) any costs and expenses relating to the operation, repair, maintenance or improvement of any Transmission Facility of the ISO or any other PTO.   (e) Notwithstanding any of the foregoing, the ISO shall be liable in actual damages for failure to make payments or transfer sums under Section 3.10 of this Agreement if the ISO fails to discharge its obligation to prepare and send bills or to perform its obligations pursuant to Section 3.10 of this Agreement.   ARTICLE X   TERM; DEFAULT AND TERMINATION   10.01 Term; Termination Date.   (a) Term and Operations Date.   (i) Term. Subject to the terms set forth in this Section 10.01, the initial term of this Agreement (the “Initial Term”) shall commence on the Operations Date and shall continue for a period of five years. Subject to the terms set forth in this Section 10.01, the Initial Term shall be extended automatically for additional two-year periods (each, an “Additional Term”). Any one or more PTOs may withdraw from this Agreement effective at the end of the Initial Term or the end of any Additional Term by providing no less than 180 days’ prior notice of such withdrawal to the other Parties. Together, the Initial Term and the Additional Term(s), if any, shall constitute the term (the “Term”) of this Agreement.   Page No. 57 -------------------------------------------------------------------------------- (ii) Operations Date. The “Operations Date” shall be the date on which the ISO and the Initial Participating Transmission Owners unanimously agree to place this Agreement, the ISO OATT, and related agreements and documents into effect. The ISO and the Initial Participating Transmission Owners shall jointly issue a written notice (the “Notice of Operations Date”) at least thirty (30) calendar days in advance of the Operations Date. The Notice of Operations Date shall be posted on the ISO website and filed with FERC on an informational basis.   (b) PTO Withdrawal During The Term. Subject to Section 10.01(e), any one or more PTOs may withdraw from this Agreement at any time during the Term if any of the following shall have occurred:   (i) upon an ISO event of default in accordance with Section 10.03(a), provided that the PTOs shall exercise this right in accordance with Section 10.03(b)(i).   (ii) if a Final Order of FERC, a Final Order of a Federal court or a Federal law sets forth a change in policy stating that: (A) the federal government no longer encourages the participation of transmission owners in RTOs and such Final Order or law affirmatively states that transmission owners participating in an RTO may withdraw therefrom, or (B) that the recovery of costs for existing Transmission Facilities will be subject to any change in policy which would prevent a PTO from recovering the costs of existing Transmission Facilities on a regulated cost-of-service basis; provided that withdrawal pursuant to (A) or (B) of this provision shall require notice to the other Parties not less than 180 days prior to the Termination Date established pursuant to Section 10.01(e).   (iv) FERC issues an order putting into effect changes to the relative rights and responsibilities of the PTOs and the ISO under this Agreement, including changing the scope and definition of Operating Authority, so as to materially adversely affect the interests of one or more PTOs, unless the PTOs have agreed to such changes in accordance with Section 11.04; provided that: (A) only the PTO(s) affected by such FERC order shall have the right to withdraw pursuant to this provision; (B) withdrawal pursuant to this provision shall require notice to the other Parties not less than 180 days prior to the Termination Date established pursuant to Section 10.01(e); and (C) a PTO providing a notice of withdrawal pursuant to this provision shall be required to rescind such notice if FERC issues a subsequent order prior to the Termination Date so as to eliminate the changes to the relative rights and responsibilities of the PTOs and the ISO under this Agreement.   (v) the withdrawing PTO has entered into an agreement to form an ITC in accordance with Attachment M to the ISO OATT which has been accepted   Page No. 58 -------------------------------------------------------------------------------- for filing by the FERC, provided that withdrawal pursuant to this provision shall be effective concurrent with the effective date of such agreement.   (vi) the withdrawing PTO has obtained authorization from the FERC to join another RTO or other similar organization (such as an Independent System Operator) in connection with a merger with or acquisition by another entity other than another PTO.   (c) Remaining PTOs. In the event that one or more, but less than all, PTOs withdraw from this Agreement in accordance with Section 10.01(a) or (b), this Agreement shall remain in full force and effect with respect to all other PTOs; provided that in the event of a withdrawal under Section 10.01(a), the remaining PTOs shall have a period of twenty days from the date of the notice provided in accordance with Section 10.01(a) to notify the other Parties that it intends to withdraw from this Agreement at the end of the Initial Term or any Additional Term, as applicable. The “Termination Date” shall mean the date of termination established in accordance with Section 10.01(e).   (d) Termination By the ISO. The ISO may terminate its obligations under this Agreement and surrender its Operating Authority over the Transmission Facilities if any of the following shall have occurred:   (i) the withdrawal of one or more PTOs from this Agreement and as a result of such withdrawal the ISO cannot maintain system reliability or administer efficient and competitive markets.   (ii) FERC issues an order putting into effect material changes in the liability and indemnification protections afforded to the ISO under this Agreement or the ISO OATT, provided that: (A) withdrawal pursuant to this provision shall require notice to the other Parties not less than 180 days prior to the Termination Date established pursuant to Section 10.01(e); and (B) the ISO shall be required to rescind such notice if FERC issues a subsequent order prior to the Termination Date so as to eliminate the material changes to such liability and indemnification protections.   (iii) FERC issues an order putting into effect an amendment or modification of this Agreement that materially adversely affects the ISO’s ability to carry out its responsibilities under this Agreement, unless the ISO has agreed to such changes in accordance with Section 11.04, provided that: (A) withdrawal pursuant to this provision shall require notice to the other Parties not less than 180 days prior to the Termination Date established pursuant to Section 10.01(e); and (B) the ISO shall be required to rescind such notice if FERC issues a subsequent order prior to the Termination Date so as to eliminate the material adverse effect to the ISO’s ability to carry out its responsibilities under this Agreement.   Page No. 59 -------------------------------------------------------------------------------- (iv) upon a PTO event of default in accordance with Section 10.04(a), provided that the ISO shall exercise this right in accordance with Section 10.04(b)(i).   (e) Actions Prior To Withdrawal or Termination. Upon submission of a written notice of termination or withdrawal by a Party or Parties, the Party or Parties submitting such notice shall commence the development of a plan under which Operating Authority shall be transferred from the ISO to another entity. The Termination Date with respect to any PTO or the ISO shall not occur until both: (a) the ISO and all affected PTOs have agreed upon a plan addressing the technical, operational and market issues associated with the transfer of Operating Authority in connection with such termination or withdrawal and such plan has been implemented, provided that: (i) if the Parties are unable to reach agreement on such plan, any affected Party shall have the right to submit the matter to FERC for resolution without additional negotiation under Section 11.14; (ii) with respect to a withdrawal pursuant to Section 10.01(a), no PTO shall be required to remain a Party to this Agreement for longer than one year after providing notice of withdrawal; and (iii) in the event of a default by the ISO, the affected PTOs may require that the ISO immediately make arrangements for the orderly transfer of the ISO’s invoicing and collection functions with respect to such PTOs prior to the Termination Date in accordance with Section 10.03(b); and (b) all required regulatory approvals, if any, have been obtained for such withdrawal or termination, including any approvals required pursuant to Section 10.01(f).   (f) Approvals. Notwithstanding any other provision contained herein or in any other document to the contrary, any termination or withdrawal requested under this Section 10.01 shall be effective: (1) unless a party to this Agreement seeking to challenge the request demonstrates that the requested termination or withdrawal is contrary to the public interest under the Mobile-Sierra Doctrine and (ii) subject to the FERC’s determination under Section 205 of the Federal Power Act that the termination or withdrawal is just, reasonable and not unduly discriminatory or preferential. Each PTO exercising its right to withdraw or terminate in accordance with this Section 10.01 shall file with the FERC, pursuant to Section 205 of the FPA, the tariffs and rate schedules applicable to transmission service over such PTO’s Transmission Facilities to become effective upon such termination or withdrawal.   (g) Continuing Obligations. Each withdrawing or terminating Party shall have the following continuing obligations following withdrawal from this Agreement   (i) All financial obligations incurred and payments applicable to the time period prior to the Termination Date shall be honored by the terminating or withdrawing Party and each other Party in accordance with the terms of this Agreement, and each Party shall remain liable for all obligations arising hereunder prior to the Termination Date.   Page No. 60 -------------------------------------------------------------------------------- (ii) Any withdrawing PTO that is not a Publicly-Owned PTO shall file a replacement transmission tariff to replace the ISO OATT, unless FERC rules no longer require the filing of such a tariff. Any withdrawing Publicly-Owned PTO shall adopt the Order No. 888 pro forma tariff.   10.02 Release of Operating Authority.   (a) Upon the Termination Date, the ISO’s right and obligation to exercise Operating Authority over the Transmission Facilities of a PTO with whom this Agreement has terminated shall promptly cease, and, in accordance with Section 10.01, the ISO shall be deemed to have released and returned, and such PTO (or its designee) shall have assumed, Operating Authority over such Transmission Facilities on the Termination Date.   (b) After the Termination Date, the ISO shall take Commercially Reasonable Efforts to assist the terminating PTO or such PTO’s designee in resuming performance of the functions comprising Operating Authority.   (c) The expenses associated with any termination under Section 10.01 shall be at the PTO’s expense unless (1) the termination is by the ISO pursuant to Section 10.01(d)(ii) or (iii), or (2) pursuant to Section 10.03 in the event of an ISO default.   10.03 Events of Default of the ISO.   (a) Events of Default of the ISO. Subject to the terms and conditions of this Section 10.03, the occurrence of any of the following events shall constitute an event of default of the ISO under this Agreement:   (i) Failure by the ISO to perform any material obligation set forth in this Agreement and continuation of such failure for longer than thirty (30) days after the receipt by the ISO of written notice of such failure from a PTO; provided, however, that if the ISO is diligently pursuing a remedy during such thirty (30) day period, said cure period shall be extended for an additional thirty (30) days or as otherwise agreed by all affected Parties   (ii) If there is a dispute between the ISO and a PTO as to whether the ISO has failed to perform a material obligation, the cure period(s) provided in Section 10.03(a)(i) above shall run from the point at which a finding of failure to perform has been made by a Governmental Authority;   (iii) Any attempt (not including consideration of strategic options or entering into exploratory discussions) by the ISO to transfer an interest in, or assign its obligations under, this Agreement, except as otherwise permitted hereunder;   Page No. 61 -------------------------------------------------------------------------------- (iv) Failure of the ISO (if it has received the necessary corresponding funds from ISO customers) to pay when due any and all amounts payable to any PTO by the ISO as part of the settlement process pursuant to Section 3.10 within three (3) Business Days;   (v) Failure of the ISO to pay when due any other amounts payable to any PTO by the ISO pursuant to this Agreement within thirty (30) days of the due date;   (vi) The exercise of Operating Authority or other responsibilities under this Agreement in a manner that results in a material amount of damage to or the destruction of a PTO’s Transmission Facilities due to the willful misconduct or gross negligence of the ISO or the repeated and persistent exercise by the ISO of its Operating Authority in a manner that subjects Transmission Facilities to the significant risk of a material amount of damage, provided that exercise by the ISO of its Operating Authority over any Transmission Facility both in accordance with the Operating Procedures and within the ratings established by a PTO for such Transmission Facility shall not be considered to subject such Transmission Facility to risk of damage and further provided that nothing in this Section 10.03(a)(v) shall be deemed to excuse the ISO from complying with its obligations under this Agreement or to limit the other events of default specified in this Section 10.03(a).   (vii) With respect to the ISO, (A) the filing of any petition in bankruptcy or insolvency, or for reorganization or arrangement under any bankruptcy or insolvency laws, or voluntarily taking advantage of any such laws by answer or otherwise or the commencement of involuntary proceedings under any such laws, (B) assignment by the ISO for the benefit of creditors; or (C) allowance by the ISO of the appointment of a receiver or trustee of all or a material part of its property if such receiver or trustee is not discharged within thirty (30) days after such appointment.   (b) Remedies for Default. If an event of default by the ISO occurs, each affected PTO shall have the right to avail itself of any or all of the following remedies, all of which shall be cumulative and not exclusive:   (i) To terminate its participation in this Agreement with respect to such PTO in accordance with Section 10.01(e); provided that if the ISO contests such allegation of an ISO event of default, this Agreement shall remain in effect pending resolution of the dispute, but any applicable notice period shall run during the pendency of the dispute;   (ii) To demand that the ISO shall immediately make arrangements for the orderly transfer of Operating Authority over such PTO’s Transmission Facilities and assist such PTO or such PTO’s designee in resuming performance   Page No. 62 -------------------------------------------------------------------------------- of the functions comprising Operating Authority, provided that: (A) such PTO shall not be liable for the reimbursement of the ISO for any costs and expenses incurred by the ISO in connection therewith; (B) the ISO and all affected PTOs shall agree upon a plan addressing the technical and operational issues associated with such transfer of Operating Authority, and such plan has been implemented; and (C) if the Parties are unable to reach agreement on such plan, any affected Party shall have the right to submit the matter to FERC for resolution without additional negotiation under Section 11.14;   (iii) To demand that the ISO shall terminate any right of the ISO, immediately make arrangements for the orderly transfer of the ISO’s invoicing and collection functions with respect to such PTO and assist such PTO or such PTO’s designee in resuming performance of the functions the later of 20 days from the date of making such demand or the start of the next billing cycle. Without limiting the generality of the foregoing, the ISO agrees to deliver all information and files necessary to perform billing for regional transmission service (the “Regional Billing”), including but not limited to transferring all files then used by the ISO to prepare rate calculations and billing to a billing representative designated by the PTOs. The PTOs will provide the ISO, within 30 days of the Operations Date, with a list of the specific information and files necessary if the PTOs were to perform the Regional Billing;   (iv) To make any payment or perform or comply with any agreement that the ISO shall be obligated to pay, perform or comply with under this Agreement and the amount of reasonable expenses (including attorneys’ fees and any other reasonable professionals’ fees and expenses) of such PTO incurred in connection with such payment or the performance of or compliance with any such agreement shall be payable by the ISO upon demand;   (v) To obtain such specific performance and/or an injunction to prevent breaches of this Agreement and to enforce specifically the terms and conditions hereof; and/or   (vi) To obtain damages pursuant to the indemnity provisions of Sections 9.01 and 9.06 and for non-performance of invoicing/payment obligations under Section 3.10 of this Agreement.   10.04 Events of Default of a PTO.   (a) Events of Default of a PTO. Subject to the terms and conditions of this Section 10.04, the occurrence of any of the events listed below shall constitute an event of default of such PTO under this Agreement (in each instance, a “PTO Default”):   (i) Failure by such PTO to perform any material obligation set forth in this Agreement and continuation of such failure for longer than thirty (30) days   Page No. 63 -------------------------------------------------------------------------------- after the receipt by such PTO of written notice of such failure from the ISO, provided, however, that if such PTO is diligently pursuing a remedy during such thirty (30) day period, said cure period shall be extended for an additional thirty (30) days or as otherwise agreed by all affected Parties;   (ii) If there is a dispute between a PTO and the ISO as to whether the PTO has failed to perform a material obligation, the cure period(s) provided in Section 10.04(a)(i) above shall run from the point at which a finding of failure to perform has been made by a Governmental Authority;   (iii) With respect to such PTO, (A) the filing of any petition in bankruptcy or insolvency, or for reorganization or arrangement under any bankruptcy or insolvency laws, or voluntarily taking advantage of any such laws by answer or otherwise or the commencement of involuntary proceedings under any such laws, (B) assignment by such PTO for the benefit of creditors; or (C) allowance by such PTO of the appointment of a receiver or trustee of all or a material part of its property if such receiver or trustee is not discharged within thirty (30) days after such appointment; or   (iv) Failure of the PTO to pay when due any amounts payable to the ISO by such PTO pursuant to this Agreement within thirty (30) days of the due date.   (b) Remedies for Default. If an event of default by a PTO occurs, the ISO shall have the following remedies, all of which shall be cumulative and not exclusive:   (i) terminate this Agreement with respect to such PTO in accordance with Section 10.01(e); provided that if such PTO contests such allegation of a PTO event of default, this Agreement shall remain in effect pending resolution of the dispute, but any applicable notice period shall run during the pendency of the dispute;   (ii) such specific performance and/or an injunction to prevent breaches of this Agreement and to enforce specifically the terms and conditions hereof; or   (iii) obtain damages pursuant to the indemnity provisions of Sections 9.01 and 9.06.   (c) Notwithstanding anything to the contrary herein, nothing in this Section 10.04 shall be deemed to give the ISO or any ISO agent or designee the right to exercise any functions other than those enumerated as Operating Authority in Section 3.02 or the right to take physical control of any PTO facilities.   Page No. 64 -------------------------------------------------------------------------------- ARTICLE XI   MISCELLANEOUS   11.01 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all communications and notices provided for herein shall be in writing and any such communication or notice shall become effective (a) upon personal delivery thereof, including by overnight mail or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by facsimile, upon receipt thereof; provided that such transmission is promptly confirmed by either of the methods set forth in clauses (a) or (b) above, in each case addressed to each party and copy party hereto at its address set forth in Schedule 11.01 or, in the case of any such party or copy party hereto, at such other address as such party or copy party may from time to time designate by written notice to the other parties hereto; further provided that a notice given in connection with this Section 11.01 but received on a day other than a Business Day, or after business hours in the situs of receipt, will be deemed to be received on the next Business Day.   11.02 Supersession of Prior Agreements. With respect to the subject matter hereof, this Agreement (together with all schedules and exhibits attached hereto) constitutes the entire agreement and understanding among the Parties with respect to all subjects covered by this Agreement and supersedes all prior discussions, agreements and understandings among the Parties with respect to such matters, including those agreements set forth on Schedule 11.02 attached hereto. To the extent that such other agreements address subjects addressed in this Agreement, this Agreement shall govern.   11.03 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, shall be cumulative and not alternative.   11.04 Amendment; Limitations on Modifications of Agreement.   (a) Except as otherwise specifically provided herein, this Agreement shall only be subject to modification or amendment as follows:   (i) Establishment of Committee. The PTOs shall form a PTO Administrative Committee (“PTO AC”) which shall meet periodically (1) to consider recommendations to the ISO regarding actions, policies and rules of the ISO affecting the PTOs’ Transmission Facilities; (2) to consider and vote upon proposed amendments to this Agreement; (3) to consult with the ISO as may be provided for under this Agreement; and (4) to consider any other matters relating   Page No. 65 -------------------------------------------------------------------------------- to the administration of this Agreement by the PTOs. The PTO AC shall be organized in the manner described in Schedule 11.04.   (ii) Amendments to Section 11.04(a)(iii) and Schedule 11.04. Notwithstanding anything in this Agreement which may be construed to the contrary, the PTOs may unilaterally amend or revise Sections 11.04(a)(iii)(B) and 11.04(a)(iii)(C) of this Agreement and Schedule 11.04 to this Agreement through a vote of the PTO AC as set forth in Section 12 of Schedule 11.04, without the consent of the ISO, and may submit such amended Agreement under Section 205 of the Federal Power Act. Notwithstanding anything in this Agreement which may be construed to the contrary, the ISO may unilaterally amend or revise section 11.04(a)(iii)(A) of this Agreement through the process set forth in that subsection, without the consent of the PTOs, and may submit such amended Agreement under Section 205 of the Federal Power Act.   (iii) Amendments to this Agreement. Except as set forth in section 11.04(a)(ii), this Agreement may be amended by mutual agreement of the PTOs and the ISO and the acceptance of any such amendment by FERC.   (A) ISO Agreement to Amendments. The ISO shall be deemed to have agreed to such amendment upon execution of the amendment.   (B) PTO Agreement to General Amendments. Except as otherwise provided in sections 11.04(a)(iii)(C) and 11.04(a)(iii)(D), the PTOs will be deemed to have agreed to such amendment upon a vote of the PTOs meeting all of the following criteria:   (1) Weighted Voting. A vote to approve an amendment to this Agreement under this Section 11.04(a)(iii)(B) shall be cast by a number of the Individual Votes of the PTOs equal to or greater than sixty-five (65) percent of the aggregate Individual Votes of all the PTOs;   (2) Support of Non-Affiliated PTOs. In addition to the Individual Votes satisfying Section 11.04(a)(iii)(B)(i), a vote of the PTOs to approve an amendment to this Agreement under this Section 11.04(a)(iii)(B) shall be cast by a number of Non-Affiliated PTOs that have Supporting Votes-that are equal to or greater than (x) fifty (50) percent of such Non-Affiliated PTOs or (y) four (4), whichever is less; and;   Page No. 66 -------------------------------------------------------------------------------- (3) Limits on a Single PTO Veto. The negative vote of a single PTO with Individual Votes equal to thirty-five (35) but not more than fifty (50) percent of the aggregate Individual Votes of the PTOs shall not cause the amendment to fail if the combined Individual Votes of the PTOs voting in favor of the amendment are equal to or greater than ninety-five (95) percent of the Individual Votes of all the remaining PTOs. The negative vote of a single PTO with Individual Votes greater than fifty (50) percent of the aggregate Individual Votes of the PTOs voting shall cause the amendment to fail.   (C) PTO Agreement Requiring a Super Majority Vote. The PTOs will be deemed to have agreed to an amendment to Section 3.04(b) of this Agreement upon a vote of the PTOs meeting both of the following criteria:   (1) Weighted Voting. A vote to approve an amendment to section 3.04(b) of this Agreement shall be cast by a number of the Individual Votes of the PTOs equal to or greater than ninety-five (95) percent of the aggregate Individual Votes of all the PTOs; and   (2) Support of Non-Affiliated PTOs. In addition to the Individual Votes satisfying Section 11.04(a)(iii)(C)(i), a vote of the PTOs to approve an amendment to section 3.04(b) of this Agreement shall be cast by a number of Non-Affiliated PTOs that have Supporting Votes-that are equal to or greater than (x) seventy (70) percent of such Non-Affiliated PTOs or (y) five (5), whichever is less.   (D) PTO Agreement Requiring Consent of Affected Party. Notwithstanding anything in this Agreement which may be construed to the contrary, the PTO rights and privileges contained in sections 2.01, 3.04(a), 3.04(j), 3.04(k), 3.07, 3.13, 10.01(a), 10.01(b), and 11.04 of this Agreement and sections 12 and 13 of Schedule 11.04 to this Agreement shall not be modified or diminished by amendment to this Agreement or in any other way without the prior written consent of each PTO that may be affected thereby.   (E) Amendments to PTO Voting Provisions to Reflect Additional Participating Transmission Owners. If an   Page No. 67 -------------------------------------------------------------------------------- unaffiliated transmission utility from outside the New England Control Area becomes or is about to become an Additional Participating Transmission Owner pursuant to Section 11.05 of this Agreement, and if any initial PTO’s Individual Vote will change by more than 20 percent as a result, the PTOs shall enter into good faith negotiations to consider appropriate modifications to Sections 11.04(a)(iii)(B) and 11.04(a)(iii)(C) of this Agreement and Schedule 11.04 to this Agreement. The PTOs may unilaterally amend or revise Sections 11.04(a)(iii)(B) and 11.04(a)(iii)(C) of this Agreement and Schedule 11.04 to this Agreement through a vote of the PTO AC as set forth in Section 11.04(a)(iii)(D), without the consent of the ISO, and may submit such amended Agreement to the FERC under Section 205 of the Federal Power Act.   (F) Supporting Votes. Each PTO that has a minimum of one (1) percent of the aggregate Individual Votes of all the PTOs at the time of the applicable PTO AC meeting shall have a single “Supporting Vote.” The Individual Votes of any group of two or more PTOs that each have an Individual Vote of less than one (1) percent may be combined and voted so that if the combined Individual Votes of such PTOs are equal to or greater than one (1) percent of the aggregate Individual Votes of all the PTOs at the time of the applicable PTO AC meeting, such combined Individual Votes shall be counted as a single Supporting Vote. Subject to a sufficient number of Publicly-Owned PTOs executing this Agreement, as of the Operations Date the combined Individual Votes of all of the Publicly-Owned PTOs is expected to be greater than one (1) percent of the aggregate Individual Votes of all the PTOs. In the event that the combined Individual Votes of all of the Publicly-Owned PTOs as of the Operations Date is greater than one (1) percent of the aggregate Individual Votes of all the PTOs, if at any time after the Operations Date, all of the Publicly-Owned PTOs have Individual Votes of less than one (1) percent of the aggregate Individual Votes of all of the PTOs due to the addition of new transmission assets and the depreciation of existing transmission assets, then the combined Individual Votes of all of the Publicly Owned PTOs shall nonetheless be counted as a single Supporting Vote.   Page No. 68 -------------------------------------------------------------------------------- (b) In light of the foregoing, the Parties agree that they shall not rely to their detriment on any purported amendment, waiver or other modification of any rights under this Agreement unless the requirements of this Section 11.04 are satisfied and further agree not to assert equitable estoppel or any other equitable theory to prevent enforcement of this provision in any court of law or equity, arbitration or other proceeding.   (c) Absent the agreement of the Parties to any proposed change hereof or an amendment hereof pursuant to Section 11.04(a), the standard of review for changes to the following sections of this Agreement (or changes to any schedules associated with such sections) proposed by a Party, a non-party or the Federal Energy Regulatory Commission acting sua sponte shall be the “public interest” standard of review under the Mobile-Sierra Doctrine: 2.01, 2.04, 3.01, 3.02, 3.03, 3.04, 3.05, 3.06, 3.07, 3.09, 3.10, 3.11, 3.13, 3.14, 4.01(e), 6.06, 6.07, 6.08, 9.01, 9.06, 10.02, 10.03, 10.04, 11.04(a) - (d), 11.05, 11.06, 11.08, 11.17, 11.19(d), and Article I, as it applies to the foregoing sections. Absent the agreement of the Parties to any proposed change hereof or an amendment hereof pursuant to Section 11.04(a), with respect to changes to the remaining provisions of this Agreement proposed by a Party, a non-party or the Federal Energy Regulatory Commission acting sua sponte, the standard of review shall be that provided under Section 206 of the Federal Power Act.   (d) Notwithstanding the Parties’ rights under Section 3.04 hereof, neither the ISO nor any PTO shall propose to modify or amend the ISO OATT nor any other tariff, rate schedule, procedure, protocol, or agreement applicable to the ISO or the PTOs in any manner that would limit, alter, or adversely affect the rights and responsibilities of the non-proposing Parties under this Agreement or that would otherwise be inconsistent with the provisions of this Agreement unless: (i) the PTOs and the ISO have entered into a prior written agreement to make corresponding modifications to this Agreement in accordance with this Section 11.04, or (ii) if corresponding modifications to the provisions of this Agreement enumerated in Section 11.04(c) above are required, the proposing Party also requests FERC to find (or FERC has already so found) that the corresponding modifications are required under the “public interest” standard of review under the Mobile-Sierra Doctrine or (iii) if corresponding modifications to the remainder of the Agreement are required, the proposing Party also requests FERC to find (or FERC has already so found) that the corresponding modifications are required under the standard of review under Section 206 of the Federal Power Act.   (e) The Parties shall notify stakeholders of proposed amendments to this Agreement by posting such amendments on the ISO website prior to the filing of such amendments with FERC and shall consider stakeholder input concerning such proposed amendments.   11.05 Additional Participating Transmission Owners. After the Operations Date, subject to the terms set forth herein, including Section 6.06, any owner of transmission facilities may become a PTO under this Agreement and a Party to this Agreement by executing and delivering a counterpart to this Agreement with the consent or approval of the ISO, such consent or approval not to be unreasonably withheld. Owners of transmission facilities that become   Page No. 69 -------------------------------------------------------------------------------- PTOs pursuant to the terms of this Section 11.05 shall be referred to herein as “Additional Participating Transmission Owners”; provided, however, that, notwithstanding any other provision contained herein to the contrary, Independent Transmission Companies shall not be deemed to be Additional Participating Transmission Owners hereunder. Notwithstanding Section 11.04 or any other provision contained herein to the contrary, Additional Participating Transmission Owners may become parties to this Agreement without any consent or approval of the other PTOs and without any amendment to this Agreement, except that this Agreement may be amended pursuant to Section 11.04(a)(iii)(E) if an unaffiliated transmission utility from outside the Control Area becomes or is about to become an Additional Participating Transmission Owner.   11.06 Integration Charges. Each Additional Participating Transmission Owner that enters into this Agreement after the Operations Date shall pay upon joining or shall promptly reimburse the ISO and each affected PTO for (a) all incremental costs, expenses and charges (including those incurred by the ISO or other PTOs) that, as determined by the ISO, result from the integration of such PTO’s transmission system into the Transmission Facilities over which the ISO exercises Operating Authority and produce an increase in ISO Administrative Charges assessed against users of the New England Transmission System; and (b) such PTO’s Pro Rata Share of the aggregate start-up costs recovered up to that date by the ISO. The ISO shall not implement any integration until it has received from the Additional Participating Transmission Owner payment in full for all such payments or secured a binding agreement that obligates the Additional Participating Transmission Owner to pay all such costs, expenses and other charges as they come due.   11.07 No Third Party Beneficiaries. Except as provided in Article IX, it is not the intention of this Agreement or of the Parties to confer a third party beneficiary status or rights of action upon any Person or entity whatsoever other than the Parties and nothing contained herein, either express or implied, shall be construed to confer upon any Person or entity other than the Parties any rights of action or remedies either under this Agreement or in any manner whatsoever.   11.08 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by a Party (including by operation of law) without the prior written consent of each other Party in its sole discretion and any attempt at assignment in contravention of this Section 11.08 shall be void. Any PTO may assign or transfer any or all of its rights, interests and obligations hereunder upon the transfer of its assets through sale, reorganization, or other transfer, provided that:   (a) the PTO’s successors and assigns shall agree to be bound by the terms of this Agreement except that PTO’s successors and assigns shall not be required to be bound by any obligations hereunder to the extent that the PTO has agreed to retain such obligations; and   (b) notwithstanding (a), the PTO shall assign or transfer to any new owner of Transmission Facilities subject to this Agreement all of the rights, responsibilities and obligations associated with the physical operation of such Transmission Facilities as well as all   Page No. 70 -------------------------------------------------------------------------------- of the rights, responsibilities and obligations associated with the ISO’s Operating Authority with respect to such Transmission Facilities, further provided that the new owner shall have the right to retain one or more subcontractors to perform any or all of its responsibilities or obligations under this Agreement.   Subject to the foregoing, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective permitted successors and assigns. No assignment shall be effective until the PTO receives all required regulatory approvals for such assignment.   11.09 Further Assurances; Information Policy; Access to Records.   (a) Each Party agrees, upon another Party’s request, to make Commercially Reasonable Efforts to execute and deliver such additional documents and instruments, provide information, and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and of the transactions contemplated hereby.   (b) The ISO shall, upon a PTO’s request, make available to such PTO any and all information within the ISO’s custody or control that is necessary for such PTO to perform its responsibilities and obligations or enforce its rights under this Agreement, provided that such information shall be made available to such PTO only to the extent permitted under the ISO Information Policy and subject to any applicable restrictions in the ISO Information Policy, including provisions of the ISO Information Policy governing the confidential treatment of non-public information, and provided further that any PTO employee or employee of a PTO’s Local Control Center shall comply with such ISO Information Policy and any applicable standards of conduct to prevent the disclosure of such information to any unauthorized Person. Any dispute concerning what information is necessary for a PTO to perform its responsibilities and obligations or enforce its right under this Agreement shall be subject to dispute resolution under Section 11.14 of this Agreement.   (c) Each PTO shall, upon the ISO’s request, make available to the ISO any and all information within the PTO’s custody or control that is necessary for the ISO to perform its responsibilities and obligations or enforce its rights under this Agreement, provided that such information shall be shall be made available to the ISO only to the extent permitted under the ISO Information Policy and subject to any applicable restrictions in the ISO Information Policy, including provisions of the ISO Information Policy governing the confidential treatment of non-public information, and provided further that any ISO employee shall comply with such ISO Information Policy and any applicable standards of conduct to prevent the disclosure of such information to any unauthorized Person. Any dispute concerning what information is necessary for the ISO to perform its responsibilities and obligations or enforce its right under this Agreement shall be subject to dispute resolution under Section 11.14 of this Agreement.   (d) If, in order to properly prepare its Tax Returns, other documents or reports required to be filed with Governmental Authorities or its financial statements or to fulfill its obligations hereunder, it is necessary that the ISO or any PTO be furnished with additional   Page No. 71 -------------------------------------------------------------------------------- information, documents or records not referred to specifically in this Agreement, and such information, documents or records are in the possession or control of the ISO or a PTO, the ISO or such PTO shall use its best efforts to furnish or make available such information, documents or records (or copies thereof) at the ISO’s or such PTO’s request, cost and expense. Any information obtained by the ISO or a PTO in accordance with this paragraph shall be subject to any applicable provisions of the ISO Information Policy.   (e) Notwithstanding anything to the contrary contained in this Section 11.09:   (i) no Party shall be obligated by this Section 11.09 to undertake studies or analyses that such Party would not otherwise be required to undertake or to incur costs outside the normal course of business to obtain information that is not in such Party’s custody or control at the time a request for information is made pursuant to this Section 11.09;   (ii) if any PTO and the ISO are in an adversarial relationship in litigation or arbitration (other than with respect to litigation or arbitration to enforce this Section 11.09), the furnishing of information, documents or records by the ISO or such PTO in accordance with this Section 11.09 shall be subject to applicable rules relating to discovery;   (iii) no Party shall be compelled to provide any privileged and/or confidential documents or information that are attorney work product or subject to the attorney/client privilege; and   (iv) no Party shall be required to take any action that impairs or diminishes its rights under this Agreement, diminishes any other Party’s obligations under this Agreement or otherwise lessens the value of this Agreement to such Party.   11.10 Business Day. Notwithstanding anything herein to the contrary, if the date on which any payment is to be made pursuant to this Agreement is not a Business Day, the payment otherwise payable on such date shall be payable on the next succeeding Business Day with the same force and effect as if made on such scheduled date and, provided such payment is made on such succeeding Business Day, no interest shall accrue on the amount of such payment from and after such scheduled date to the time of such payment on such next succeeding Business Day.   11.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware including all matters of construction, validity and performance without regard to the conflicts-of-laws provisions thereof.   11.12 Consent to Service of Process. Each of the Parties hereby consents to service of process by registered mail, Federal Express or similar courier at the address to which notices to it are to be given, it being agreed that service in such manner shall constitute valid service upon such party or its respective successors or assigns in connection with any such action or   Page No. 72 -------------------------------------------------------------------------------- proceeding; provided, however, that nothing in this Section 11.12 shall affect the right of any such Parties or their respective successors and permitted assigns to serve legal process in any other manner permitted by applicable Law or affect the right of any such Parties or their respective successors and assigns to bring any action or proceeding against any other one of such Parties or its respective property in the courts of other jurisdictions.   11.13 Specific Performance; Force Majeure. (a) Specific Performance. The Parties specifically acknowledge that a breach of this Agreement, whether or not an Event of Default, and notwithstanding any cure period in Section 10.03(b), would cause each of the non-breaching Parties to suffer immediate and irreparable harm due to the unique relationship among the Parties. The Parties hereto shall be entitled to seek specific performance and/or an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and conditions hereof in any court of competent jurisdiction, such remedy being in addition to any other remedy to which any Party may be entitled at law or in equity.   (b) Force Majeure. A Party shall not be considered to be in default or breach under this Agreement, and shall be excused from performance or liability for damages to any other party, if and to the extent it shall be delayed in or prevented from performing or carrying out any of the provisions of this Agreement, except the obligation to pay any amount when due, in consequence of any act of God, labor disturbance, failure of contractors or suppliers of materials (not including as a result of non-payment), act of the public enemy or terrorists, war, invasion, insurrection, riot, fire, storm, flood, ice, explosion, breakage or accident to machinery or equipment or by any other cause or causes (not including a lack of funds or other financial causes) beyond such Party’s reasonable control, including any order, regulation, or restriction imposed by governmental, military or lawfully established civilian authorities. Any Party claiming a force majeure event shall use reasonable diligence to remove the condition that prevents performance, except that the settlement of any labor disturbance shall be in the sole judgement of the affected Party.   11.14 Dispute Resolution. The Parties agree that any dispute arising under this Agreement shall be the subject of good-faith negotiations among the affected Parties and affected market participants, if any. Each affected Party and each affected market participant shall designate one or more representatives with the authority to negotiate the matter in dispute to participate in such negotiations. The affected Parties and affected market participants shall engage in such good- faith negotiations for a period of not less than 60 calendar days, unless: (a) a Party or market participant identifies exigent circumstances reasonably requiring expedited resolution of the dispute by FERC or a court or agency with jurisdiction over the dispute; or (b) the provisions of this Agreement otherwise provide a Party the right to submit a dispute directly to FERC for resolution. Any other dispute that is not resolved through good- faith negotiations may, by any Party or any market participant, be submitted for resolution by FERC or a court or agency with jurisdiction over the dispute upon the conclusion of such negotiations. Any Party or market participant may request that any dispute submitted to FERC for resolution be subject to FERC settlement procedures. Notwithstanding the foregoing, any dispute arising under this Agreement may be submitted to arbitration or any other form of alternative dispute resolution   Page No. 73 -------------------------------------------------------------------------------- upon the agreement of all affected Parties and all affected market participants to participate in such an alternative dispute resolution process.   11.15 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party under this Agreement shall not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) the court holding such provision to be illegal, invalid or unenforceable may in lieu of such provision add as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as it deems appropriate; provided that nothing in this Section 11.15 shall limit a Party’s right to appeal conditions to regulatory approval in accordance with Section 11.20(d).   11.16 Headings and Table of Contents. The headings of the sections of this Agreement and the Table of Contents are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof.   11.17 Liabilities; No Joint Venture.   (a) The obligations and liabilities of the ISO and each PTO arising out of or in connection with this Agreement shall be several, and not joint, and each Party shall be responsible for its own debts, including Taxes. No Party shall have the right or power to bind any other Party to any agreement without the prior written consent of such other Party. The Parties do not intend by this Agreement to create nor does this Agreement constitute a joint venture, association, partnership, corporation or an entity taxable as a corporation or otherwise. No express or implied term, provision or condition of this Agreement shall be deemed to constitute the parties as partners or joint venturers.   (b) To the extent any Party has claims against any other Party, such Party may only look to the assets of the other Party for the enforcement of such claims and may not seek to enforce any claims against the directors, members, officers, employees, affiliates, or agents of such other Party who, each Party acknowledges and agrees, have no liability, personal or otherwise, by reason of their status as directors, members, officers, employees, affiliates, or agents of that Party, with the exception of fraud or willful misconduct.   11.18 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. The parties hereto agree that any document or signature delivered by facsimile transmission shall be deemed an original executed document for all purposes hereof.   Page No. 74 -------------------------------------------------------------------------------- 11.19 Conditions Precedent. Notwithstanding anything to the contrary in this Agreement, this Agreement shall not be effective with respect to any Party unless all of the conditions precedent set forth in this Section 11.19 shall have been satisfied or waived.   (a) Required Regulatory Approvals. All final required regulatory approvals shall have been obtained and be in full force and effect and shall not be subject to the satisfaction of any condition or conditions that, if accepted, would: (i) in the case of a PTO, in the reasonable judgment of such PTO, in the aggregate have a material adverse effect on the value of the PTO’s Transmission Facilities, its expected level of transmission revenues, or its electric utility business, revenues, or financial condition, unless such PTO waives said condition, provided however, that with respect to any required regulatory approval obtained from a Governmental Authority of a State, the condition set forth in this clause shall apply only if such PTO operates its Transmission Business within such State; and (ii) in the case of the ISO, in its reasonable judgment, have a material adverse effect on the ISO’s ability to perform its obligations under this or any other agreement to which it is subject, unless the ISO waives such condition.   (b) Board Consent. The board of directors of each Party, in its sole discretion, shall have authorized and approved such Party’s executing, delivering and performing this Agreement.   (c) Additional Conditions Precedent. Additional conditions precedent are listed on Schedule 11.19(c).   (d) PTOs That Own Facilities Financed by Local Furnishing Bonds or Other Tax-Exempt Debt. As indicated in Section 3.13, each PTO that owns Transmission Facilities financed through Local Furnishing Bond(s) or other Tax-Exempt Debt shall have adequate assurance, in the opinion of each such PTO, that execution and performance of its obligations under this Agreement will not jeopardize the tax-exempt status of their respective Tax-Exempt Debt or the ability of such PTOs to secure future tax-exempt financing.   (e) Right to Appeal Conditions to Regulatory Approval. In the event that a Governmental Authority conditions its regulatory approval of this Agreement on acceptance of a contractual provision, contractual modification, or any other condition or ruling related to formation of the New England RTO that is not acceptable to any Party, such Party shall have the option of agreeing to permit this Agreement to become effective with the condition or ruling to which it objects and appeal the propriety of the condition or ruling to courts of competent jurisdiction; provided that, in the event a Final Order requires a vacation or modification of such objectionable condition or ruling, this Agreement shall thereupon be modified consistent with that Final Order; provided, however, that other Parties may exercise their rights to withdraw from or terminate this Agreement pursuant to Section 10.01(b) or Section 10.01(d), as applicable.   11.20 Preserved Rights. No Party, by executing this Agreement, shall waive any rights to seek rehearing of a Commission order or to appeal a Commission order, including   Page No. 75 -------------------------------------------------------------------------------- Commission orders concerning the terms and conditions of the NEPOOL tariff and market rules in effect prior to the Operations Date to the extent such terms and conditions have been incorporated into the ISO Tariff. The Parties expressly reserve the rights to pursue all pending requests for rehearing or appeals of such orders, and to file pleadings relating to such requests for rehearing or appeals, to the same extent as if the NEPOOL tariff were still in effect. Changes to the ISO Tariff shall be made to the extent necessary to comply with the results of a Commission rehearing order or judicial appeal concerning the terms and conditions of the NEPOOL tariff and market rules in effect prior to the Operations Date to the extent such terms and conditions have been incorporated into the ISO Tariff. The foregoing sentence shall not be deemed to prevent a Party from expressing its views to the Commission or a court regarding the foregoing compliance filing.   IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party as of the date first above written.   [The names of the Initial PTOs will be submitted in a compliance filing prior to the Operations Date.]   Page No. 76 --------------------------------------------------------------------------------   Schedule 1.01   Schedule of Definitions   Acquired Transmission Facilities. Any transmission facility acquired within the New England Control Area by one or more PTOs after the Operations Date that meets the classification standards set forth in Section 2.01(e).   Additional Participating Transmission Owners. “Additional Participating Transmission Owners” shall have the meaning ascribed thereto in Section 11.05 of this Agreement.   Additional Term. “Additional Term” shall have the meaning ascribed thereto in Section 10.01(a) of this Agreement.   Affiliate. Any person or entity which controls, is controlled by, or is under common control by another person or entity. For purposes of this definition, “control” shall mean the possession, directly or indirectly and whether acting alone or in conjunction with others, of the authority to direct the management or policies of a person or entity. A voting interest of ten percent or more shall create a rebuttable presumption of control.   Agreement. This Transmission Operating Agreement, as it may be amended from time to time.   Ancillary Service. Those services that are necessary to support the transmission of electric capacity and energy from resources to loads while maintaining reliable operation of the transmission system in accordance with Good Utility Practice.   Approved Outages. “Approved Outages” shall have the meaning ascribed thereto in Section 3.08(a)(iv) of this Agreement.   ATC. Available Transfer Capability.   Back-up Control Center. The control center established by the ISO as a back-up to the ISO Control Center.   Back-up Control Center Lease. The lease for premises in Newington, Connecticut entered into by ISO New England Inc. and Rocky River Realty Company for an initial term ending July 31, 2005, and subject to the right of the tenant to four three-year extensions.   Best’s. The A.M. Best Company.   Business Day. Any day other than a Saturday or Sunday or an ISO holiday, as posted by the ISO on its website. -------------------------------------------------------------------------------- Category A Facilities. Those transmission facilities listed in Schedule 2.01(a) of the Agreement, as that list may be modified from time to time in accordance with the terms of this Agreement.   Category B Facilities. Those transmission facilities listed in Schedule 2.01(b) of the Agreement, as that list may be modified from time to time in accordance with the terms of this Agreement.   CBM. Capacity Benefit Margin.   Commercially Reasonable Efforts: A level of effort which in the exercise of prudent judgment in the light of facts or circumstances known, or which should reasonably be known, at the time a decision is made, can be expected by a reasonable person to accomplish the desired result in a manner consistent with Good Utility Practice and which takes the performing party’s interests into consideration. “Commercially Reasonable Efforts” will not be deemed to require a Person to undertake unreasonable measures or measures that have a significant adverse economic affect on such Person, including the payment of sums in excess of amounts that would be expended in the ordinary course of business for the accomplishment of the stated purpose.   Commission. The Federal Energy Regulatory Commission.   Control Area. An electric power system or combination of electric power systems, bounded by metering, to which a common automatic generation control scheme is applied in order to:   (a) match, at all times, the power output of the generators within the electric power system(s) and capacity and energy purchased from entities outside the electric power system(s), with the load within the electric power system(s);   (b) maintain scheduled interchange with other Control Areas, within the limits of Good Utility Practice;   (c) maintain the frequency of the electric power system(s) within reasonable limits in accordance with Good Utility Practice and applicable NERC/NPCC Requirements; and   (d) provide sufficient generating capacity to maintain operating reserves in accordance with Good Utility Practice.   Control Center Lease. The Master Leasing Agreement, dated as of May 31, 1990, by and between Bankers Leasing corporation, as lessor, and State Street Bank and Trust Company of Connecticut, N.A., not in its individual capacity, but solely as Successor Nominee Trust under a Declaration of Trust, dated as of June 14, 1990, for beneficiaries listed in schedule 1 thereto, and as agent for the NEPOOL participants, as lessee.   Cooperative PTO. A PTO that has loans financed or guaranteed by the Rural Utilities Service.   Cooperative TO. A transmission owner has loans financed or guaranteed by the Rural Utilities Service. -------------------------------------------------------------------------------- Coordination Agreement. An agreement between the ISO and the operator(s) of one or more neighboring Control Areas addressing issues including interchange scheduling, operational arrangements, emergency procedures, energy for emergency and reliability needs, the exchange of information among Control Areas, and other aspects of the coordinated operation of the Control Areas.   Disbursement Agreement The Rate Design and Funds Disbursement Agreement among the PTOs, as amended and restated from time to time.   Elective Transmission Upgrade. A Transmission Upgrade constructed by any Person which is not required to be constructed pursuant to any applicable requirement of this Agreement, but which may be subject to applicable requirements set forth in the ISO OATT and this Agreement.   Elective Transmission Upgrade Applicant. “Elective Transmission Upgrade Applicant” shall have the meaning ascribed thereto in Section 2.05 of this Agreement.   Emergent and Unanticipated Event. For purposes of Section 3.08, “Emergent and Unanticipated Event” shall have the meaning ascribed thereto in Section 3.08(b)(ii)(B) of this Agreement.   Environment. Soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.   Environmental Damages. “Environmental Damages” shall mean any cost, damages, expense, liability, obligation or other responsibility arising from or under Environmental Law consisting of or relating to:   (a) any environmental matters or conditions (including on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products);   (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial or inspection costs and expenses arising under Environmental Law;   (c) financial responsibility under Environmental Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment or other remediation or response actions (“Cleanup”) required by applicable Environmental Law (whether or not such Cleanup has been required or requested by any Governmental Authority or any other Person) and for any natural resource damages; or   (d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law. -------------------------------------------------------------------------------- Environmental Laws. Any Law now or hereafter in effect and as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the Environment, health or safety or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.   Excepted Transactions. “Excepted Transactions” shall have the meaning ascribed thereto in the ISO OATT.   Excluded Assets. “Excluded Assets” shall have the meaning ascribed thereto in Section 2.04 of this Agreement.   Exigent Circumstances. “Exigent Circumstances” shall mean circumstances such that the ISO determines in good faith that (i) failure to immediately implement a proposed Tariff filing authorized under Sections 3.04(c) and 3.04(e) of this Agreement would substantially and adversely affect (A) System reliability or security, or (B) the competitiveness or efficiency of the New England Markets, and (ii) invoking the procedures set forth in Sections 3.04(c) and 3.04(e) of this Agreement would not allow for timely redress of the ISO’s concerns.   Existing Operating Procedures. “Existing Operating Procedures” shall have the meaning ascribed thereto in Section 3.02(d) of this Agreement.   External Transactions. Interchange transactions between the New England Transmission System and neighboring Control Areas.   FACTS. Flexible AC Transmission Systems.   FERC. The Federal Energy Regulatory Commission.   Final Order. An order issued by a Governmental Authority in a proceeding after all opportunities for rehearing are exhausted (whether or not any appeal thereof is pending) that has not been revised, stayed, enjoined, set aside, annulled or suspended, with respect to which any required waiting period has expired, and as to which all conditions to effectiveness prescribed therein or otherwise by law, regulation or order have been satisfied.   Financial Assurances. “Financial Assurances” shall have the meaning ascribed thereto in Section 3.10(b) of this Agreement.   FPA. The Federal Power Act.   FTR. A Financial Transmission Right, as defined in the ISO OATT.   Generally Accepted Accounting Principles. The widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board. -------------------------------------------------------------------------------- Generating Unit. A device for the production of electricity.   Good Utility Practice. Any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather includes all acceptable practices, methods, or acts generally accepted in the region.   Governmental Authority. The government of any nation, state or other political subdivision thereof, including any entity exercising executive, military, legislative, judicial, regulatory, or administrative functions of or pertaining to a government, not including any PTO or the ISO.   Grandfathered Interconnection Agreement. An agreement or agreements for the interconnection of any entity to the Transmission Facilities of a PTO that has been executed or approved by an applicable Governmental Authority prior to the Operations Date and that is set forth in Schedule 3.1l(c) to this Agreement.   Grandfathered Intertie Agreement. An agreement or agreements for the provision of transmission service over a Control Area intertie or for the interconnection of the Transmission Facilities of a PTO with facilities outside the New England Control Area that has been executed or approved by an applicable Governmental Authority prior to the Operations Date and that is set forth in Schedule 3.11 (b) of this Agreement.   Grandfathered Transmission Agreements. “Grandfathered Transmission Agreements” shall consist of all Excepted Transactions, Grandfathered Interconnection Agreements and Grandfathered Intertie Agreements.   Hazardous Materials. Any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials.   Highgate Transmission Facility (HTF). “Highgate Transmission Facility (HTF) shall consist of existing U.S.-based transmission facilities covered under the Agreement for Joint Ownership, Construction and Operation of the Highgate Transmission Interconnection dated as of August 1, 1984 including (1) the whole of a 200 megawatt high-voltage, back-to-back, direct-current converter facility located in Highgate, Vermont and (2) a 345 kilovolt transmission line within Highgate and Franklin, Vermont (which connects the converter facility at the U.S.-Canadian border to a Hydro-Quebec 120 kilovolt line in Bedford, Quebec). The HTF include any upgrades associated with increasing the capacity or changing the physical characteristics of these facilities as defined in the above stated agreement dated August 1, 1984 until the Operations -------------------------------------------------------------------------------- Date, as defined in this Agreement. The current HTF rating is a nominal 225 MW. The HTF are not defined as PTF. Coincident with the Operations Date and except as stipulated in Schedules 9, 12, and Attachment F to the ISO OATT, HTF shall be treated in the same manner as PTF for purposes of the ISO OATT and all references to PTF in the ISO OATT shall be deemed to apply to HTF as well. The treatment of the HTF is not intended to establish any binding precedent or presumption with regard to the treatment for other transmission facilities within the New England Transmission System (including HVDC, MTF, or Control Area Interties) for purposes of the ISO OATT.   Indemnifiable Loss. “Indemnifiable Loss” shall have the meaning ascribed thereto in Section 9.01(a)(i) of this Agreement.   Indemnified Person. “Indemnified Person” shall have the meaning ascribed thereto in Section 9.0l(b) of this Agreement.   Indemnified PTO. “Indemnified PTO” shall have the meaning ascribed thereto in Section 9.01(a)(i) of this Agreement.   Indemnifying Party. “Indemnifying Party” shall have the meaning ascribed thereto in Section 9.02 of this Agreement.   Indemnifying PTO. “Indemnifying PTO” shall have the meaning ascribed thereto in Section 9.0l(b) of this Agreement.   Indemnitee. “Indemnitee” shall have the meaning ascribed thereto in Section 9.02 of this Agreement.   Independent Transmission Company or ITC. A transmission entity that assumes certain responsibilities in accordance with Attachment M to the ISO OATT, subject to the acceptance or approval of the FERC and a finding of the FERC that the transmission entity satisfies applicable independence requirements.   Individual Votes. “Individual Votes” shall have the meaning ascribed thereto in Section 13 of Schedule 11.04 to this Agreement.   Initial Participating Transmission Owners. The transmission owners listed in the opening paragraph of the Agreement that are signatories to this Agreement as of the Operations Date.   Initial Term. “Initial Term” shall have the meaning ascribed thereto in Section 10.01(a) of this Agreement.   Interconnection Agreement. An agreement or agreements for the interconnection of any entity to the Transmission Facilities of a PTO.   Interconnection Standard. The applicable interconnection standards set forth in the ISO OATT. -------------------------------------------------------------------------------- Invoiced Amount. “Invoiced Amount” shall have the meaning ascribed thereto in Section 3.10(a)(i) of the Agreement.   ISO. ISO New England Inc., the RTO for New England authorized by the Federal Energy Regulatory Commission to exercise the functions required pursuant to FERC’s Order No. 2000 and FERC’s corresponding regulations.   ISO Administrative Charge. “ISO Administrative Charge” shall have the meaning ascribed thereto in Section 3.04(h) of this Agreement.   ISO Control Center. The primary control center established by the ISO for the exercise of its Operating Authority and the performance of functions as an RTO.   ISO Customers. “ISO Customers” shall have the meaning ascribed thereto in Section 3.10(b) of this Agreement.   ISO Default. “ISO Default” shall have the meaning ascribed thereto in Section 10.03(a) of this Agreement.   ISO Information Policy. The information policy set forth in the ISO OATT.   ISO-NE. ISO New England, Inc.   ISO OATT. The ISO Open Access Transmission Tariff, as in effect from time to time.   ISO Participants Agreement. The agreement among the ISO and stakeholder participants addressing, inter alia, the stakeholder process for the ISO.   ISO Planning Process. The process set forth in the ISO OATT, for the coordinated planning and expansion of the New England Transmission System with provision for the participation of all state regulatory authorities with jurisdiction over retail rates in the ISO region acceptable to those authorities, which process shall be subject to certain terms and conditions set forth in Schedule 3.09(a).   ISO System Plan. The regional system expansion plan for the New England Transmission System.   ISO Tariff. The ISO Transmission, Markets and Services Tariff, as amended from time to time, on file with FERC.   Knowledge. With respect to a Party, the collective actual knowledge of the directors and members of management of such Party, after reasonable inquiry by them of selected employees of such Party whom they believe, in good faith, to be the persons generally responsible for the subject matters to which the knowledge is pertinent. “Known” shall have the meaning correlative to “Knowledge.” -------------------------------------------------------------------------------- Large Generating Unit. “Large Generating Unit” shall have the meaning ascribed thereto in the ISO OATT.   Law. Any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order, other requirement or rule of law.   Load Shedding. The systematic reduction of system demand by temporarily decreasing load.   Local Area Facilities. “Local Area Facilities” shall have the meaning ascribed thereto in Section 2.01 of this Agreement.   Local Control Center. Those control centers now in existence (including the CONVEX, REMVEC, Maine and New Hampshire control centers) or established by the PTOs in accordance with Section 3.06(a) of this Agreement that are separate from the ISO Control Center and perform certain functions in accordance with this Agreement.   Local Furnishing Bonds. Tax-exempt bonds utilized to finance facilities for the local furnishing of electric Energy, as described in section 142(f) of the Internal Revenue Code, 26 U.S.C. §142(f). Local Furnishing Bonds do not include Municipal Tax-Exempt Debt.   Local Networks. “Local Networks” shall have the meaning ascribed thereto in Section 3.03(e) of this Agreement.   Local Network Service. Network Transmission Service over the facilities of a single PTO (including facilities leased to the PTO or to which the PTO has contractual entitlements) provided under a FERC-accepted or -approved Local Service Schedule.   Local Point-to-Point Transmission Service. Point-to-point Transmission Service over the facilities of a single PTO (including facilities leased to the PTO or to which the PTO has contractual entitlements) provided under a FERC-accepted or -approved Local Service Schedule.   Local Service. Transmission Service over the facilities of a single PTO (including facilities leased to the PTO or to which the PTO has contractual entitlements) provided under a FERC-accepted or -approved Local Service Schedule.   Local Service Schedule. A PTO-specific rate schedule to the ISO OATT setting forth rates, charges, terms and conditions applicable only to service provided over the Transmission Facilities of such PTO.   Long-Term Transmission Outage Plan. “Long-Term Transmission Outage Plan” shall have the meaning ascribed thereto in Section 3.08(a)(i) of this Agreement.   Major Transmission Outage. “Major Transmission Outage” shall have the meaning ascribed thereto in Section 3.08(a)(ii) of this Agreement. -------------------------------------------------------------------------------- Market Monitoring Unit. Any market monitoring unit established by the ISO, including any internal market monitoring unit of the ISO and any independent market monitoring unit of the ISO.   Market Participant Service Agreement. The agreement among the ISO and market participants addressing, inter alia, the requirements for participating in the New England Markets.   Market Rules. The rules describing how the New England Markets are administered.   Merchant Facility. A transmission facility constructed by an entity that assumes all market risks associated with the recovery of costs for the facility and whose costs are not recovered through traditional cost-of-service based rates, but instead are recovered either through negotiated agreements with customers or through market revenues.   Mobile-Sierra Doctrine. The “Mobile-Sierra Doctrine” shall mean the public interest standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956) and Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956).   Moratorium Period. “Moratorium Period” shall have the meaning ascribed thereto in Section 3.04(h)(i) of this Agreement.   NERC. The North American Electric Reliability Council.   Municipal Tax-Exempt Debt. An obligation the interest on which is excluded from gross income for federal tax purposes pursuant to Section 103(a) of the Internal Revenue Code of 1986 or the corresponding provisions of prior law without regard to the identity of the holder thereof. Municipal Tax-Exempt Debt does not include Local Furnishing Bonds.   Municipal Tax-Exempt PTO. A PTP that has issued Municipal Tax-Exempt Debt with respect to any facilities, or rights associated therewith.   Municipal Tax-Exempt TO. A transmission owner that has issued Municipal Tax-Exempt Debt with respect to any facilities, or rights associated therewith.   NERC/NPCC Requirements. NPCC criteria, guides, and procedures, NERC reliability standards, and NERC operating policies and planning standards (until such time as they are replaced by NERC reliability standards) and any successor documents.   New England Control Area. The Control Area consisting of the interconnected electric power system or combination of electric power systems in the geographic region consisting of Vermont, New Hampshire, Maine, Massachusetts, Connecticut and Rhode Island.   New England Markets. Markets or programs (including congestion pricing and design and implementation of FTRs) for the purchase of energy, capacity, ancillary services, demand response services or other related products or services that are offered in the New England -------------------------------------------------------------------------------- Control Area and that are administered by the ISO pursuant to rules, rates, or agreements on file from time to time with the Commission.   New England Transmission System. The system comprised of the transmission facilities over which the ISO has operational jurisdiction, including the Transmission Facilities of the PTOs and the transmission system of any ITC formed pursuant to Attachment M to the ISO OATT.   New Transmission Facility. Any new transmission facility constructed within the New England Transmission System that is owned by one or more PTO(s) and that goes into commercial operation after the Operations Date.   Non-Affiliated PTOs. Two or more PTOs that are not Affiliates.   Non-PTF. “Non-PTF” shall have the meaning ascribed thereto in the ISO OATT.   Notice of Operations Date. “Notice of Operations Date” shall have the meaning ascribed thereto in Section 10.01 (a)(ii) of this Agreement.   NPCC. The Northeast Power Coordinating Council.   OASIS. The Open Access Same-Time Information System of the ISO.   Operating Authority. “Operating Authority” shall have the meaning ascribed thereto in Section 3.02 of this Agreement and shall include the responsibilities set forth in Section 3.05.   Operating Limits. The transfer limits for a transmission interface or generation facility.   Operating Procedures. The operating manuals, procedures, and protocols relating to the exercise of Operating Authority over the Transmission Facilities, as such manuals, procedures, and protocols may be modified from time to time in accordance with this Agreement.   Operations Date. “Operations Date” shall have the meaning ascribed thereto in Section 10.01(a)(ii) of this Agreement.   Order 2000. FERC’s Order No. 2000, i.e., Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 809 (January 6, 2000), FERC Stats. & Regs, ¶31,089 (1999), order on reh’g, Order No. 2000-A, 65 Fed. Reg. 12,088 (March 8, 2000), FERC Stats. & Regs. ¶31,092 (2000), petitions for review pending sub nom., Public Utility District No. 1 of Snohomish County, Washington v. FERC, Nos. 00-1174, et al. (D.C. Cir).   Owed Amounts. “Owed Amounts” shall have the meaning ascribed thereto in Section 3.10(c) of this Agreement.   PARS. Phase angle regulators. -------------------------------------------------------------------------------- Participant. A participant in the New England Markets, Transmission Customer, or other entity that has entered into the ISO Participants Agreement.   Participants Committee. “Participants Committee” shall mean the stakeholder participants committee established pursuant to the ISO Participants Agreement.   Party or Parties. A “Party” shall mean the ISO or any PTO, as the context requires. “Parties” shall mean all PTOs and the ISO.   Person. An individual, partnership, joint venture, corporation, business trust, limited liability company, trust, unincorporated organization, government or any department or agency thereof, or any other entity.   Planned Outages. “Planned Outages” shall have the meaning ascribed thereto in Section 3.08(a)(i) of this Agreement.   Planning Procedures. The manuals, procedures and protocols for planning and expansion of the New England Transmission System, as such manuals, procedures, and protocols may be modified from time to time in accordance with this Agreement.   Prime Rate. The interest rate that commercial banks charge their most creditworthy borrowers, as published in the most recent Wall Street Journal in its “Monday Rates” column.   Pro Rata Share. A PTO’s proportional share of the ISO’s Administrative Charges during such PTO’s first year as a PTO under this Agreement.   PTF. “PTF” shall have the meaning ascribed thereto in the ISO OATT.   PTO or Participating Transmission Owner. “PTO” shall have the meaning ascribed thereto in the opening paragraph of the Agreement. “Participating Transmission Owner” shall have the same meaning as “PTO.”   PTO AC or PTO Administrative Committee. “PTO AC” or “PTO Administrative Committee” shall have the meaning ascribed thereto in Section 11.04(a)(i) of this Agreement.   PTO Default. “PTO Default” shall have the meaning ascribed thereto in Section 10.04(a) of this Agreement.   PTO Joint Account. The joint account established in the name, and for the benefit, of the PTOs, in which each PTO shall own an undivided interest in a proportion equal to the proportion of that PTO’s right of distribution from the deposited Invoiced Amounts.   PTO Local Restoration Plan. The restoration plan developed by each PTO with respect to such PTO’s Transmission Facilities. -------------------------------------------------------------------------------- Publicly-Owned PTO. A “Publicly-Owned PTO” shall mean a PTO that is exempt, under Section 201 (f) of the Federal Power Act, from the obligations and requirements of the Federal Power Act.   Rating Procedures. “Rating Procedures” shall have the meaning ascribed thereto in Section 3.02(d) of this Agreement.   Regulation and Frequency Response Service. An Ancillary Service as defined in the ISO OATT.   Reliability Authority. “Reliability Authority” shall have the meaning established by NERC, as such definition may change from time to time, provided such definition of Reliability Authority shall not be inconsistent with the specific rights and responsibilities of the ISO and the PTOs under this Agreement.   Restoration Plans. The System Restoration Plan and all PTO Local Restoration Plans.   RFAP. “RFAP” shall have the meaning ascribed thereto in Section 6 of Schedule 3.09(a) to this Agreement.   RMR. Reliability must run resources.   RTO. An independent entity that complies with Order No. 2000 and FERC’s corresponding regulations (or an entity that complies with all such requirements except for the scope and regional configuration requirements), as determined by the FERC.   Scheduled Outages. “Scheduled Outages” shall have the meaning ascribed thereto in Sections 3.08(a)(ii) and 3.08(a)(iii) of this Agreement.   Supporting Votes. “Supporting Votes” shall have the meaning ascribed thereto in Section 11.04(a)(iii)(F) of this Agreement.   System Failure. Widespread telecommunication, hardware or software failure or systemic the ISO hardware or software failures that makes it impossible to receive or process bid information, dispatch resources, or exercise Operating Authority over the Transmission Facilities.   Tax or Taxes. All taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto.   Tax-Exempt Debt. Municipal Tax-Exempt Debt or Local Furnishing Bonds.   Tax Return. Any return, report, information return, or other document (including any related or supporting information) required to be supplied to any authority with respect to Taxes. -------------------------------------------------------------------------------- Technical Committees. “Technical Committee” shall mean the stakeholder technical committees established pursuant to the ISO Participants Agreement.   Term. “Term” shall have the meaning ascribed thereto in Section 10.01(a)(i) of this Agreement.   Termination Date. “Termination Date” shall have the meaning ascribed thereto in Section 10.01(c) of this Agreement.   TOA. This Transmission Operating Agreement, as it may be amended from time to time.   Transmission Business. The business activities of each PTO related to the ownership, operation and maintenance of its Transmission Facilities.   Transmission Customer. Any entity taking Transmission Service under the ISO OATT.   Transmission Facilities. “Transmission Facilities” shall have the meaning ascribed thereto in Section 2.01 of this Agreement.   Transmission Owner. “Transmission Owner” shall have the meaning ascribed thereto in the ISO OATT.   Transmission Provider. The ISO, in its capacity as the provider of transmission services over the Transmission Facilities of the PTOs in accordance with FERC’s Order No. 2000 and FERC’s RTO regulations.   Transmission Service. The non-discriminatory, open access, wholesale transmission services provided to customers by the ISO in accordance with the ISO OATT.   Transmission Upgrade. Any upgrade to an existing Transmission Facility owned by any PTO that goes into commercial operation after the Operations Date   TRM. Transmission Reliability Margin.   TTC. Total Transfer Capability.   VAR. Volt-Amps Reactive.   Workers Compensation. Any financial award or settlement provided to employees or their dependents under state or federal law due to the occurrence of an employment-related accident, disease or injury.   Workers Compensation Insurance. The insurance, procured by the ISO in accordance with Section 9.05(a), covering losses that the ISO is subject to as an employer under state or federal worker’s compensation laws. -------------------------------------------------------------------------------- Schedule 2.01(a) Bangor Hydro-Electric Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 60    Boggy Brook-Betts Road    115 65    Orrington-Bucksport    115 66    Graham-Rebel Hill    115 67    Boggy Brook-Rebel Hill    115 205    Orrington-Betts Road-Bucksport    115 246    Graham-Orrington    115 248    Graham-Orrington    115 249    Graham-Orrington    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- T2    Orrington    345/115 -------------------------------------------------------------------------------- Schedule 2.01 (a) Central Maine Power Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 374    Surowiec-Buxton    345 375    Maine Yankee-Buxton    345 377    Maine Yankee-Surowiec    345 378    Maine Yankee-Mason    345 385    Buxton-Deerfield    345 386    Buxton-South Gorham-Yarmouth 4    345 391    Buxton-Scobie    345 60    Bowman Street-Browns Crossing-Maxcy’s    115 61    Norway-Hotel Road Tap-Gulf Island    115 61A    Hotel Road Tap-Hotel Road    115 62    Crowleys-Surowiec    115      Livermore Falls-Sturtevant-Madison Tap-Williams Tap-Bigelow Tap-Wyman      63    Hydro    115 64    Gulf Island-Surowiec    115 65    Orrington-Bucksport    115 66    Wyman Hydro-Gorbell-Hartland-Detroit    115 67    Detroit-Rice Rips Tap-Maxcy’s    115 68    Maxcy’s-Mason    115 69    Bath-Topsham-Surowiec    115 75    Hotel Road-Challenger Drive-Lewiston Lower    115 80    Maxcy’s-Highland    115 81    Mason-Topsham Tap-Surowiec    115 83    Wyman Hydro-Lakewood Tap-Scott Tap-Winslow    115 84    Winslow-Maxcy’s    115 86    Bucksport-Belfast Tap-Meadow Road Tap-Lincolnville-Highland    115 87    Norway-Kimball Road    115 88    Maxcy’s-Augusta East Side    115 89    Riley-Livermore Falls    115 140    Sanford-Maguire Rd-P&W Tap-Quaker Hill    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Central Maine Power Company Category A Facilities   160    Cape-Hinckley-Pleasant Hill    115 161    Moshers-Sewall    115 162    Moshers-South Gorham    115 164    Yarmouth-Elm Street-Spring Street    115 165    Yarmouth-Moshers    115 166    Spring Street-Surowiec    115 167    Moshers-Prides Tap-Surowiec    115 169    South Gorham-Westbrook    115 197    Quaker Hill-Three Rivers    115 200    Livermore Falls-AEI Livermore Tap-Gulf Island    115 201    Gulf Island-Crowleys    115 202    Lewiston Lower-Crowleys    115 203    Bucksport-Detroit    115 204    Mason-Newcastle    115 205    Betts Road-Bucksport    115 207    Mason-Maine Yankee-Bath    115 208    Raymond-Surowiec    115 209    Kimball Road-Raymond    115 210    Kimball Road-Woodstock    115 211    Woodstock-Rumford    115 212    Gulf Island-Bowman Street    115 213    Bowman Street-Puddledock Road-North Augusta-Augusta East Side    115 217    Rumford Industrial Park-Kimball Road    115 219    South Gorham-Louden    115 220    South Gorham-Louden    115 223    South Gorham-West Buxton    115 224    West Buxton-Waterboro    115 225    Waterboro-Sanford    115 226    Highland-Newcastle    115 228    Rumford-Rumford Industrial Park    115 229    Riley-Rumford Industrial Park    115 230    Riley-Jay IP    115 231    South Gorham-Westbrook    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Central Maine Power Company Category A Facilities   232    Westbrook-Spring Street    115 233    Westbrook-Spring Street    115 234    Spring Street-Red Brook-Pleasant Hill    115 250    Louden-Biddeford IP Tap-Maguire Rd -Three Rivers    115 275    Sewall St-Cape    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- T9    Mason    345/115 T3    Maxcys    345/115 T1    South Gorham    345/115 T1    Surowiec    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) Fitchburg Gas and Electric Light Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) --------------------------------------------------------------------------------      Flagg Pond Ring bus    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Florida Power & Light Company – New England Division Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 363    Seabrook-Scobie    345 369    Seabrook-Timber Swamp Road-Newington    345 394    Seabrook-Ward Hill- Tewksbury    345 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations   --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 301    Ludlow-Carpenter Hill    345 302    Carpenter Hill-Millbury    345 303    Brayton Point-ANP Bellingham    345 314    Sandy Pond-Millbury    345 315    Brayton Point-West Farnum    345 323    Millbury-West Medway    345 326    Scobie Pond-Lawrence Road-Sandy Pond    345 328    Sherman Road-West Farnum    345 331    Carver-West Walpole    345 332    West Farnum-Kent County    345 333    Ocean State-Sherman Road    345 335    Holbrook-Auburn Street    345 3361    Sherman Road-ANP Blackstone    345 337    Sandy Pond-Tewksbury    345 338    Tewksbury-Woburn    345 339    Tewksbury-Golden Hills    345 342    Auburn-Pilgrim-Canal    345 343    Sandy Pond-Millbury    345 344    West Medway-Bridgewater    345 347    Sherman Road-Lake Road    345 349X&Y    Golden Hills-Mystic    345 355    Pilgrim-Bridgewater    345 357    Millbury-West Medway    345 394    Seabrook-Ward Hill-Tewksbury    345 3520    West Meday-ANP Bellingham    345 A201    Comerford-North Litchfield    230 B202N/S/A253    Comerford-Merrimack-North Litchfield    230 C203    Comerford-Moore    230 D204    Comerford-Littleton-Moore    230 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   E205E    Pratts Junction-Bear Swamp    230 E205W    Bear Swamp-Rotterdam    230 F206    Comerford-Granite    230 N214    North Litchfield-Tewksbury    230 0215    North Litchfield-Tewksbury    230 1870S    Mystic-Wood River    115 1870    Wood River-Kenyon    115 1870N    Kenyon-West Kingston    115 A127    Harriman-French King-Wendall Depot-Barre-Paxton-Webster St Tap    115 A127    Webster St Tap-Millbury    115 A179    Revere-GE River-Lynn    115 A94    Auburn Street-Parkview    115 B128    Harriman-Montague(Cabot)-French King-Barre-Webster St Tap(n.o.)-Millbury    115 B154N    South Danvers-lpswich River-Middleton-Woodchuck Hill-King St-Ward Hill    115 B154S    Salem Harbor-N.River Tap-Waters River-S.Danvers    115 C129N (201-502)    Beaver Pond-Milford-Depot St-Rocky Hill-Hopkinton-Millbury    115 C129    Beaver Pond-Union Street    115 C129S    Union Street-South Wrentham    115 C155N    South Danvers-Middleton-King St-Ward Hill    115 C155S    Salem Harbor-N.River Tap-Waters River-S.Danvers    115 C181N    South Wrentham-North Attleboro-Mansfield-Chartley Pond    115 C181S    Chartley Pond-Brayton Pond    115 C2    Auburn Street-Dupont    115 D130 (201-501)    Medway-Milford-Depot St-Hopkinton-Millbury    115 D130    Milford-Depot    115 D156    Northboro Road-West Framingham    115 D182S    South Wrentham-North Attleboro-Mansfield-Brayton Pond    115 D21    Bell Rock-High Hill    115 E105    Hartford Avenue-Franklin Square    115 E131    Adams-Harriman-Bear Swamp    115 E157    Millbury-Wyman Gordon(n.o.)-East Main Street-Northboro Road    115 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   E183E    Brayton Point-Warren-Mink Street-Wampanoag    115 E183W    Wampanoag-Philipsdale-Franklin Square    115 E20/L1    Bridgewater-East Bridgewater-Auburn Street    115 F106    Hartford Avenue-Franklin Square    115 F132    Adams-Partridge Jct-Lanesboro-Doreen    115 F158N    Golden Hills-Maplewood    115 F158S    Maplewood-Everett    115 F184    Brayton Point-Warren-Bristol-Mink Street-Read Street    115 F19/S1    Auburn-Belmont-Bridgewater    115 G133W    East Methuen-Golden Rock-West Methuen    115 G133E    East Methuen-Ward Hill    115 G18    Dupont-Bridgewater    115 G185N    Drumrock-Kent County    115 G185S    Kent County-West Kingston    115 H17    Riverside-Farnum-West Farnum    115 I135N    Bellows Falls-Monadnock-East Winchendon Tap(n.o.)-Ashburnham-Flagg Pond    115 I135S    Flagg Pond-Pratts Junction    115 J136N    Bellows Falls-East Winchendon Tap-Ashburnham-Flagg Pond    115 J136S    Flagg Pond-Litchfield Street Tap-Pratts Jct    115 J16    Riverside-Staples    115 K137    Sandy Pond-Ayer    115 K137E    Sandy Pond-Littleton-Westford-Billerica-Tewksbury    115 K137W    Ayer-Pratts Junction    115 K15    Robinson Avenue-Swansea    115 K189    Drumrock-Kent County    115 L138E    Sandy Pond-Littleton-Westford-Tewksbury    115 L138W    Sandy Pond-Laurel Circle-Pratts Junction    115 L14    Bell Rock-Tiverton Tap-Tiverton    115 M13    Somerset-Tiverton Tap-Tiverton    115 M139 (211 - 503)    Woburn-Reading-North Woburn(Dragon Court)-Pinehurst-Billerica-Tewksbury    115 N12    Somerset-Sykes Road-Bell Rock    115 N140 (211 - 504)    Woburn-Reading-North Woburn(Dragon Court)-Pinehurst-Tewksbury    115 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   O141N    Pratts Junction-Sterling-Greendale    115 0141    Greendale-Nashua    115 O141S    Millbury-Nashua    115 0167 (423-515)    Everett-Mystic    115 P11    Pawtucket-Valley-Robinson Ave    115 P142N    Pratts Junction-Sterling-Wachusett-W.Boylston    115 P142    W.Boylston-Rolfe Avenue    115 P142S    Rolfe Avenue-Bloomingdale-Wyman Gordon-Millbury    115 P168 (128-518)    Revere-Chelsea    115 Q10    Staples-Robinson Avenue    115 Q117 (K4)    Adams-Bennington    115 Q143N    Millbury-Whitins Pond-Uxbridge    115 Q143S    Uxbridge-Woonsocket-Clarkson St. (n/o)    115 Q169    Lynn-GE River-Resco Saugus-Melrose-Golden Hills    115 Q195    Moore-Littleton(n.o.)-Whitefield    115 R144    Millbury-Woonsocket-Clarkson St.(n.o.)    115 R9    Riverside-Valley    115 S145    Salem-Railyard-West Salem-Bartholomew St-Wakefield Jct-N.Reading-Burtt Road-E.Tewksbury-Tewksbury    115 S145 (cont’d)    Wakefield Jct-Wakefield-Melrose-Golden Hills    115 S171N    Woonsocket-West Farnum-Farnum Pike-Wolf Hill-Putnam Pike-Hartford Ave.    115 S171S    Hartford Ave.-Johnston Tap-Rise Tap-W.Cranston-Drumrock    115 S8    Bridgewater-Cleary-Somerset    115 T146    Salem-Railyard-West Salem-Bartholomew St-Wakefield Jct-N.Reading-Burtt Road-E.Tewksbury-Tewksbury    115 T146 (cont’d)    Wakefield Jct-Wakefield-Melrose-Golden Hills    115 T172N    Woonsocket-West Farnum-Farnum Pike-Wolf Hill(n.o.)-Putnam Pike-Hartford Ave.    115 T172S    Hartford Ave.-Johnston Tap-Rise Tap-W.Cranston-Drumrock    115 T7    Somerset-Pawtucket    115 U2    Belmont-Stoughton-Parkview    115 U6    Bridgewater-Dighton Tap-EMI Dighton-Somerset    115 V148N    Washington-Woonsocket    115 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   V148S    Read Street-Robinson Avenue-Washington    115 V174    Millbury-North Oxford-Carpenter Hill    115 V5    Bridgewater-Taunton (Cleary) Tap-Dighton-Somerset    115 W149N    Wilder-Mt. Support Tap-Slayton Hill    115 W149S (K149)    Slayton Hill-Ascutney-Bellows Falls    115 W175    Carpenter Hill-West Charlton-Little Rest Rd-Palmer    115 W4    Swansea-Somerset    115 X176    Palmer-Thorndike-Ludlow    115 X3    Somerset-Philipsdale Tap(Blackstone Jct)-Philipsdale-Pawtucket    115 Y151    Hudson-Bridge St-Pelham-W.Methuen-Dracut Jct-E.Dracut-W.Andover Tap-Tewksbury    115 Y177    Harriman-Sherman-Montague    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 210X    Auburn St    345/115 3A    Brayton Point    345/115/20 3B    Brayton Point    345/115/20 161X    Bridgewater    345/115 162X    Bridgewater    345/115 1X    Carpenter Hill    345/115/13 1X    Golden Hills    345/115/23 2X    Golden Hills    345/115/23 3X    Kent County    345/115 1X    Sandy Pond    345/115/23 2X    Sandy Pond    345/115/23 3X    Ward Hill    345/115/23 174X    West Farnum    345/115/23 175X    West Farnum    345/115 4X    Bear Swamp    230/115 5    Comerford    230/34 6    Comerford    230/34 8    Pratts Junction    230/115 8A    Pratts Junction    230/115 -------------------------------------------------------------------------------- Schedule 2.01(a) New England Power Company Category A Facilities   2X    Tewksbury    230/115/13 3X    Tewksbury    230/115/13 4X    Tewksbury    230/115/13 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 310    Millstone-Manchester    345 321    Long Mountain-Plumtree    345 329    Southington-Frost Bridge    345 330    Card-Lake Road    345 347    Lake Road-Sherman Road    345 348    Millstone-Manchester    345 352    Frost Bridge-Long Mountain    345 353    Scovill Rock-Manchester    345 362    Southington-Haddam Neck    345 364    Montville-Haddam Neck    345 368    Manchester-Card    345 371    Millstone-Montville    345 376    Haddam Neck-Scovill Rock    345 383    Millstone-Card    345 384    Scovill Rock-Middletown    345 387    Scovill Rock-Halversson-East Shore    345 395    Ludlow-North Bloomfield-Manchester    345 398    Long Mountain-Pleasant Valley    345 1385    Norwalk Harbor-Northport    115 1000    Montville-Dudley Tap    115 1050    Middletown-Dooley    115 1070    Fort Hill Farms-Stockhouse    115 1080    Montville-Card-Lisbon-Tunnel    115 1090    Montville-Fort Hill Farms    115 1130    Pequonnock-Compo    115 1163    Frost Bridge-Noera-Todd    115 1191    Frost Bridge-Campville    115 1207    Manchester-East Hartford    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category A Facilities   1208    Southington-Wallingford    115 1222    Old Town-Hawthorne    115 1235    Montville-Uncasville    115 1238    Carmel Hill-Frost Bridge    115 1261    Haddam-Bokum    115 1272    Shaws Hill-Bunker Hill    115 1280    Montville-Buddington-Mystic    115 1342    Green Hill-Bokum    115 1355    Southington-Hanover-Colony    115 1389    Norwalk-Flax Hill    115 1394    Scitico-Franconia    115 1416    Darien-Compo    115 1430    Sasco Creek-Ash Creek    115 1440    Glenbrook-Waterside    115 1443    Middletown-Portland    115 1445    Frost Bridge-Shaws Hill    115 1450    Southend-Glenbrook    115 1460    Eastshore-Branford RR    115 1466    North Wallingford-East Meriden    115 1470    Norwalk-Ridgefield-Peaceable    115 1490    Stockhouse-Card    115 1508    Branford-Green Hill    115 1515    Ludlow-Scitico    115 1537    Branford-Branford RR    115 1545    Devon-Trap Falls    115 1550    Frost Bridge-Noera-Canal    115 1560    Stevenson-Ansonia-Trap Falls    115 1565    Peaceable-Ridgefield-Plumtree    115 1570    Devon-Indian Well-Beacon Falls    115 1572    Middletown-Pratt & Whitney    115 1575    Bunker Hill-Baldwin-Beacon Falls    115 1580    South Naugatuck-Devon    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category A Facilities   1585    Bunker Hill-South Naugatuck    115 1588    North Wallingford-Colony    115 1610    Southington-Mix Avenue-June Street    115 1618    Rocky River-West Brookfield    115 1620    Middletown-Bokum    115 1622    Shepaug-Bates Rock    115 1630    Wallingford-Walrec-North Haven    115 1637    Norwalk-Weston    115 1640    Wallingford-Devon    115 1655    Branford-North Haven    115 1668    Bunker Hill-Freight Street    115 1670    Southington-Black Rock-Berlin    115 1675    Bean Hill-Tunnel    115 1685    Devon-June Street    115 1690    Southington-Hanover-Devon    115 1704    South Meadow-Southwest Hartford    115 1710    Pequonnock-Old Town-Devon    115 1720    Norwalk-Hawthorne    115 1721    Freight Street-Frost Bridge    115 1722    Northwest Hartford-CDEC-Southwest Hartford    115 1726    North Bloomfield-Farmington    115 1730    Pequonnock-Weston-Devon    115 1732    Canton-Franklin Drive-Campville    115 1740    Waterside-Cos Cob    115 1750    Cos Cob-Tomac-Southend    115 1751    Northwest Hartford-North Bloomfield-Manchester    115 1752    Rocky Hill-Berlin    115 1756    Bloomfield-Northwest Hartford    115 1759    Portland-Hopewell    115 1760    Plumtree-Newtown    115 1765    Westside-Berlin    115 1766    Dooley-Westside    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category A Facilities   1767    Manchester-Hopewell    115 1768    North Bloomfield-Southwick    115 1769    Berlin-East New Britain    115 1770    Plumtree-Stony Hill-Bates Rock    115 1771    Southington-Berlin    115 1772    Haddam-Connecticut Yankee-Pratt & Whitney    115 1773    South Meadow-Rocky Hill    115 1775    South Meadow-Riverside-Manchester    115 1777    North Bloomfield-Bloomfield    115 1779    South Meadow-Bloomfield    115 1780    Devon-Devon Tie    115 1783    Farmington-Newington-East New Britain    115 1784    North Bloomfield-Northeast Simsbury-Canton    115 1785    Berlin-Newington    115 1786    East Hartford-Riverside-South Meadow    115 1788    Franklin Drive-Torrington Terminal    115 1790    Devon-Devon RR(n.o.)-Devon Tie    115 1800    Southington-United Technologies Tap-Forestville    115 1810    Southington-United Technologies Tap-Bristol-Chippen Hill    115 1813    Rocky River-Carmel Hill    115 1821    North Bloomfield-South Agawam    115 1825    Forestville-Bristol    115 1835    Chippen Hill-Thomaston    115 1836    North Bloomfield-South Agawam    115 1858    South Agawam-Franconia    115 1867    Norwalk Harbor-Flax Hill-Glenbrook    115 1870S    Mystic-Wood River    115 1876    Newtown-Sandy Hook-Stevenson    115 1880    Norwalk Harbor-Norwalk-Glenbrook    115 1887    West Brookfield-Stoney Hill-Shepaug    115 1890    Norwalk Harbor-Glenbrook-Sasco Creek    115 1900    Campville-Torrington Terminal    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category A Facilities   1910    Southington-Todd    115 1921    Campville-Thomaston    115 1950    Southington-Canal    115 1975    East Meriden-Haddam    115 1977    Southend-Glenbrook-Darien    115 1990    Frost Bridge-Baldwin-Stevenson    115 667    Falls Village-Salisbury    69 689    Falls Village-Torrington Terminal    69 690    Salisbury-Smithfield    69 693    Falls Village-Torrington Terminal    69 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 5X    Card    345/115 1X    Frost Bridge    345/115 4X    Manchester    345/115 5X    Manchester    345/115 6X    Manchester    345/115 18X    Montville    345/115 19X    Montville    345/115 5X    North Bloomfield    345/115 8X    Norwalk Harbor    138/115 1X    Plumtree    345/115 2X    Plumtree    345/115 1X    Southington    345/115 2X    Southington    345/115 3X    Southington    345/115 4X    Southington    345/115 1X    Torrington Terminal    115/69 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of Holyoke Water Power Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 1039    Mount Tom-Midway    115 1292    Holyoke-lngleside    115 1327    Pineshed-Fairmont North    115 1428    Mount Tom-Fairmont South    115 1447    Mount Tom-Pineshed    115 1525    Fairmont South-Holyoke    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of Public Service Company of New Hampshire Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 307    Deerfield-Newington    345 326    Scobie-Lawrence Road-Sandy Pond    345 361    Newington Energy-Newington    345 363    Seabrook-Scobie    345 369    Seabrook-Timber Swamp Road-Newington    345 373    Scobie-Deerfield    345 379    Amherst-Vermont Yankee    345 380    Scobie-Amherst    345 381    Vermont Yankee-Northfield    345 385    Buxton-Deerfield    345 391    Buxton-Scobie    345 394    Seabrook-Ward Hill-Tewksbury    345 B202N/S/A253    Merrimack-Comerford-N.Litchfield    230 A111    Pemigewassett-Webster    115 A152    Keene-Swanzey-Westport-Chestnut Hill    115 B143    Greegs-Reeds Ferry    115 C129    Deerfield-Rochester Tap-Madbury    115 C196    Greggs-Merrimack    115 D118    Pine Hill-Deerfield    115 D121    Merrimack-Eddy    115 E115    Beebe-Ashland-Pemigewassett    115 E194    Schiller Ocean-Road    115 F162    Greggs-Jackman    115 G146    Garvins-Deerfield    115 H137    Garvins-Merrimack    115 H141    Scobie-Chester-Great Bay-Ocean Road    115 I135N    Monadnock-Monadnock Tap    115 J114    Eddy-Rimmon_Greggs    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of Public Service Company of New Hampshire Category A Facilities   K105    Watts Brook-Greggs    115 K165    Reeds Ferry-S.Milford Tap-Anheuser Busch-Bridge Street Tap-Hudson    115 K174    North Road-Ascutney    115 L163    Jackman-Keene    115 L175    Deerfield-Madbury    115 M127    Webster-North Road    115 M183    Madbury-Dover    115 N133    Schiller-Bolt Hill-Three Rivers    115 N186    Chestnut Hill-Vernon Rd Tap-Vernon Road    115 O161    Greggs-Pine Hill    115 P145    Webster-Oak Hill Tap-Merrimack    115 Q171    Greggs-Merrimack    115 Q195    Moore-Whitefield    115 R169    Dover-Three Rivers    115 R187    Watts Brook-Mammouth Road Tap-Scobie    115 R193    Scobie-Kingston Tap-Ocean Road    115 T198    Keene-Monadnock    115 U181    Schiller-Ocean Road    115 U199    U199 Tap-Littleton    115 V182    Webster-Garvins    115 X116    Scobie-Hudson    115 X178    Beebe-Woodstock_U199 Tap-Whitefield    115 Y151    Hudson-Bridge Street Tap-Pelham    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) --------------------------------------------------------------------------------       TB14    Deerfield    345/115 TB41    Littleton    230/115 A253    Merrimack    230/115 TB30    Scobie    345/115 TB90    Scobie    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of Western Massachusetts Electric Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 301    Ludlow-Carpenter Hill    345 312    Northfield-Berkshire    345 354    Northfield-Ludlow    345 381    Northfield-Vermont Yankee    345 393    Berkshire-Alps    345 395    Ludlow-N.Bloomfield-Manchester    345 B128    Harriman-Indeck(Montague)-French King-Barre-Webster St Tap(n.o.)-Millbury    115 F132    Doreen-Lanesboro-Partridge Jct-Adams    115 X176    Ludlow-Thorndike    115 Y177    Montague-Sherman-Harriman    115 1007    Agawam-Elm    115 1039    Midway-Mt.Tom    115 1161    Doreen-Oswald-Woodland Road    115 1211    Doreen-Oswald    115 1230    Agawam-Piper    115 1231    Berkshire-Plainfield-Ashfield-Cumberland    115 1242    Berkshire-Plainfield-Ashfield-Montague    115 1254    Shawinigan-Chicopee-Fairmont South    115 1302    Agawam-Pochassic-Buck Pond    115 1311    West Springfield-Agawam    115 1314    Agawam-Chicopee    115 1322    E.Springfield-Breckwood    115 1361    Montague-Cumberland    115 1371    Pleasant-Woodland    115 1394    Franconia-Scitico    115 1412    W.Springfield-Agawam    115 1421    Pleasant-Blanford    115 1426    E.Springfield-Orchard    115 -------------------------------------------------------------------------------- Schedule 2.01(a) Northeast Utilities Service Company on behalf of Western Massachusetts Electric Company Category A Facilities   1433    Breckwood-W.Springfield    115 1481    E.Springfield-Ludlow    115 1512    Blanford-Elm-Southwick    115 1515    Ludlow-Scitico    115 1525    Fairmont South-Holyoke    115 1551    Doreen-Berkshire    115 1552    Orchard-Ludlow    115 1657    Buck Pond-Gunn-Ingleside    115 1662    Doreen-Berkshire    115 1723    E.Springfield-Fairmont North-Piper    115 1768    Southwick-N.Bloomfield    115 1781    Agawam-Silver-South Agawam    115 1782    Agawam-Silver-South Agawam    115 1821    South Agawam-N.Bloomfield    115 1836    South Agawam-N.Bloomfield    115 1845    Ludlow-Shawinigan    115 1858    South Agawam-Franconia    115 1962    Midway-Gunn    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 1X    Berkshire    345/115 1X    Ludlow    345/115 3X    Ludlow    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 316    West Walpole-Holbrook    345 319    Woburn-Lexington    345 322    Carver-Canal    345 323    West Medway-Millbury    345 324    Mystic-Kingston St    345 325    West Medway-West Walpole    345 331    West Walpole-Carver    345 335    Auburn-Holbrook    345 336    West Medway-NEA Bellingham-ANP Blackstone    345 338    Tewksbury-Woburn    345 342    Pilgrim-Canal-Auburn St    345 344    West Medway-Bridgewater    345 346    North Cambridge-Woburn    345 351    Mystic-North Cambridge    345 355    Pilgrim-Bridgewater    345 357    West Medway-Millbury    345 358    Mystic-North Cambridge    345 365    North Cambridge-Woburn    345 372    Mystic-Kingston St    345 389    West Medway-West Walpole    345 3361    ANP Bellingham-Sherman Road    345 3520    West Medway-ANP Bellingham    345 349XY    Mystic-Golden Hills    345 240-601    West Medway-Framingham    230 282-602    West Medway-Waltham    230 110-510    Kingston St-Brighton-Baker St    115 110-511    Kingston St-Brighton-Baker St    115 -------------------------------------------------------------------------------- Schedule 2.01(a) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category A Facilities   110-522    Needham-Baker St    115 128-518           (P168)    Chelsea-Revere    115 148-522X&Y    West Walpole-Dover-Needham    115 201-501           (D130)    Medway-Milford-Depot St-Hopkinton-Millbury    115 201-502           (C129N)    Beaver Pond-Milford-Depot St-Rocky Hill-Hopkinton-Millbury    115 211-503           (M139)    Woburn-Reading-North Woburn(Dragon Court)-Pinehurst-Billerica-Tewksbury    115 211-504           (N140)    Woburn-Reading-North Woburn(Dragon Court)-Pinehurst-Tewksbury    115 211-508    Burlington-Woburn    115 211-514    Mystic-Woburn    115 240-508    Framingham(Leland Street)-Sherborn    115 240-510    Framingham(Leland Street)-Needham-Baker Street    115 250-516    Mystic-Hawkins Street-Chatham Street-K Street    115 250-517    Mystic-Hawkins Street-Chatham Street-K Street    115 274-509    Sherborn-Medway    115 282-507    Sudbury-Waltham    115 282-520    Brighton-Watertown-Waltham    115 282-521    Brighton-Watertown-Waltham    115 320-507    Waltham-Lexington-Trapelo Road    115 320-508    Waltham-Lexington-Trapelo Road    115 329-510    Mystic-Somerville-Brighton    115 329-511    Mystic-Somerville-Brighton    115 329-512    Kingston St-Carver St-Scotia St-Brighton    115 329-513    Kingston St-Carver St-Scotia St-Brighton    115 329-530    Brighton-North Cambridge    115 329-531    Brighton-North Cambridge    115 342-507    Speen Street-Sudbury    115 385-510    K Street-High Street-Kingston AB-Kingston Street    115 -------------------------------------------------------------------------------- Schedule 2.01(a) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category A Facilities   385-511    K Street-High Street-Kingston AB-Kingston Street    115 385-512    K Street-Kingston Street    115 385-513    K Street-Kingston Street    115 391-508    Hartwell Avenue-Burlington    115 398-537    Holbrook-East Holbrook    115 423-515           (0167)    Mystic-Everett    115 433-507    Framingham(Leland St)-Speen Street    115 447-508    Holbrook-South Randolph(n.o)-Canton-Sharon Amtrack-Norwood-Walpole-W.Walpole    115 447-509    Holbrook-South Randolph-Canton-Sharon Amtrack-Norwood-Walpole-W.Walpole    115 451-536    Auburn-East Holbrook-Holbrook    115 455-507    Sherborn-West Framingham    115 478-502(115-16-11)    Holbrook-Swift’s Beach Tap-Edgar    115 478-503    Holbrook-East Weymouth-Hobart Street Tap-Edgar    115 478-508    Holbrook-East Weymouth-Hobart Street Tap-Edgar    115 478-509    Holbrook-Grove Street-Mid Weymouth-Edgar    115 488-518    Mystic-Chelsea    115 513-507           (D156)    West Framingham-Northboro Road    115 533-508    Lexington-Hartwell Avenue    115 65-502    West Walpole-Medway    115 65-508    West Walpole-Medway    115 831-536    N.Cambridge-Putnam    115 831-537    N.Cambridge-Putnam    115 191    Kingston-Auburn Street    115 117    Kingston-Brook Street    115 116    Brook Street-Carver    115 127    Carver-SEMASS Tap    115 128    SEMASS Tap-Tremont    115 108    Tremont-Wareham-Valley-Horsepond Tap-Bourne    115 109    High Hill-Fisher Rd-Cross Rd-111 Tie (n.o.)    115 -------------------------------------------------------------------------------- Schedule 2.01(a) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category A Facilities   113    Tremont-Wareham(n.o.)-Valley-Horsepond Tap(n.o.)-Bourne    115 112    Tremont-Rochester-Mendall Rd-Crystal Spring(n.o.)-lndustrial Park-Acushnet-Pine St-Arsene    115 114    Tremont-Rochester-Mendall Rd-Crystal Spring-Wing Lane-Acushnet Tap-Achushnet-Pine St    115 111    Industrial Park-High Hill-Dartmouth-Cross Rd-109 tie (n.o.)    115 D21    High Hill-Bell Rock    115 121    Canal-Bourne    115 120    Canal-Barnstable    115 122    Bourne-Pave Paws-Sandwich-Oak St-Barnstable    115 107    Bourne-Otis-Falmouth Tap    115 115    Barnstable-Mashpee-Hatchville-Falmouth Tap    115 126    Canal-Bourne    115 130    Acushnet Tap-Pine Street    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 121X    Canal    345/115 120X    Canal    345/115 126X    Canal    345/115 345A    Carver    345/115 345A    Kingston St    345/115 345B    Kingston St    345/115 345A    Mystic    345/115 345A    North Cambridge    345/115 345B    North Cambridge    345/115 345A    Woburn    345/115 110D    Waltham PAR    115 110E    Waltham PAR    115 110F    Waltham PAR    115 230A    Waltham    230/115 230A    Framingham    230/115 345A    Lexington    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category A Facilities   110D    Baker Street PAR    115 110C    Baker Street PAR    115 345A    Walpole    345/115 345A    Holbrook    345/115 345A    W.Medway    345/115 345B    W.Medway    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) The United Illuminating Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 387    Scovill Rock-Halversson-East Shore    345 1710    Pequonnock-Old Town-Devon    115 1730    Pequonnock-Weston-Devon    115 8809A    Pequonnock-Congress-Baird    115 8909B    Pequonnock-Congress-Baird    115 88006A    Baird-Barnum-Devon Tie    115 89006B    Baird-Barnum-Devon Tie    115 88005A    Devon Tie-Milvon-Woodmont    115 89005B    Devon Tie-Milvon-Woodmont    115 8804A    Woodmont-Allings Crossing    115 8904 B    Woodmont-Allings Crossing    115 88003A    Allings Crossing-Elm West-West River-Grand Avenue    115 89003B    Allings Crossing-Elm West-West River-Grand Avenue    115 8400    Sackett-Grand Avenue    115 84004    Sackett-Mix Avenue    115 1610    Southington-Mix Avenue-June Street    115 91001    Pequonnock-Bridgeport RESCO-Ash Creek    115 1430    Ash Creek-Sasco Creek    115 1130    Pequonnock-Compo    115 1685    Devon-June Street    115 1560    Stevenson-Ansonia-Trap Falls    115 1570    Devon-Indian Well-Beacon Falls    115 1594    Indian Well-Ansonia    115 8500    Grand Avenue-Water Street    115 8700    Water Street-West River    115 8100    Grand Avenue-English-East Shore    115 8200    Grand Avenue-East Shore    115 8301    Mill River-Grand Avenue    115 9502    Mill River-Broadway    115 -------------------------------------------------------------------------------- Schedule 2.01(a) The United Illuminating Company Category A Facilities   9500    Broadway-Water Street    115 8300    Quinnipiac-Mill River    115 8600    Quinnipiac-North Haven    115 1460    East Shore-Branford RR    115 1537    Branford RR-Branford    115 1630    North Haven-Walrec    115 1655    North Haven-Branford    115 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 8X    East Shore    345/115 9X    East Shore    345/115 -------------------------------------------------------------------------------- Schedule 2.01(a) Vermont Electric Power Company Category A Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 340    Vermont Yankee-Coolidge    345 350    Coolidge-West Rutland    345 379    Amherst-Vermont Yankee    345 381    Vermont Yankee-Northfield    345 F206    Comerford-Granite    230 K149 (W149S)    Ascutney-Ascutney Tap    115 K174    Ascutney-North Road    115 K186(N186)    Vermont Yankee-Vernon Road Tap-Vernon Road-Chestnut Hill    115 K19    Georgia-East Fairfax Tap-Sandbar    115 PV-20    Plattsburgh-S.Hero-Sandbar    115 K21    Georgia-IBM Tap-Essex    115 K22    Essex-Sandbar    115 K23    Williston-Essex    115 K24E    Berlin-Barre    115 K24W    Essex-IBM Tap-Middlesex-Berlin    115 K26    Granite-Chelsea-Hartford-Wilder    115 K26    Barre-Granite    115 K30    Middlebury-Florence Tap-West Rutland    115 K31    Coolidge-Ascutney    115 K32    Coolidge-Cold River    115 K34    West Rutland-Blissville    115 K35    Cold River-North Rutland    115 K37    North Rutland-West Rutland    115 K4(Q117)    Bennington-Adams    115 K43    New Haven-Williston    115 K50    Highgate Converter-Highgate Tap-St. Albans Tap-Georgia    115 K6    Hoosic -Bennington    115 K63    Middlebury-New Haven    115 K7    Blissville-Whitehall    115 1429    Highgate Converter & HVDC Line to Bedford    55 (DC) -------------------------------------------------------------------------------- Schedule 2.01(a) Vermont Electric Power Company Category A Facilities   Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- K36X    Coolidge    345/115 T1    West Rutland    345/115 T2    West Rutland    345/115 1X    Granite    230/115 -------------------------------------------------------------------------------- Schedule 2.01(b) Bangor Hydro-Electric Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 62    Keene Road-Powersville Road    115 63    Keene Road-Chester    115 64    Graham-Enfield-Keene Road    115 66    Rebel Hill-Deblois-Harrington Tap-Washington Cty    115 68    Boggy Brook-Ellsworth    115 69    Harrington Tap-Harrington    115 247    Orrington-Chemical    115 -------------------------------------------------------------------------------- Schedule 2.01(b) Central Maine Power Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 63A    Williams Tap-Williams    115 63B    Madison Tap-Madison    115 81A    Topsham Tap-Topsham    115 67A    Rice Rips Tap-Rice Rips    115 83B    Lakewood Tap-Lakewood    115 83C    Scott Tap-Scott    115 85    Detroit-Guilford    115 86A    Belfast Tap-Belfast    115 86B    Meadow Road Tap-Meadow Road    115 140 A    P&W Tap-P&W    115 163    Louden-Branch Brook-Maguire Rd (n.o.)    115 167A    Prides Corner Tap-Prides Corner    115 200A    AEI Livermore Tap-AEI Livermore    115 206    Highland-Dragon Cement Tap-Park Street    115 206A    Dragon Cement Tap-Dragon Cement    115 214    Kimball Road-Harrison-Lovell-Saco Valley    115 215    Bigelow Tap-Bigelow    115 215A    Stratton Tap-SEA Stratton    115 222    Wyman-Moscow Tap-Harris    115 218    Rumford-Boise Cascade    115 222A    Moscow Tap-Moscow    115 227    Riley-AEC    115 250A    Biddeford-Biddeford Tap    115 -------------------------------------------------------------------------------- Schedule 2.01(b) Fitchburg Gas and Electric Light Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- Line 01    Flagg Pond - Summer St.    69 Line 02    Flagg Pond - Summer St.    69 Line 03    Flagg Pond - Princeton Rd. - River St.    69 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- T1    Flagg Pond    115/69 T2    Flagg Pond    115/69 -------------------------------------------------------------------------------- Schedule 2.01(b) New England Power Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- N266    Comerford-Mclndoes    230 K211    North Litchfield-Granite Ridge    230 L212    North Litchfield-Granite Ridge    230 S197    Bear Swamp-Deerfield 4    115 1819    Midway-Florence    115 517-533S    Edgar-Field Street    115 517-533N    Field Street-N.Quincy    115 517-532S    Edgar-Field Street    115 517-532N    Field Street-N.Quincy    115 517-525    N.Quincy-Dewar Street(n.o)    115 517-524    N.Quincy-Dewar Street(n.o)    115 A127    Webster St Tap-Webster St    115 B128    Webster St Tap-Webster St    115 A153    Tewksbury-Meadowbrook-N.Chelmsford    115 B23    West Farnum-Nasonville    115 C3    Auburn Street-Plymouth St-Hanover Tap(n.o.)-Norwell-Water St.-N. Abington    115 C3-99    Plymouth St-North Abington    115 D911    Ames Street-Dupont    115 E1    Bridgewater-Easton-Middleboro    115 G185S    Davisville Tap-Old Baptist Road Tap-Davisville    115 H1    Hanover Tap-Water Street    115 H160    Northboro Rd-Hudson Rd    115 I161    Sandy Pond-Meadowbrook-N.Chelmsford    115 I135N    E.Winchendon Tap-E.Winchendon(n.o.)    115 J136N    E.Winchendon Tap-E.Winchendon    115 J136S    Litchfield Street Tap-Litchfield    115 I187    Drumrock-Kilvert St.-Blackbum-Pontiac Avenue-Lincoln Avenue-Sockanosset    115 J162    Tewksbury-L’Energia-Perry Street    115 J188    Drumrock-Kilvert St.-Blackbum-Pontiac Avenue-Lincoln Avenue-Sockanosset    115 L14    Tiverton Tap-Bates Street-Cononicus-Dexter    115 -------------------------------------------------------------------------------- Schedule 2.01(b) New England Power Company Category B Facilities   L164    Tewksbury-Tewksbury Tap-N.Dracut-W.Andover-S. Broadway    115 L190    Kent County-Davisville Tap-Old Baptist Road Tap-Davisville    115 M1    East Bridgewater-Mill Street-Middleboro    115 M13    Tiverton Tap-Bates Street-Cononicus-Dexter?    115 M165    Millbury-WMI Millbury-Vernon Hill    115 M191    North River Tap-E.Beverly-Beverly    115 N166    Northboro Road-N.Marlboro-Hudson    115 N192    North River Tap-E.Beverly    115 Q143    Clarkson(n.o.)-Admiral Street-Franklin Square-South St.    115 R144    Clarkson(n.o.)-Admiral Street-Franklin Square    115 S171S    Rise Tap-Rise    115 S171S    Johnston Tap-Johnston    115 T172S    Rise Tap-Rise    115 T172S    Johnston Tap-Johnston    115 S9    Auburn Street-Plymouth-Hanover Tap-Philips Lane-Norwell-Scituate    115 T2 Tap    Franklin Sq-South St.-Point St    115 U6    Dighton Tap-Dighton    115 U173    Carpenter Hill-Snow Street    115 W123    Carpenter Hill-Millenium-Snow Street    115 Y2    Somerset-Hathaway Street    115 Z1    Somerset-Hathaway Street    115 Y151    W.Andover Tap-W.Andover-S. Broadway    115 3761    Dexter-Jepson    69 3762    Dexter-Jepson    69 3763    Jepson-Navy-Gate 2    69 #1 Attlebo Tap    Read St - West St.    69 #2 Attlebo Tap    Read St - West St.    69      Pratts Jct-E.Westminster-Westminster (n.o.)-Gardner Tower-Park St-Otter River (Gardner      A1    Tower-Park St n.o., both taps)    69 A1    Otter River - Templeton Muni.    69 A1    Otter River-Royalston Tower-Royalston-Chestnut Hill    69 A1    Chestnut Hill-Vernon    69 A53    Wachusetts-Oakdale-Chaffins-Cooks Pond    69 -------------------------------------------------------------------------------- Schedule 2.01(b) New England Power Company Category B Facilities   B2    Pratts Jct-E.Westminster (n.o.)-Westminster-Gardner Tower-Park St    69      Park St-Otter River (n.o.)-Royalston Tower-Royalston-Chestnut Hill-Vernon (Royalston Tower-      B2    Royalston-Chestnut Hill n.o., both taps)    69 B54    Wachusetts-Chaffins-Cooks Pond    69 B69    Quabbin Tower-Belchertown    69 D4    Deerfield 4-Vernon    69 E5    Ware-Lashaway (n.o.)-Meadow St    69 E5E    Meadow St.-Leicester-Pondville-Millbury    69 E5W    Ware-Quabbin Tower (n.o.)-Shutesbury    69 E5D    Deerfield 4-Deerfield 3-Deerfield 2 (n.o.)-Shutesbury    69 F6    Ware-Lashaway-Meadow St    69 F6E    Meadow St.-Leicester (n.o.)-Pondville-Millbury    69 F6W    Deerfield 4-Deerfield 3 (n.o.)-Deerfield 2-Quabbin Tower-Belchertown-Ware    69 G33    Bellows Falls-Westminster (GMP)-Putney-Ferry Rd (n.o.)    69      Ferry Rd (n.o.)-Fibermark (CVPS)-Brundies Rd (CVPS)-Fulflex (CVPS)-N.Brattleboro      G33    (n.o.,CVPS)-S.Brattleboro tap-S.Brattleboro (CVPS)-Vernon Rd    69 G33    Vernon-S.Brattleboro tap (n.o.)    69 G7    Northboro Rd-S.Marlboro-Marlboro    69 135    Millbury-N.Grafton Tower (n.o.)-Shrewsbury    69 J10    Adams-Deerfield 5    69 L38    Wachusetts-Temple St.    69 M39    Wachusett-Fitch Road    69 N14S    Palmer-Wilbraham-E. Longmeadow-Kibbe Rd-Shaker Rd-Milton Bradley    69 N40    Pratts Junction-Fitch Road    69 O15S    Palmer-Hampden-E. Longmeadow-Kibbe Rd (n.o.)    69 O15N    Palmer-Ware    69 042    Ayer-Groton Muni-Dunstable (n.o.)-Pepperell Power-Groton St-Pepperell Paper    69 R43    Ayer-Groton Muni-Dunstable    69 S19    Millbury-E. Webster    69 T20    Meadow St-E. Webster (n.o.)    69 U21S    Pratts Junction-Prospect St-Devens    69 U21E    Ayer-Devens    69 V22E    Ayer-Prospect St (n.o.)    69 -------------------------------------------------------------------------------- Schedule 2.01(b) New England Power Company Category B Facilities   V22S    Pratts Jct-Litchfield St-Prospect St    69 W23W    Northboro Rd-S.Marlboro(n.o.)-Marlboro-MWRA-Woodside    69 W23W    Woodside (n.o.)-Fitch Rd    69 X24W    Millbury-N.Grafton Tower-N.Grafton-Westboro    69 X24E    Westboro-Northboro Road    69 Y25S    Deerfield 5-Harriman    69      Harriman-Searsburg-Wilmington (GMP)-Mt Snow Dover (GMP)-Sleepy Hollow (GMP)-      Y25N    Bennington (CVPS)    69 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 3    Adams    115/69/23 5    Adams    115/69/23 4    Ayer    115/69/13 6    Ayer    115/69/13 1    Bellows Falls    115/69 2    Bellows Falls    115/69 3    Bellows Falls    115/69/6 3    Deerfield 4    115/69/13 8    Harriman    115/69/6 1    Millbury    115/69 2    Millbury    115/69 3    Millbury    115/69/13 1    Northboro Road    115/69/13 2    Northboro Road    115/69/13 3    Northboro Road    115/69/13 4    Northboro Road    115/69/13 3    Palmer    115/69/13 4    Palmer    115/69/13 5    Palmer    115/69/23/13 6    Palmer    115/69/23 4    Pratts Junction    115/69/13 6    Pratts Junction    115/69/13 7    Pratts Junction    115/69/13   Schedule 2.01(b) New England Power Company Category B Facilities   1    Read Street    115/69 2    Read Street    115/69/23 2    Wachusett    115/69/13 -------------------------------------------------------------------------------- Schedule 2.01(b) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 1060    Plumtree-Triangle    115 1100    Barbour Hill-Enfield    115 1120    AES Thames-Montville    115 1165    Plumtree-Triangle    115 1200    Barbour Hill-Windsor Locks    115 1210    Card-Willimantic    115 1220    Card-Willimantic    115 1250    Montville-E.Haddam Jct(n.o.)-Uncaseville    115 1270    Plumtree-Middle River    115 1300    Enfield-Dexter Tap-Windsor Locks    115 1300    Dexter Tap-Dexter    115 1310    Manchester-South Windsor    115 1337    Middle River-Triangle    115 1350    Devon-Milford    115 1365    Williams-New London RR    115 1410    Montville-Buddington    115 1500    Montville-Williams-Flanders    115 1505    Tunnel-Fry Brook-Brooklyn-Tracy    115 1555    Rocky River-Bulls Bridge    115 1605    Montville-Williams-Flanders    115 1606    Barbour Hill-Rockville    115 1607    Tunnel-Fry Brook-Exeter Tap-Tracy    115 1607    Exeter Tap-Exeter    115 1635    South Windsor-Barbour Hill    115 1650    Devon-Devon RR    115 1724    Barbour Hill-Rockville    115 1753    Glenbrook-Cedar Heights    115 1763    Manchester-Barbour Hill    115 -------------------------------------------------------------------------------- Schedule 2.01 (b) Northeast Utilities Service Company on behalf of The Connecticut Light and Power Company Category B Facilities   1790    Devon RR Tap-Devon RR    115 1792    Glenbrook-Cedar Heights    115 1800    United Technologies Tap-United Technologies    115 1810    United Technologies Tap-United Technologies    115 1820    Southington-Black Rock    115 1830    Southington-Black Rock    115 1840    Black Rock-GE    115 1985    Williams-New London RR    115 100    Montville-Gales Ferry    69 400    Gales Ferry-Buddington-Tunnel    69 500    Tunnel-SECREC    69 680    Black Rock-Burritt    69 694    Falls Village-North Canaan    69 800    Card-Mansfield    69 900    Card-Skungamaug-Mansfield    69 Transformer # --------------------------------------------------------------------------------    Station   --------------------------------------------------------------------------------    Voltage (kV) --------------------------------------------------------------------------------      Card    115/69 16X    Montville    115/69 11X    Shepaug    115/69 4X    Black Rock    115/69 1X    Tunnel    115/69 8X    Card    115/69 9X    Card    115/69 -------------------------------------------------------------------------------- Schedule 2.01 (b) Northeast Utilities Service Company on behalf of Holyoke Water Power Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) --------------------------------------------------------------------------------      Fairmont North-Prospect    115      Fairmont South-Prospect    115 -------------------------------------------------------------------------------- Schedule 2.01(b) Northeast Utilities Service Company on behalf of Public Service Company of New Hampshire Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 60(K29)    Littleton-St. Johnsbury    115 B112    Beebe-Tamworth-White Lake    115 C106    Saco Valley-Intervale    115 C131    Kingston Tap-Kingston    115 D142    Whitefield-Lost Nation    115 F117    Rochester Tap-Rochester    115 G192    Hudson-Bridge Street    115 I158    Scobie-Huse Road    115 J125    Webster-Laconia    115 K165    Bridge Street Tap-Bridge Street (N.O.)    115 K1214    Saco Valley-Lovell-Harrison-Kimball Road    115 L109    Watts Brook-Granite Ridge    115 L176    Webster-Laconia    115 P145    Oak Hill Tap-Oak Hill    115 P134    Hudson-Long Hill    115 PN2A    Schiller-Newington Station    115 PN1B    Schiller-Newington Station    115 Q195    Littleton Tap-Littleton (N.O.)    115 S136    Whitefield-Berlin    115 R187    Mammouth Road Tap-Mammouth Road    115 T13    Schiller-Resistance    115 Z156    Schiller-Resistance    115 W157    S.Milford Tap-S.Milford    115 Y138    White Lake-Saco Valley(n.o.)    115 W179    Berlin-Pontook Hydro-Lost Nation    115 Z177    Smith-Berlin    115 -------------------------------------------------------------------------------- Schedule 2.01(b) Northeast Utilities Service Company on behalf of Western Massachusetts Electric Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- F132    Partridge-Partridge Jct    115 1034    Montague-Amherst    115 1113    Podick-Five Corners-Fairmont North    115 1134    Amherst-Five Corners-Fairmont South    115 1413    Doreen-Silver Lake    115 1544    W.Springfield-Clinton    115 1614    Doreen-Silver Lake    115 1632    Montague-Podick    115 1715    Doreen-GE-Altresco    115 1755    W.Springfield-Clinton    115 1816    Doreen-GE-Altresco    115 1819*    Midway-Florence    115 1905    S.Agawam-Berkshire Power    115 1930    Shawinigan-Masspower    115 1935    Shawinigan-Masspower    115 1940    Shawinigan-Masspower    115 637    Pochassic-Cobble Mt.    115 Transformer #   --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) --------------------------------------------------------------------------------      Pochassic    115/69 -------------------------------------------------------------------------------- Schedule 2.01(b) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 65-507    Medway-Medway J3    115 146-502    W.Walpole-Walpole(n.o.)    115 219-532    Maynard-Concord    115 219-533    Maynard-Concord    115 496-528    Baker Street-Hyde Park    115 496-529    Baker Street-Hyde Park    115 292-522    Baker Street-Newton Highlands    115 292-523    Baker Street-Newton Highlands    115 416-526    Sudbury-Maynard    115 416-527    Sudbury-Maynard    115 483-524    K Street-Andrew Square-Dewar Street    115 483-525    K Street-Andrew Square-Dewar Street    115 517-524    Dewar St (n.o.)-No. Quincy    115 517-525    Dewar St (n.o.)-No. Quincy    115 831-538    Putnam-Kendall    115 108    Horsepond Tap-Manomet    115 113    Horsepond Tap-Manomet    115 116    Brook Street-West Pond    115 117    Brook Street-West Pond    115 117    Kingston-Duxbury    115 129    SEMASS Tap-SEMASS    115 191    Kingston-Duxbury-Marshfield    115 107W    Falmouth Tap-Falmouth    115 112    Pine Street-Cannon Street    115 114    Pine Street-Cannon Street    115 115E    Falmouth Tap-Falmouth    115 478-503    Hobart Street Tap-Hobart Street    115 -------------------------------------------------------------------------------- Schedule 2.01(b) NSTAR Electric & Gas Corporation on behalf of: Boston Edison Company, Cambridge Electric Light Company, and Commonwealth Electric Company Category B Facilities   478-508    Hobart Street Tap-Hobart Street    115 132-538    K Street-Deer Island    115 576-534    K-Street-MBTA    115 576-535    K-Street-MBTA    115 -------------------------------------------------------------------------------- Schedule 2.01(b) The United Illuminating Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- P-B Tie Line 2    Bridgeport Harbor 2 GSU - Pequonnock    115 P-B Tie Line 3    Bridgeport Harbor 3 GSU - Pequonnock    115 ES-NNH Tie           Line    New Haven Harbor GSU - E.Shore    115 9R    Bridgeport Resco    115 48G    Bridgeport Energy    115 -------------------------------------------------------------------------------- Schedule 2.01(b) Vermont Electric Power Company Category B Facilities   Circuit # --------------------------------------------------------------------------------    Stations --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 25-00    Woodford Road-Searsburg    69 67-00    Vernon Road-Ferry Road    69      Vernon Road-South Brattleboro    69 K15    Ascutney-Windsor    115 1591(K21)    IBM Tap-IBM    115 1592(K24)    IBM Tap-IBM    115 1593(K21)    IBM Tap-IBM    115 1594(K24)    IBM Tap-IBM    115 K25    East Avenue-Essex    115 K60    Littleton-St.Johnsbury    115 K30    Florence Tap-Florence    115 K33    Queen City-Williston    115 K28    St.Johnsbury-Irasburg    115 K42    Highgate Tap-Highgate    115 K42    St.Albans Tap-St.Albans    115 K80    East Fairfax Tap-East Fairfax    115 K41    Highgate-Newport    115 K48    Newport-Border    115 Y25N    Harriman-Searsburg-Wilmington (GMP)-Mt Snow Dover (GMP)-Sleepy Hollow (GMP)-Bennington (CVPS)    69 Transformer # --------------------------------------------------------------------------------    Station --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- Y25    Bennington    115/69 -------------------------------------------------------------------------------- Schedule 3.02(b) NORTHEAST UTILITIES SERVICE COMPANY ON BEHALF OF ITS OPERATING COMPANIES List of Interconnection Agreements with neighboring Control Areas and Tariff(s) Applicable to External Transactions     •   Long Island Power Authority 10/31/67 Agreement between The Connecticut Light and Power Company and (formally Long Island Lighting Company) Long Island Lighting Company, as amended or superseded. -------------------------------------------------------------------------------- Schedule 3.02(b) VERMONT ELECTRIC POWER COMPANY List of Interconnection Agreements with neighboring Control Areas and Tariff(s) Applicable to External Transactions     •   Interconnection Agreement of 2/23/87, between the Highgate Joint Owners and Hydro- Quebec. -------------------------------------------------------------------------------- Schedule 3.02(d)   LIST OF EXISTING OPERATING PROCEDURES   1. ISO New England Manual No. 6 – Financial Transmission Rights   2. ISO New England Manual 11 – Market Operations   3. ISO New England Manual 20 – Installed Capacity   4. ISO New England Manual 27 – Tariff Accounting   5. ISO New England Manual 28 – Market Rule 1 Accounting   6. ISO New England Manual 29 – Billing   7. ISO New England Manual 35 – Definitions and Abbreviations   8. ISO New England Manual 37- Forward Reserve   9. ISO New England Manual – ISO-NE Load Response Program   10. ISO New England Operating Procedure No. 1 “Central Dispatch Operating Responsibility and Authority of ISO New England, the Local Control Centers and Market Participants”   11. ISO New England Operating Procedure No. 2 “Maintenance Of Communications, Computers, Metering, and Computer Support Equipment”   12. ISO New England Operating Procedure No. 3 “Transmission Outage Scheduling”   13. ISO New England Operating Procedure No. 4 “Action During a Capacity Deficiency”   14. ISO New England Operating Procedure No. 5 “Generation Maintenance and Outage Scheduling”   15. ISO New England Operating Procedure No. 6 “System Restoration”   16. ISO New England Operating Procedure No. 7 “Action In An Emergency”   17. ISO New England Operating Procedure No. 8 “Operating Reserve and Regulation”   18. ISO New England Operating Procedure No. 9 “Scheduling and Dispatch of External Transactions”   19. ISO New England Operating Procedure No. 10 “Analysis and Reporting of Power System Emergencies”   20. ISO New England Operating Procedure No. 11 “Black Start Capability Testing Requirements”   21. ISO New England Operating Procedure No. 12 “Voltage and Reactive Control”   22. ISO New England Operating Procedure No. 13 “Standards For Voltage Reduction and Load Shedding Capability”   23. ISO-NE Operating Procedure No. 14 “Technical Requirements for Generation, Dispatchable and Interruptible Loads”   24. ISO New England Operating Procedure No. 16 “Transmission System Data”   25. ISO New England Operating Procedure No. 17 “Load Power Factor Correction”   26. ISO New England Operating Procedure No. 18 “Metering and Telemetering Criteria”   27. ISO New England Operating Procedure No. 19 “Transmission Operations” -------------------------------------------------------------------------------- 28. ISO New England Operating Procedure No. 20 “Cold Weather Event Operations”   29. ISO New England Compliance Procedure   30. ISO New England Compliance and Enforcement Process For Enhanced NPCC Reliability and NERC Standards   31. Master/Local Control Center Procedure #1 “Nuclear Plant Transmission Operations”   32. Master/Local Control Center Procedure #2 “Abnormal Conditions Alert”   33. Master/Local Control Center Procedure No. 3 “Test Procedure For Local Control Center Satellite Phone Communications”   34. Master/Local Control Center Procedure #4 “Rules for Generator Unit Control Modes, Limits and Dispatch Terminology”   35. Master/Local Control Center Procedure #5 “Procedure for Millstone Point Station Generation Reduction”   36. Master/Local Control Center Procedure #6 “Procedure for Evacuation of ISO New England Control Room”   37. Master/Local Control Center Procedure #7 “Processing Transmission Outage Applications”   38. Master/Local Control Center Procedure #8 “Coordination of Generation Voltage Regulator Outages”   39. Master/Local Control Center Procedure #9 “Operation of the Chester Static VAR Compensator (SVC)”   40. Master/Local Control Center Procedure #10 “Generator Governor Control and Operation”   41. Common Operating Instructions for Hydro-Québec TransÉnergie and the New England Asset Owners for the ± 450Kv DC Lines Radisson - Nicolet - Sandy Pond (Phase II) and ± 450Kv DC Lines Des Cantons - Monroe (Phase I)   42. Common System Dispatch Instructions for Hydro-Québec TransÉnergie and ISO New England Inc. for the ± 450Kv DC Lines Radisson - Nicolet - Sandy Pond (Phase II) and ± 450 kV DC Lines Des Cantons - Monroe (Phase I) -------------------------------------------------------------------------------- Schedule 3.09(a)   Planning and Expansion – Participating Transmission Owner Rights and Obligations   1. PTOs’ Rights and Obligations to Build and Associated Conditions Including Cost Recovery:   1.1 The following provisions shall apply to any New Transmission Facility or Transmission Upgrade designated in the ISO System Plan other than a Merchant Transmission Facility except as provided in Section 1.3 of this Schedule:   (a) Subject to the requirements of applicable law, government regulations and approvals, including requirements to obtain any necessary federal, state or local siting, construction and operating permits; the availability of required financing; the ability to acquire necessary rights-of-way; and satisfaction of the other conditions set forth in this Section 1.1, each PTO shall have the obligation to own and construct (or cause to be constructed) any New Transmission Facility or Transmission Upgrade that is designated in the ISO System Plan as necessary and appropriate for system reliability or economic efficiency. The PTO may enter into appropriate contracts to fulfill any obligations associated with the ownership and construction of such New Transmission Facilities or Transmission Upgrades.   (b) Each PTO subject to the obligation to build New Transmission Facilities and Transmission Upgrades under Section 1.1 (a), shall have the right to own and construct (or cause to be constructed) any New Transmission Facility or Transmission Upgrade located within or connected to its existing electric system which is included in the ISO System Plan, other than a Merchant Transmission Facility. This right shall not affect any rights that an entity may have to construct a Merchant Transmission Facility in response to a need identified by the ISO in the ISO Planning Process.   (c) (i) Each PTO’s assumption of an obligation to build New Transmission Facilities and Transmission Upgrades under Section 1.1 (a) shall be subject to the right of such PTO to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all prudently incurred costs associated with a New Transmission Facility or Transmission Upgrade that has been included in the ISO System Plan, plus a return on invested equity and other capital.   (ii) If a PTO incurs costs associated with a New Transmission Facility or Transmission Upgrade that has been included in the ISO System Plan, such PTO shall have the right, by filing in accordance with Section 3.04 of this Agreement, to recover all of its costs associated with such New Transmission Facility or Transmission Upgrade that are prudently incurred or prudently committed to be incurred, including costs prudently incurred or prudently committed to be incurred by such PTO in connection with the planning, design, engineering, permitting, procuring and other preparation for construction, and/or construction of the New Transmission Facility or Transmission Upgrade, plus a return on invested equity and other capital. -------------------------------------------------------------------------------- (d) If a New Transmission Facility or Transmission Upgrade is included in an approved ISO System Plan and the ISO has indicated that the PTO is to commence planning, designing or constructing such New Transmission Facility or Transmission Upgrade, then a PTO that incurs costs in order to implement the ISO System Plan (and satisfy its obligation to build hereunder) by commencing to plan, design or construct such New Transmission Facility or Transmission Upgrade shall be permitted to recover all of its prudently incurred costs as set forth in Section 1.1(c) even if the ISO subsequently determines that the New Transmission Facility or Transmission Upgrade is no longer required and removes it from the ISO System Plan, notwithstanding any contrary FERC policy or rule relating generally to the recovery of the costs of abandoned plant.   (e) If a New Transmission Facility or Transmission Upgrade included in an approved ISO System Plan is not constructed because any of the conditions set forth in this Section 1.1 have not been satisfied or for any other reason, the ISO shall submit a report to the FERC addressing such non-construction, which report shall include a report from the PTO responsible for the planning, design or construction of such New Transmission Facility or Transmission Upgrade.   1.2 The PTO shall promptly seek siting and any other required regulatory approvals for which such PTO is designated as the appropriate entity to construct and own or finance facilities included in the ISO System Plan. If requested by the PTO, the ISO shall undertake reasonable efforts (consistent with its technical judgment) to assist the PTO in obtaining required regulatory approvals for New Transmission Facilities or Transmission Upgrades included in the ISO System Plan and approved by the ISO. The assistance may include the provision of testimony, witnesses, and similar assistance. The ISO shall not, in any manner, be precluded from similarly assisting, at its discretion, other projects that address a need identified by the ISO in the ISO System Plan.   1.3 The ISO shall ensure that the ISO Planning Process includes opportunities for state regulatory authorities, including the agency with authority over the retail electricity rates of a PTO with the obligation under Section 1.1(a) to build a New Transmission Facility or Transmission Upgrade, to provide their views to the ISO with respect to need for the New Transmission Facility or Transmission Upgrade.   2. PTO Obligations:   2.1 Each PTO shall support the planning process as described in the ISO OATT and any interregional planning coordination. As requested by the ISO, such support may include conducting any necessary studies, including system impact studies and facilities studies for the PTO’s Transmission Facilities, assisting in the performance of such studies or any additional studies, and supplying any information and data reasonably required to prepare a ISO System Plan or to perform transmission enhancement and expansion studies. -------------------------------------------------------------------------------- 2.2 Each PTO shall make reasonable efforts to provide information and support in response to the ISO’s requests within the ISO’s requested time frames and shall comply with all deadlines set forth in the ISO Planning Process, as specified in the ISO OATT.   2.3 Each PTO shall comply with the ISO’s Planning Procedures (which are supplemental to the ISO Planning Process, as specified in the ISO OATT), provided that any modifications to existing Planning Procedures and any new Planning Procedures shall be developed in accordance with the process set forth for the development of new or modified Planning Procedures in Section 3.09(b) to the TOA. -------------------------------------------------------------------------------- Schedule 3.09(b) LIST OF EXISTING PLANNING PROCEDURES   ISO New England Planning Procedure No. 3   Reliability Standards for the New England Area Bulk Power Supply System   ISO New England Planning Procedure No. 4   Procedure for Pool-Supported PTF Cost Review   ISO New England Planning Procedure No. 4-1   Cost Responsibility For Transmission Upgrades With Multiple Needs   ISO New England Planning Procedure No. 5   Procedure for Reporting Notice of Intent to Construct, Retire or Change Facilities in Accordance with Section I.3.9 of the ISO New England Tariff (Proposed Plan Application Procedure)   ISO New England Planning Procedure No. 5-1   Procedure For Review Of Governance Participant’s Proposed Plans (Section I.3.9 Applications: Requirements, Procedures And Forms)   ISO New England Planning Procedure No. 5-3   Guidelines for Conducting and Evaluating Proposed Plan Application Analyses   ISO New England Planning Procedure No. 5-4   Subordinate Proposed Plan Application Policy   ISO New England Planning Procedure No. 5-5   Special Protection Systems Application Guidelines   ISO New England Planning Procedure No. 5-6   Scope Of Study For System Impact Studies Under The Minimum Interconnection Standard   ISO New England Planning Procedure No. 6   Procedures for the Establishment and Study of New England Interconnection   ISO New England Planning Procedure No. 8   Construction Sequencing -------------------------------------------------------------------------------- Schedule 3.11(b) NORTHEAST UTILITIES SERVICE COMPANY ON BEHALF OF ITS OPERATING COMPANIES List of Grandfathered Intertie Agreements     •   Long Island Power Authority 10/31/67 Agreement between The Connecticut Light and Power Company and (formally Long Island Lighting Company) Long Island Lighting Company, as amended or superseded. -------------------------------------------------------------------------------- Schedule 3.11(b) VERMONT ELECTRIC POWER COMPANY List of Grandfathered Intertie Agreements     •   Interconnection Agreement of 2/23/87, between the Highgate Joint Owners and Hydro-Quebec. -------------------------------------------------------------------------------- Schedule 3.11(c) BANGOR HYDRO-ELECTRIC COMPANY List of Grandfathered Interconnection Agreements     •   I/A between Great Northern Paper/Great Lakes Hydro America and BHE (dated 5/23/03)     •   I/A between Penobscot Hydro, LLC (PPL) and BHE (dated 5/27/99)     •   Special Facilities Agreement between Babcock-Ultrapower West Enfield (BUWE) and BHE (dated 6/30/95)     •   Construction and Procurement Agreement between BHE and CASCO Bay Energy Co, LLC dated 11/5/99     •   I/C Agreement between BHE and CASCO Bay Energy Co, LLC dated 9/4/98 (revised I/C agreement filed with Commission on 1/22/99)     •   Construction Agreement between Brascan Energy Marketing Inc. and BHE (dated 5/23/03)     •   I/C Agreement between Katahdin Paper Co, LLC and BHE dated 5/16/03     •   West Enfield Purchased Power Agreement, June 9, 1986     •   Hydro Associates Penobscot Energy Purchased Power Agreement, as amended through June 26, 1998     •   Recovery Company Pumpkin Hill Power - Purchased Power Agreement, as amended through December 4, 1984     •   Green Lake Hydro Purchased Power Agreement, as amended through April 18, 2000     •   Sebec Hydro Purchased Power Agreement, as amended through March 19, 1984     •   Milo Hydro Purchased Power Agreement, as amended through June 1, 1985 -------------------------------------------------------------------------------- Schedule 3.11(c) CENTRAL MAINE POWER COMPANY List of Grandfathered Interconnection Agreements     •   I/C Agreement between Abbotts Mill Hydro and CMP (5/22/02)     •   I/C Agreement between Androscoggin Energy, LLC (AELLC) and CMP (10/21/98)     •   I/C Agreement between Androscoggin Reservoir Company (ARCO) and CMP     •   I/C between Boralex Livermore Falls and CMP (4/1/01)     •   I/C Agreement between Boralex Stratton Associates and CMP (4/1/98)     •   I/C Agreement between Bucksport Energy LLC and CMP (6/13/00)     •   I/C Agreement between Calpine Construction Finance Company, LP and CMP (dated 4/12/01-amended 12/12/01)     •   I/C Agreement between Casco Bay Energy Company LLC and CMP (construction, procurement and continuing obligations agreement 5/1/00)     •   I/C Agreement between city of Lewiston and CMP (3/1/00)     •   Continuing Site/Interconnection Agreement between FPL Energy Maine, Inc. and CMP (dated 1/6/98-amended 6/16/98 and 7/24/02)     •   I/C Agreement between Gardner Brook Hydro and CMP (2/1/02)     •   I/C Agreement Amendment to Gardner Brook Hydro (3/20/02)     •   I/C Agreement between Greenville Steam Company and CMP (1/1/01)     •   I/C Agreement between International Paper Company and CMP (3/1/00)     •   I/C Agreement between J & L Electric and CMP (6/23/03)     •   I/C Agreement between Ledgemere Hydro LLC and CMP (12/23/03)     •   I/C Agreement between Moosehead Energy, Inc. and CMP (3/1/00)     •   I/C Agreement between Kennebec Water District and CMP (3/1/00)     •   I/C Agreement between Kezar Falls Hydro and CMP (12/23/03)     •   I/C Agreement between Marsh Power L.P. and CMP (3/1/00) --------------------------------------------------------------------------------   •   I/C Agreement between Messalonskee Stream Hydro and CMP (12/23/00)     •   I/C Agreement between Regional Waste System Inc. and CMP (1/1/01)     •   I/C Agreement between Robbins Lumber, Inc. and CMP (2/15/01)     •   I/C Agreement between Rocky Gorge Corporation and CMP (1/1/01)     •   I/C Agreement between Rumford Power Associates L.P. and CMP (10/21/98)     •   I/C Agreement between S. D. Warren Company and CMP (3/1/00)     •   I/C Agreement between Sparhawk Mill Company and CMP (3/1/00)     •   I/C Agreement between Stony Brook Hydro and CMP (2/1/02)     •   I/C Agreement between Wight Brook Hydro and CMP (2/1/02) -------------------------------------------------------------------------------- Schedule 3.11(c) FLORIDA POWER & LIGHT COMPANY-NEW ENGLAND DIVISION List of Grandfathered Interconnection Agreements     •   Interconnection and Operating Agreement by and between Florida Power & Light Company and FPL Energy Seabrook, LLC (6/25/03) -------------------------------------------------------------------------------- Schedule 3.11(c) NEW ENGLAND POWER COMPANY Grandfathered Interconnection Agreements     •   Direct Assignment Facilities Charge/MAHY and Multiple (dated 6/1/85)     •   Direct Assignment Facilities Charge/NECO and ANP Blackstone Energy Company, LLC (dated 5/5/99)     •   Direct Assignment Facilities Charge/NECO and Pawtucket Power Associates (dated 12/15/01)     •   Direct Assignment Facilities Charge/NEET and Multiple (dated 10/1/86)     •   Direct Assignment Facilities Charge/NEP and AES Londonderry, LLC (dated 6/22/01)     •   Direct Assignment Facilities Charge/NEP and ANP Bellingham Energy Company, LLC (dated 2/23/99)     •   Direct Assignment Facilities Charge/NEP and ANP Blackstone Energy Company, LLC (dated 4/30/99)     •   Direct Assignment Facilities Charge/NEP and Ashburnham Municipal Light Plant (dated 12/18/96)     •   Direct Assignment Facilities Charge/NEP and Boott Mills Hydropower (dated 6/22/86)     •   Direct Assignment Facilities Charge/NEP and Boston Edison Company (dated 12/15/85)     •   Direct Assignment Facilities Charge/NEP and Boston Edison Company (dated 6/1/76)     •   Direct Assignment Facilities Charge/NEP and Boston Edison Company (dated 1/18/73)     •   Direct Assignment Facilities Charge/NEP and Boston Edison Company (dated 5/25/88)     •   Direct Assignment Facilities Charge/NEP and Boston Edison Company (dated 10/10/86)     •   Direct Assignment Facilities Charge/NEP and Centennial Island Hydroelectric Company (12/29/89) --------------------------------------------------------------------------------   •   Direct Assignment Facilities Charge/NEP and Central Vermont Public Service (dated 9/7/66)     •   I/A between NEP/Montaup & Dighton Power Associates, LP (dated 4/10/97)     •   Direct Assignment Facilities Charge/NEP and Fitchburg (dated 3/1/02)     •   Direct Assignment Facilities Charge/NEP and FPLE Rhode Island State Energy Partners (dated 12/22/00)     •   Direct Assignment Facilities Charge/NEP and Gas Recovery Systems (BFI) Randolph (dated 11/23/98)     •   Direct Assignment Facilities Charge/NEP and Georgetown Municipal Electric Department (dated 12/6/90)     •   Direct Assignment Facilities Charge/NEP and Hingham Municipal Light Plant (dated 7/1/96)     •   Direct Assignment Facilities Charge/NEP and HQ AC-Multiple (dated 6/16/87)     •   I/A between NEP and Hudson Tap Transmission (dated 6/22/86)     •   Direct Assignment Facilities Charge/NEP and Hull Municipal Lighting Plant (dated 7/9/96)     •   Direct Assignment Facilities Charge/NEP and Indeck Energy Services of Turner Falls, Inc. (dated 7/7/88)     •   Related Facilities Agreement between NEP/Blackstone Valley Electric Company and Lake Road Generating, LLP (dated 8/31/990)     •   Direct Assignment Facilities Charge/NEP and Littleton Electric Light Department (MA) (dated 10/31/92)     •   Direct Assignment Facilities Charge/NEP and Littleville Power Company (dated 9/27/95)     •   Direct Assignment Facilities Charge/NEP and Marblehead Municipal Light Department (dated 12/7/94)     •   Direct Assignment Facilities Charge/NEP and Massachusetts Water Resource Authority (dated 9/21/95)     •   Direct Assignment Facilities Charge/NEP and MBTA (dated 11/1/96) --------------------------------------------------------------------------------   •   Direct Assignment Facilities Charge/NEP and MBTA (dated 10/1/97)     •   Direct Assignment Facilities Charge/NEP and Middleton Municipal Electric Department (dated 12/1/92)     •   Direct Assignment Facilities Charge/NEP and Milford Power (dated 3/20/92)     •   Direct Assignment Facilities Charge/NEP and Millennium Power Partners (dated 12/29/97) --------------------------------------------------------------------------------   •   Direct Assignment Facilities Charge/NEP and Nantucket (dated 5/5/03)     •   Direct Assignment Facilities Charge/NEP and Narragansett Electric Company (dated 4/6/72)     •   Direct Assignment Facilities Charge/NECO Boston Edison and New Bedford Gas Edison Light Company (dated 8/31/71)     •   Network Integrated Transmission Service between NEP and North Attleborough Electric (dated 7/9/96)     •   Direct Assignment Facilities Charge/NEP and NRG Energy, Inc. (Somerset Power, LLC) (First Amendment of I/C Agreement dated 10/13/98) dated 4/26/99     •   Direct Assignment Facilities Charge/NEP and Paxton Municipal Light Department (dated 2/27/02)     •   Direct Assignment Facilities Charge/NEP and Peabody Municipal Light Department (dated 11/16/90)     •   Direct Assignment Facilities Charge/NEP and Pioneer Hydro Inc. (dated 10/18/83)     •   Direct Assignment Facilities Charge/NEP and Public Service Company of New Hampshire (dated 2/16/37)     •   Direct Assignment Facilities Charge/NEP and Refuse Energy System’s Company (dated 6/12/80)     •   Direct Assignment Facilities Charge/NEP and River Mill Hydro (10/12/89)     •   Direct Assignment Facilities Charge/NEP and Rowley Municipal Lighting Plant (dated 4/10/90)     •   Support Agreement /NEP and Seabrook Transmission-Multiple (dated 12/15/87)     •   Direct Assignment Facilities Charge/NEP and Sithe Fore River Development (dated 5/25/01)     •   Direct Assignment Facilities Charge/NEP and Sterling Municipal Light Department (dated 1/11/86)     •   Direct Assignment Facilities Charge/NEP and Taunton Municipal Lighting Plant (dated 9/1/95)     •   Direct Assignment Facilities Charge/NEP and Templeton Municipal Light Plant (dated 10/30/81)     •   Interconnection Related Facilities Agreement /NEP and Tiverton Power Associates (dated 8/19/98) --------------------------------------------------------------------------------   •   I/A between NEP and Tiverton Power Associates (dated 6/1/92)     •   Direct Assignment Facilities Charge/NEP and UAE Lowell Cogen (dated 5/25/88)     •   Direct Assignment Facilities Charge/NEP and UAE Lowell Power (dated 5/9/90)     •   Direct Assignment Facilities Charge/NEP and US Gen New England Inc. (PG&E National Energy Group) (dated 9/1/98)     •   Support Agreement/NEP and Vermont Electric Power Company, Inc. Bellows Falls (dated 8/1/98)     •   Support Agreement/NEP and Vermont Electric Power Company, Inc. W-149 Reconductoring (dated 3/1/95)     •   Support Agreement/NEP and Vermont Electric Power Company, Inc. (dated 4/5/74)     •   Direct Assignment Facilities Charge/NEP and Wakefield Municipal Light Department (dated 6/16/87)     •   Direct Assignment Facilities Charge/NEP and Wheelabrator North Andover, Inc. (dated 1/1/02)     •   Direct Assignment Facilities Charge/NHHY and Multiple (dated 6/16/87)     •   I/A between MECO and Gas Recovery Systems (BFI) East Bridgewater (dated 5/31/95)     •   I/A between MECO and Gas Recovery Systems (BFI) Fall River (dated 5/5/99)     •   I/A between MECO and Gas Recovery Systems (BFI) Halifax (dated 5/31/95)     •   I/A between MECO and Littleville Power (dated 7/24/79)     •   I/A between MECO and Methuen Hydro (dated 12/1/87)     •   I/A between MECO and Mini Watt Electric Company (O’Connell Energy) (dated 3/24/82)     •   I/A between MECO and Mini Watt Electric Company (O’Connell Energy) (dated 10/9/91)     •   I/A between MECO and Rowley Municipal Lighting Plant (dated 4/10/90) --------------------------------------------------------------------------------   •   I/A between MECO and South Barre Hydroelectric Company (dated 11/13/89)     •   I/A between MECO and South Barre Hydroelectric Company (dated 6/1/92)     •   I/A between MECO and South Barre Landfill (Zapco) (dated 2/10/87)     •   I/A between MECO and Swift River Company (Collins Dam) (dated 8/30/84)     •   I/A between MECO and Webster Hydro (dated 7/22/81)     •   I/A between MECO and West Dudley Hydroelectric Company (dated 8/1/83)     •   I/A between NECO and Northeast Energy Associates (dated 6/20/92)     •   I/A between NECO and Ocean State Power (dated 8/16/89)     •   I/A between NECO and ANP Milford Power (dated 1/1/02)     •   I/A between NEP and Black Hills Energy Capital (dated 1/1/02)     •   I/A between NEP and Danvers Electric Department (dated 12/29/92)     •   I/A between NEP and Green Mountain Power (dated 8/16/96)     •   I/A between NEP and Hingham Municipal Light Plant (dated 10/7/87)     •   I/A between NEP and Indeck Pepperell Power Associates, Inc. (dated 1/31/89)     •   I/A between NEP and Indeck Pepperell Power Associates, Inc. (dated 5/24/89)     •   I/A between NEP and Indeck Pepperell Power Associates, Inc. (dated 10/20/95)     •   I/A between NEP and Lowell Cogen (dated 1/1/02)     •   Integrated Facilities Agreements/NEP and Massachusetts Electric Company, Granite State Electric, Narragansett Electric Company (dated 1967)     •   Network/NECO and Pascoag Utility District (dated 10/24/97)     •   Network/NEP and ANP Bellingham Energy Company, LLC (dated 5/30/01)     •   Network/NEP and Ashburnham Municipal Light Plant (dated 7/9/96)     •   Network/NEP and Boston Edison Company (dated 7/24/98)     •   Network/NEP and Boylston Municipal Light (dated 7/9/96) --------------------------------------------------------------------------------   •   Network/NEP and Central Vermont Public Service (dated 10/30/96)     •   Network/NEP and Danvers Electric Department (dated 5/31/01)     •   Network/NEP and Fitchburg Gas & Electric (dated 3/1/02)     •   Network/NEP and Georgetown Municipal Light Department (dated 7/9/96)     •   Network/NEP and Granite State Electric Company (dated 10/3/01)     •   Network/NEP and Groton Electric Light Department (dated 7/9/96)     •   Network/NEP and Groveland Electric Department (dated 6/29/98)     •   Network/NEP and Holden Municipal Light Department (dated 7/9/96)     •   Network/NEP and Hudson Light & Power Department (dated 7/9/96)     •   Network/NEP and Ipswich Utilities Department (dated 7/9/96)     •   Network/NEP and Littleton Electric Department (dated 7/9/96)     •   Network/NEP and Littleton, NH Water and Light Department (dated 1/1/98)     •   Network/NEP and MA Development Devens (dated 11/1/96)     •   Network/NEP and Mansfield Municipal Lighting Plant (dated 7/9/96)     •   Network/NEP and Marblehead Municipal Light Department (dated 7/9/96)     •   Network/NEP and Massachusetts Electric Company (dated 5/27/97)     •   Network/NEP and MBTA (dated 8/13/98)     •   Network/NEP and Merrimac Municipal Light Department (dated 7/1/98)     •   Network/NEP and Middleborough Gas and Electric (dated 3/1/02)     •   Network/NEP and Middleton Municipal Electric Department (dated 7/9/96)     •   Network/NEP and Millennium Power Partners (dated 2/1/02)     •   Network/NEP and New Hampshire Electric Co-Op (dated 10/23/01)     •   Network/NEP and Pascoag Utility District (dated 1/1/98)     •   Network/NEP and Paxton Municipal Light Department (dated 7/9/96) --------------------------------------------------------------------------------   •   Network/NEP and Peabody Municipal Light Department (dated 7/9/01)     •   Network/NEP and PG&E National Energy Group (US GEN) (dated 9/1/98)     •   Network/NEP and Princeton Municipal Light Department (dated 7/9/96)     •   Network/NEP and Public Service Company of New Hampshire (dated 11/1/01)     •   Network/NEP and Reading Municipal Light Department (dated 12/1/99)     •   Network/NEP and Rowley Municipal Lighting Plant (dated 7/9/96)     •   Network/NEP and Shrewsbury Electric Light Department (dated 7/9/96)     •   Network/NEP and Sterling Municipal Light Department (dated 7/9/96)     •   Network/NEP and Taunton Municipal Lighting Plant (dated 4/25/03)     •   Network/NEP and The Narragansett Electric Company (dated 2/1/02)     •   Network/NEP and West Boylston Municipal Lighting Department (dated 7/9/96)     •   Network/NEP and Western Mass. Electric Company (dated 4/1/99)     •   Other/MECO and MBTA (dated 8/18/97)     •   Other/MECO and Milford Power (dated 6/6/91)     •   Other/NECO and Blackstone Valley Electric Company/Montaup Electric Company (dated 5/1/00)     •   Other/NECO and Boston Edison Company Commonwealth Electric Company (dated 8/31/71)     •   Other/NECO and Montaup Electric Company (dated 5/1/00)     •   Other/NECO and Montaup Electric Company (dated 5/1/00)     •   Other/NECO and The Narragansett Electric Company (dated 12/1/01)     •   Other/NECO and The Narragansett Electric Company (dated 5/1/00)     •   Other/NEP and Boston Edison Company/Middleborough Gas & Electric Department (dated 1/1/02)     •   Other/NEP and MBTA (dated 3/20/98) --------------------------------------------------------------------------------   •   Other/NEP and REMVEC-Multiple (dated 7/1/94)     •   Transmission Owners Agreement/MECO and Ashburnham Municipal Light Plant (dated 12/18/96)     •   Transmission Owners Agreement/MECO and MBTA (dated 4/18/94)     •   I/A between NEP and American Paper Mills of Vermont, Inc. (dated 11/30/00)     •   Transmission Owners Agreement/NEP and Gas Recovery Services (formerly Browning Ferris Gas Services-East Bridgewater & Halifax) (dated 5/1/97)     •   Transmission Owners Agreement/NEP and Indeck Pepperell Power Associates, Inc. (dated 10/20/95)     •   Transmission Owners Agreement/NEP and Pawtucket Power Associates, LP (dated 11/2/01)     •   Transmission Owners Agreement/NEP and Templeton Municipal Light Plant (dated 8/4/87)     •   Network/NEP and Wakefield Municipal Light Department (dated 7/9/01)     •   Agreement for Reinforcement and Improvements of NEP’s Transmission System (dated 4/1/83)     •   Upper Development-Lower Development Transmission Line Support Agreement: NEET and NEPCo. (dated 1982)     •   Service Agreement for Firm Local Generation Delivery Service under NEP’s Open Access Transmission Tarriff (dated 9/21/01)     •   Network Integration Transmission Service NEP/ Hull Municipal Lighting Plant (dated 7/9/96)     •   Network Integration Transmission Service NEP/Templeton Municipal Lighting Plant (dated 7/9/96)     •   Network Integration Transmission Service NEP/North Attleborough Templeton & Wakefield (dated 7/9/96)     •   Amendment No. 1 Support Improvement Agreement NEP/Boston Edison     •   I/A between Eastern Edison/MBTA     •   I/A between NEP/MECO Shrewsbury St. (dated 10/23/96)     •   Transmission Facilities Support Agreement/NEP /Boston Edison/Mystic Golden Hills (5/25/88) --------------------------------------------------------------------------------   •   Transmission Support Agreement/Boston Edison/Woburn Sandy Pond Tewksbury (dated 7/18/73)     •   Support Agreement NEP Seabrook/Tewksbury (12/15/87)     •   Support Agreement NEP Seabrook/Tewksbury/Woburn M-139 Line (dated 11/12/85)     •   Support Agreement NEP Seabrook/Tewksbury/Woburn M-140 Line (dated 11/12/85)     •   I/A Montaup Electric/Somerset Power dated 10/13/98     •   Service Agreement NEP/Granite State (dated 10/3/01)     •   Ispwich Network Operating Agreement (dated 7/7/97)     •   Restated Distribution Agreement MECO/MBTA-Amtrak 2nd Amendment (4/18/94)     •   Service Agreement Boston Edison/NEP/Blackstone Valley Electric     •   VELCO Letter Agreement/Support reconductoring of W-149 Line (dated 3/11/85)     •   Support Agreement Public Service Co. of New Hampshire and Seabrook (dated 5/1/73)     •   Support Agreement Public Service Co. of NH and NEP/Seabrook/Tewksbury (dated 12/15/87)     •   Facilities Support Agreement NEP and VELCO (dated 4/5/74)     •   Amendment to Service Agreement for Firm Local Generation Delivery Service/ANP Bellingham (dated 11/6/00)     •   I/A between Eastern Edison Company/Browning Ferris Gas Services, Inc./Bridgewater (dated 4/30/99)     •   I/A between MECO/NEP/Granite State/Narragansett-Boott Mills Hydro (dated 12/3/92)     •   Agreement for Installation of Surge Arrestors between NEP and ANP Blackstone Energy Company (dated 3/30/00) --------------------------------------------------------------------------------   •   First Amendment to the I/A between NEP/Pepperell Power Associates (dated 5/24/89)     •   Service Agreement for Firm Local Generation Delivery Service NEP/ANP Bellingham Energy Company (dated 6/1/01) -------------------------------------------------------------------------------- Schedule 3.11(c) NORTHEAST UTILITIES ON BEHALF OF ITS OPERATING COMPANIES List of Grandfathered Interconnection Agreements     •   Interconnection and Operations Agreement between Public Service of New Hampshire and AES Londonderry, LLC (dated 2/26/03)     •   I/A between The Connecticut Light and Power Company and AES Thames (dated 7/19/99)     •   Interconnection, Operations and Maintenance Agreement between Western Massachusetts Electric Company and Altresco Pittsfield, L.P. (dated 7/19/90)     •   I/A between The Connecticut Light and Power Company and Capitol District Energy Center Cogeneration Associates (dated 9/15/01)     •   Interconnection and Operations Agreement between Western Massachusetts Electric Company and Berkshire Power Company, LLC (dated 12/03)     •   Millstone Transmission Support Agreement between The Connecticut Light and Power Company and Central Vermont Public Service Corp. (8/9/74)     •   I/A between The Connecticut Light and Power Company and CRRA (12/20/00)     •   Interconnection and Operations Agreement between Western Massachusetts Electric Company and Consolidated Edison Energy Massachusetts, Inc. (dated 12/10/01)     •   I/A between The Connecticut Light and Power Company and Dominion Nuclear Connecticut, Inc. (dated 3/31/01)     •   I/A between Errol Hydroelectric Limited Partnership and Public Service of New Hampshire (dated 4/7/86)     •   I/A between The Connecticut and Power Company and Exeter Energy, LP (dated 3/24/03)     •   I/A between Public Service of New Hampshire and FPL Energy Seabrook, LLP (dated 11/1/02)     •   Seabrook Transmission Support Agreement between PSNH, New England Power Company and FPL Energy Seabrook (dated 6/1/88)     •   I/A between The Connecticut Light and Power Company and Hartford Steam Company (dated 8/29/03)     •   I/A between Public Service of New Hampshire and Hawkeye Funding, L.P. (Newington Energy) (dated 9/30/02)     •   Seabrook Transmission Support Agreement between Public Service of New Hampshire, New England Power Company and Hudson Light & Power (dated 6/1/88)     •   I/A between The Connecticut Light and Power Company and Lake Road Trust (dated 12/31/03)     •   Interconnection, Operation and Maintenance Agreement between The Western Massachusetts Electric Company and Littleville Power Company, Inc. (dated 12/31/92)     •   Millstone 3 Transmission Support Agreement between The Connecticut Light and Power Company and Mass. Municipal Wholesale Electric Company (dated 1/17/74) --------------------------------------------------------------------------------   •   Seabrook Transmission Agreement between The Public Service Company of New Hampshire, New England Power Company and Mass. Municipal Wholesale Electric Company (dated 6/1/88)     •   Stony Brook-Ludlow Agreement between Western Massachusetts Electric Company and Mass. Municipal Wholesale Electric Company (dated 8/1/79) (O&M agreement)     •   Interconnection, Operation and Maintenance Agreement between Western Massachusetts Electric Company and MASSPOWER (dated 7/1/93)     •   I/A between The Connecticut Light and Power Company and Milford Power Company, LLC (dated 7/21/03)     •   I/A between The Connecticut Light and Power Company and National Railroad Passenger Corporation (Amtrak) (dated 7/2/99)     •   I/A between The Connecticut Light and Power Company and Northeast Generation Company as Amended (dated 3/00)     •   I/A between Western Massachusetts Electric Company and Northeast Generation Company as Amended (dated 7/2/99)     •   I/A between The Connecticut Light and Power Company and NRG Energy, Inc. (dated 11/15/99)     •   I/A between The Public Service Company of New Hampshire and Pontook Hydro, LP (dated 7/25/85)     •   I/A between The Public Service Company of New Hampshire and Pinetree Power-Tamworth, Inc. (dated 12/11/87)     •   Interconnection Agreement attached to Electricity Purchase Agreement between The Connecticut Light and Power Company and Riley Energy Systems of Lisbon Corporation for The Lisbon Resources Recovery Project (dated 6/3/91)     •   Electrical Interconnection, Licensing and Construction of Transmission Facilities Agreement between The Connecticut Light and Power Company and Southern Connecticut Regional Resource Recovery Authority (SCRRA) (dated 1/30/90)     •   Seabrook Transmission Support Agreement with PSNH, New England Power Company and Tauton Municipal Light Department (dated 6/1/88)     •   I/A with Respect to The Connecticut Light and Power Company and the United Illuminating Company (dated 6/15/74)     •   I/A between The Public Service Company of New Hampshire and Vermont Electric Power Company, Inc. (dated 7/13/72)     •   Interconnection Authorization Agreement Letter between The Connecticut Light and Power Company and Wallingford Resource Recovery Plant (dated 4/10/87)     •   I/A between The Connecticut Light and Power Company and Waterside Power, LLC (dated 5/20/03)     •   I/A between The Connecticut Light and Power Company and Waterside Power, LLC (dated 1/15/04)     •   I/A between The Public Service Company of New Hampshire and Town of Wolfeboro (dated 9/26/03)     •   Letter Agreement between Public Service of New Hampshire and Central Maine Power Company (Section 214 & Saco Valley Substation) (dated 11/18/86) --------------------------------------------------------------------------------   •   Amended and Restated Electricity Purchase Agreement between The Connecticut Light and Power Company and The Dexter Corporation (Windsor Locks Cogeneration Facility) (dated 12/1/87)     •   Long Island Power Authority 10/31/67 Agreement between The Connecticut Light and Power Company and (formally Long Island Lighting Company) Long Island Lighting Company, as amended or superseded. -------------------------------------------------------------------------------- Schedule 3.11(c) NSTAR ELECTRIC & GAS CORP. ON BEHALF OF ITS OPERATING AFFILIATES List of Grand fathered Interconnection Agreements     •   Related Facilities Agreement between Entergy Nuclear Generation Company and BECo (1/21/03)     •   Phase II Boston Edison with “New England Utilities” AC Facilities Support Agreement (6/1/85)     •   Concord Municipal Light Plant and Boston Edison I/C Agreement (4/13/93)     •   BECo and AES Londonderry, L.L.C. Related Facilities Agreement (RFA) (11/20/01)     •   RFA between BECo and ANP Bellingham Energy Company     •   I/C Agreement between Boston Edison and ANP Blackstone Energy Company (3/19/99)     •   Mirant Kendall and BECo RFA (3/26/02)     •   I/C Agreement between Mirant Kendall LLC and Cambridge Electric Light Company (12/24/01)     •   Related Facilities Agreement between BECo and PG&E (2002)     •   Related Facilities Agreement between Tiverton Power Associates Limited Partnership and Commonwealth Electric Company (9/21/98)     •   Radial Line Service Agreement between Town of Reading and BECo (11/10/79)     •   Related Facilities Agreement between Canal Electric Company (Unit 2) and the planned Pilgrim Unit 2 of BECo (9/21/72)     •   Joint Ownership Agreement between BECo and New Bedford Gas and Light Company (Card St. Line) (1/2/68)     •   Ownership Agreement among BECo, New Bedford Gas and Blackstone Valley Electric Company (8/31/71)     •   Related Facilities Agreement between Entergy Nuclear Generation Company and Commonwealth Electric Company (8/11/03)     •   Facilities Support Agreement between NSTAR and Entergy Nuclear (no date)     •   I/C Agreement between Commonwealth Electric Company (NSTAR) and MBTA-dated 2/99 (actual date is 5/1/99)     •   I/C Agreement between BECo and Northeast Energy Associates (9/23/93)     •   I/C Agreement between Commonwealth Electric Company (NSTAR) and Southern Energy New England, LLC (concerning the “Oak Bluffs Diesels”) (5/15/98)     •   Support Agreement for Lines 255-2337 and 255-2338 between NEP and BECo (2/22/80) --------------------------------------------------------------------------------   •   Support Agreement for 115kv Line 201-502 between NEP and BECo (5/11/79)     •   Support Agreement for a “stabilizing” line (342) between Pilgrim and Canal stations-the agreement is between Commonwealth Electric Company (NSTAR-formerly New Bedford Gas and Edison Light Company) and NEP (two letters dated 3/29/68 and 11/4/74)     •   I/C Agreement between BECo (NSTAR) and Sithe Fore River Development LLC (12/31/2000)     •   I/C Agreement between Sithe Mystic Development LLC and BECo (3/6/2001)     •   I/C Agreement for West Tisbury Diesels between Commonwealth Electric Company (NSTAR) and Southern Energy New England, LLC (5/15/1998)     •   Facilities Support Agreement between BECo and Montaup Electric Company regarding 345 kv Tap Line (Whitman Tap) (April 1975)     •   Canal Pilgrim Transmission Agreement for construction and support of Line #342     •   Agreement for the Purchase and Sale of High Voltage Electric Service By and Between Boston Edison Company and the National Railroad Passenger Corporation (AMTRAK) (7/8/2002)     •   Interconnection Agreement between Town of Norwood Municipal Light Department and Boston Edison Company (5/27/2002)     •   Interconnection Agreement between Commonwealth Electric Company and Nantucket Electric Company (6/3/1996)     •   Interconnection and Operation Agreement between Boston Edison Company and Sithe Energies, Inc. (12/10/1997)     •   I/C Agreement for Canal Units between Commonwealth Electric Company and Southern Energy New England, LLC (5/15/1998) -------------------------------------------------------------------------------- Schedule 3.11(c) UNITED ILLUMINATING COMPANY List of Grandfathered Interconnection Agreements     •   Exhibit B only to Service Agreement between United Illuminating and Bridgeport Energy LLC (6/9/98)     •   I/C Agreement between United Illuminating and Cross Sound Cable (7/9/02)     •   I/C Agreement between United Illuminating and McCallum Enterprises (10/19/87)     •   I/C Agreement between United Illuminating and Quinnipiac Energy LLC (8/8/00)     •   I/C Agreement between United Illuminating and Wisvest-Connecticut LLC (4/16/99)     •   Appendix D only to Power Purchase Agreement between United Illuminating and Connecticut Resources Recovery Authority (12/1/85) -------------------------------------------------------------------------------- Schedule 3.11(c) UNITIL ENERGY SYSTEMS, INC. AND FITCHBURG GAS AND ELECTRIC LIGHT COMPANY List of Grandfathered Interconnection Agreements     •   The attached Interconnection Agreement of Wheeling Agreement between Unitil Energy Systems and Briar Hydro Associates (Effective Date – December 2, 2002)     •   The attached Interconnection Agreement of Wheeling Agreement between Unitil Energy Systems and Concord Steam Corporation (Effective Date – June 1, 1994)     •   The attached Interconnection Agreement of Wheeling Agreement between Unitil Energy Systems and New Hampshire Hydro Associates (Effective Date – July 2, 1983)     •   The attached Interconnection Agreement of Wheeling Agreement between Unitil Energy Systems and Penacook Hydro Associates (Effective Date – April 15, 1985)     •   I/C Agreement between Fitchburg Gas & Elec. And KES Fitchburg (Interconnector) (1/29/91)     •   Service Agreement for Network Integration Transmission Service dated April 17, 2000 between Fitchburg Gas and Electric Light Company and Massachusetts Bay Transportation Authority     •   Service Agreement for Network Integration Transmission Service dated March 1, 1997 between New England Power Company and Fitchburg Gas and Electric Light Company     •   Service Agreement for Network Integration Transmission Service dated March 1, 2002 between New England Power Company and Fitchburg Gas and Electric Light Company     •   Service Agreement No. 1 dated March 1, 1994 under Unitil Energy Systems, Inc. Tariff for Firm Transmission Service and Related Interconnection between Concord Electric Company and SES Concord Company, LP -------------------------------------------------------------------------------- Schedule 3.11(c) VERMONT ELECTRIC POWER COMPANY List of Grandfathered Interconnection Agreements     •   I/A between Vermont Electric Power and Entergy Nuclear Vermont Yankee (dated 7/27/02)     •   I/A for Hydro-Quebec Derby Line Tie (1/88)     •   I/A between United Illuminating Company and McCallum Enterprised I Limited Partnership (dated 10/19/87) -------------------------------------------------------------------------------- Schedule 4.01(d) New England Power Company Facilities Not Subject to this Agreement   Circuit # --------------------------------------------------------------------------------    Voltage (kV) -------------------------------------------------------------------------------- 3512    345 3521    345 -------------------------------------------------------------------------------- Schedule 11.02   Superseded Agreements   The Interim Independent System Operator Agreement -------------------------------------------------------------------------------- Schedule 11.04   PTO Administrative Committee   1. The PTO AC established pursuant to Section 11.04 shall function as described in this Schedule 11.04.   2. Representatives. Each PTO shall appoint a representative and an alternate representative to serve as a member of the PTO AC with authority to act for that PTO with respect to actions taken or decisions made by the PTO AC.   a. Initial Representatives. Within thirty (30) days of the Operations Date, each PTO shall appoint its representative and alternate and provide written notice thereof to the other PTOs and to the ISO. Subsequent to the Operations Date, an entity that becomes a PTO pursuant to Section 11.05 of this Agreement shall appoint its representative and alternate and provide written notice to the other PTOs within thirty (30) days after becoming a PTO.   b. Change of or Substitution for a Representative or Alternate. A PTO may at any time, upon providing written notice to the other PTOs and to the ISO, designate a replacement representative or alternate. Any designated member of the PTO AC, by providing written notice to the Chair of the PTO AC, may also designate a substitute to act for him or her with respect to any matter specified in such written notice.   3. Officers. At the initial meeting of the PTO AC, a Chair and Vice Chair from different companies shall be elected among the PTOs’ representatives on the PTO AC. The term of office for the Chair and Vice Chair shall be one year, or until succession to each office occurs as provided herein. Except as provided in Section 4, at each annual meeting, the Vice Chair shall succeed to the office of the Chair, and a new Vice Chair from a different company as the new and outgoing Chairs shall be elected.   4. Vacancies. If the office of the Chair becomes vacant for any reason, the Vice Chair shall succeed to the office of the Chair and a new Vice Chair from a different company shall be elected at the next regular or special meeting to serve the remainder of the term; provided that if the remaining term is less than six months, the new Chair and Vice Chair shall serve for the remaining term plus an additional term of one year. If the office of the Vice Chair becomes vacant for any reason, a new Vice Chair from a different company as the Chair shall be elected at the next regular or special meeting and shall serve out the term of the Vice Chair whose office became vacant.   5. Duties of the Officers. The Chair shall (1) call and preside at meetings of the PTO AC; (2) cause minutes of each meeting to be taken and maintained; (3) cause notices and agendas of all meetings and minutes of the prior meeting to be distributed as set forth below; and (4) carry out such other responsibilities as the PTO AC shall assign or as may be specified in this -------------------------------------------------------------------------------- Agreement. The Vice Chair shall preside at meetings of the PTO AC if the Chair is absent for any reason, and shall otherwise act for the Chair at the Chair’s request.   6. Meetings. The PTO AC shall hold meetings no less frequently than once each calendar quarter as scheduled by the Chair. At the initial meeting, one of such regular meetings shall be designated as the annual meeting, at which officers shall be elected. The matters to be addressed at all meeting shall be specified in a written agenda provided in the notice distributed pursuant to Section 7 hereof.   7. Notice of Meetings. Written notice and agendas for a meeting shall be distributed by the Chair by facsimile or email to the PTOs’ representatives and any designated alternates and to the ISO not later than ten (10) days prior to the meeting; provided, however, that meetings may be called on shorter notice as the Chair deems necessary to deal with an emergency or to meet a deadline for action; provided further that no vote shall be taken on any matter at any meeting or special meeting without at least three days prior written notice to the PTOs’ representatives of the matter to be voted upon unless the representatives of the PTOs agree unanimously to waive this minimum notice requirement. The Chair shall include in the agenda for the meeting any matters that one or more PTOs request to be included.   8. Special Meetings. A special meeting of the PTO AC may be called at any time by two or more unaffiliated PTOs having combined Individual Votes exceeding twenty five percent of the aggregate Individual Votes of the PTOs at the time of the proposed special meeting; provided that the Chair shall schedule such special meeting at a time and location convenient to the representatives (but no more than ten days after the request for the meeting) and shall issue an agenda setting forth the issue or issues to be considered at the behest of the PTOs requesting the special meeting no less than five days before the scheduled date thereof.   9. Attendance. Regular or special meetings may be conducted in person or by telephone as authorized by the Chair or pursuant to rules adopted by the PTO AC in according with the voting procedures set forth in Section 12 below. Each PTO shall be represented at a meeting by its representative or alternate, or a duly-designated substitute representative. A PTO shall also have the right to designate another PTO to vote on such PTO’s behalf at a meeting by proxy provided to the Chair in advance of the meeting. Any PTO choosing not to participate in a meeting pursuant to one of the methods described in this section 9 shall be deemed to have given its proxy to the Chair to vote on the non-participating PTO’s behalf.   10. Open Meetings. All meetings of the PTO AC shall be open to all PTOs that are signatories to this Agreement and each such PTO shall receive timely written notice of a meeting.   11. Cost of Meetings. Each PTO shall be solely responsible for all costs incurred for its representative or alternate to attend any meeting. The PTOs shall share the costs incurred by the host of any meeting of the PTO AC in proportion to their Individual Votes. -------------------------------------------------------------------------------- 12. Manner of Acting. Actions taken by the PTO AC with respect to amendments to this Agreement shall require the support of the number of votes specified in Section 11.04(a)(iii)(B), (C), or (D) of the Agreement as applicable.   13. Individual Votes. For all purposes under Section 11.04(a)(iii) and this Schedule 11.04, the “Individual Votes” of Non-Affiliated PTOs shall mean the number of votes accorded to each PTO at the time of the applicable meeting pursuant to the following formula: Each Individual Vote shall be equal to the average of the net book value and the gross book value, as determined in accordance with generally accepted accounting principles for electric utilities, of the Transmission Facilities comprising the New England Transmission System of each PTO: (expressed in dollars and divided by one million (1,000,000)), as determined on April 1 of each year on the basis of the book values of the Transmission Facilities as of the prior December 31, provided that the book value of the following facilities shall not be included in the calculation of such PTO’s Individual Votes:   a. The Merchant Facilities of a PTO or a PTO’s affiliate; and   b. The transmission facilities comprising Phase I and Phase II of the Hydro-Quebec interconnection, the Highgate interconnection, and the MEPCO interconnection until such time as a PTO includes the capital investment for its ownership of these transmission facilities in the ISO OATT in a manner such that the allowed return on equity for the PTO’s ownership in these facilities is treated the same as the return on equity of the PTO’s Transmission Facilities.   For those PTOs that are public utilities under the Federal Power Act, the values used to calculate Individual Votes shall be those used in such PTO’s Form 1 filing with the FERC. For any PTOs that are not required to make FERC Form 1 filings, the values used shall be consistent with generally accepted accounting practices for public utilities with the objective that the Individual Votes of such non-FERC jurisdictional PTOs shall be calculated on a consistent basis with those of the FERC-jurisdictional PTOs.   14. Text of Amendments. The text of any amendment to be voted upon at a meeting of the PTO AC shall be distributed to the representatives no less than fourteen (14) days the meeting at which the amendment is to be considered; provided that the representatives may agree to make changes to such amendment at such meeting.   15. Record of Voting. The Chair shall cause each PTO that is a signatory to this Agreement to be provided with a written record of all votes (with the exception of straw votes or other informal votes) undertaken at a meeting of the PTO AC, including votes with respect to amendments to this Agreement pursuant to Section 11.04(a) of this Agreement and votes with respect to joint PTO Section 205 filings pursuant to the Disbursement Agreement. -------------------------------------------------------------------------------- Schedule 11.19(c)   Additional Conditions Precedent

Exhibit 10.77       OPERATING AGREEMENT   OF   SHP-ARC II, LLC   A DELAWARE LIMITED LIABILITY COMPANY                             --------------------------------------------------------------------------------     TABLE OF CONTENTS     ARTICLE 1. DEFINITIONS 2 1.1 Definitions 2 1.2 Exhibits 8       ARTICLE 2. THE COMPANY 8 2.1 Formation of Limited Liability Company 8 2.2 Name of Company 8 2.3 Purpose of Company 8 2.4 Principal and Registered Office 8 2.5 Governing Law; Member Relations; Ownership of Property; Taxation as a Partnership 9 2.6 Further Assurances 9 2.7 No Individual Authority 9 2.8 No Restrictions 9 2.9 Neither Responsible for Other’s Commitments 10 2.10 Affiliates 10 2.11 (Intentionally Omitted.) 10 2.12 Representations by Members 10       ARTICLE 3. TERM 10 3.1 Term 10       ARTICLE 4. CAPITAL CONTRIBUTIONS OF THE MEMBERS 11 4.1 Capital Contributions of the Members 11 4.2 No Other Contributions 11 4.3 No Interest Payable 11 4.4 No Withdrawals 11 4.5 Additional Contributions. 11 4.6 Non-Failing Member Options 12 4.7 Change in Percentage Interest 13 4.8 Effect of Change of Percentage Interest 14       ARTICLE 5. LOANS BY MEMBERS 14 5.1 Loans 14 5.2 Payment of Special Loan and Loans 15       ARTICLE 6. MANAGEMENT OF THE COMPANY 15 6.1 Managing Committee 15 6.2 Bank Accounts 17 6.3 Reimbursement for Costs and Expenses 17 6.4 Fidelity Bonds and Insurance 17 6.5 Management Agreement 17 6.6 Annual Budgets 17 6.7 SHP’s Rights. 18 6.8 Indemnification 20 6.9 Operation as a REOC 21 6.10 Third Party Loans 21 6.11 Rights of SHP’s Member 21     --------------------------------------------------------------------------------   ARTICLE 7. BOOKS AND RECORDS, AUDITS, TAXES, ETC. 21 7.1 Books; Statements 21 7.2 Where Maintained 22 7.3 Audits 22 7.4 Objections to Statements 23 7.5 Tax Returns 23 7.6 Tax Matters Partner 24 7.7 Tax Policy 24 7.8 Section 754 Election 24 7.9 Capital Accounts. 24 7.10 Ownership Representation 25       ARTICLE 8. FISCAL YEAR 25 8.1 Calendar Year 25       ARTICLE 9. DISTRIBUTIONS AND ALLOCATIONS 26 9.1 Percentage Interests in Company 26 9.2 Certain Definitions 26 9.3 Cash Flow Distributions. 28 9.4 Allocation of Profits and Losses For Capital Account Purposes. 29 9.5 Distributed Property 31 9.6 Special Allocations 31 9.7 Allocations of Profits and Losses for Tax Purposes 33 9.8 Recapture and Investment Credits. 33       ARTICLE 10. ASSIGNMENT AND OFFER TO PURCHASE 33 10.1 Transfers. 33 10.2 Other Assignments Void. 34 10.3 Sale of Entire Interest to Other Member; Buy-Sell. 34 10.4 Right of First Refusal for Sale of Entire Interest to Third Party. 36 10.5 Right of First Offer for Sale of Portfolio, Property or Properties. 37 10.6 Assumption by Assignee; Compliance with Legal Requirements Following Assignment; Option to Reduce Interest Being Sold. 40 10.7 General Transfer Provisions 41 10.8 Avoidance of Plan Violation 46       ARTICLE 11. DISSOLUTION OR BANKRUPTCY OF A MEMBER 47 11.1 Dissolution or Merger 47 11.2 Bankruptcy, etc 47       ARTICLE 12. DEFAULT 48 12.1 Defaults 48 12.2 Negation of Right to Dissolve by Will of Member 49 12.3 Non Exclusive Remedy 49     2 --------------------------------------------------------------------------------   ARTICLE 13. DISSOLUTION 49 13.1 Winding Up by Members 49 13.2 Winding Up by Liquidating Member 49 13.3 Offset for Damages 50 13.4 Distributions of Operating Cash Flow 50 13.5 Distributions of Proceeds of Liquidation 50 13.6 Orderly Liquidation 51 13.7 Financial Statements 51 13.8 Restoration of Deficit Capital Accounts 51 13.9 Intention of the Members 51       ARTICLE 14. MEMBERS 52 14.1 Liability 52       ARTICLE 15. NOTICES 52 15.1 In Writing; Address 52 15.2 Copies 53       ARTICLE 16. MISCELLANEOUS 53 16.1 Additional Documents and Acts 53 16.2 Estoppel Certificates 54 16.3 Interpretation 54 16.4 Entire Agreement 54 16.5 References to this Agreement 54 16.6 Headings 54 16.7 Binding Effect 54 16.8 Counterparts 54 16.9 Confidentiality 54 16.10 Amendments 55 16.11 Exhibits 55 16.12 Severability 55 16.13 Forum 55 16.14 Assignment to Company 55 16.15 Broker’s Indemnity 56 16.16 Attorneys’ Fees 56 16.17 Prudential Affiliation 56     3 --------------------------------------------------------------------------------   EXHIBITS   EXHIBIT   TITLE        A.   Legal Description           B.   Subsidiary       C.   Members' Percentage Interests and Initial Capital Contributions         D.   Initial Management Agreement          SCHEDULES   4.7  Percentage Interests Adjustment Example                      4 --------------------------------------------------------------------------------     OPERATING AGREEMENT OF SHP-ARC II, LLC   THIS OPERATING AGREEMENT OF SHP-ARC II, LLC (this “Agreement”) is entered into and shall be effective as of _____________________, 2005, by and between PIM SENIOR PORTFOLIO, LLC, a Delaware limited liability company (hereinafter referred to as “SHP”), and ARC EPIC HOLDING COMPANY, INC., a Tennessee corporation (hereinafter referred to as “ARC”), pursuant to the provisions of the Delaware Limited Liability Company Act (the “Act”). SHP and ARC are sometimes referred to herein collectively as the Members and individually as a Member.   R E C I T A L S   WHEREAS, American Retirement Corporation, a Tennessee corporation, did enter into that certain Purchase and Sale Agreement, dated as of September 8, 2005 (the “Purchase Agreement”), by and between Epoch SL VI, Inc., as Seller and American Retirement Corporation, as Buyer; and   WHEREAS, pursuant to the terms of the Purchase Agreement, American Retirement Corporation has the right to acquire eight (8) separate parcels of real estate, which are more particularly described on Exhibit A attached hereto and made a part hereof (each, a “Property” and, collectively, the “Properties”), together with the eight (8) assisted living senior housing retirement communities located on the Properties, commonly known as Epoch Assisted Living of Denver, Epoch Assisted Living of Las Vegas, Epoch Assisted Living of Minnetonka, Epoch Assisted Living of Overland Park, Epoch Assisted Living of Roswell, Epoch Assisted Living of Sun City West, Epoch Assisted Living of Tanglewood and Epoch Assisted Living of Ventana County (each, a “Project” and collectively, the “Projects” or the “Portfolio”); and   WHEREAS, American Retirement Corporation has obtained the consent of Epoch SL VI, Inc. to assign its rights under the Purchase Agreement to the Company; and   WHEREAS, the Company owns directly or indirectly one hundred percent (100%) of the interests in the limited liability companies and the limited partnership set forth on Exhibit B (each, a “Subsidiary” and, collectively, the “Subsidiaries”), which own and operate the Projects opposite their names on Exhibit B; and   WHEREAS, the Company has assigned all of its rights, title and interests in the Projects to the Subsidiaries which have each acquired fee simple title, respectively, to the Projects opposite their names on Exhibit B; and   WHEREAS, the parties desire to enter into this Agreement to form the Company, to provide for the Company to take an assignment of the Purchase Agreement from American Retirement Corporation and to set forth all the terms and conditions by which the Company will own, reposition, improve, operate, sell, finance and otherwise invest in and deal with the Subsidiaries, the Properties and the Projects, including all of the real estate aspects of the Projects.   --------------------------------------------------------------------------------   NOW, THEREFORE, in order to carry out their intent as expressed above and in consideration of the mutual agreements and covenants hereinafter contained, the Members hereby covenant and agree as follows:   ARTICLE 1. DEFINITIONS   1.1  Definitions. The following terms shall have the following meanings when used herein:   Acceptable Person. Any person that is not (i) a tax exempt organization as defined in Section 501(c) of the Code, (ii) a nonresident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Code and the Treasury Regulations, (iii) a person whose direct or indirect participation in the Company would result in a Plan Violation, (iv) in default or in breach, beyond any applicable grace period, of its obligations under any material written agreement with SHP or which, directly or indirectly controls, is controlled by, or is under common control with a person that is in default or in breach, beyond any applicable grace period, of its obligations under any material written agreement with SHP, unless such default or breach has been cured by such person or waived in writing by SHP, or (v) a person that has been charged in any litigation with any violations of any statute pursuant to which there might be a civil or criminal forfeiture or has been convicted in a criminal proceeding for a felony or any crime involving moral turpitude or that is an organized crime figure or is reputed (based upon reputable media reports) to have substantial business or other affiliations with an organized crime figure, or which directly or indirectly controls, is controlled by, or is under common control with a person that has been charged in any litigation with any violations of any statute pursuant to which there might be a civil or criminal forfeiture or has been convicted in a criminal proceeding for a felony or any crime involving moral turpitude or which is an organized crime figure or is reputed (based upon reputable media reports) to have substantial business or other affiliations with an organized crime figure.   Act. The Delaware Limited Liability Company Act.   Adjusted Augmented Capital Account. As described in Section 9.4(c)(2).   Adjusted Capital Account. As described in Section 9.6(e).       2 --------------------------------------------------------------------------------   Affiliate. With respect to any Member (corporate, individual, partnership, limited liability entity or otherwise, or the respective heirs, trustees, guardians, conservators, custodians, executors or administrators of any of them) or any person who is an immediate family member of any Member: any corporate owner or other owner (direct or indirect) of such Member; any pension plan of such Member; any corporation owned, directly or indirectly, by such Member or by a general partner in such Member; any partnership or other association the general partners in which are general partners in such Member; or any partnership of which such Member or the general partners in such Member either own, in the aggregate, greater than 50%, directly or indirectly, of the general partnership interest or are the managing general partner of such partnership. A person owns a corporation, for the purposes of this definition, when the person owns or beneficially owns more than 50% of the outstanding voting shares of the corporation with the full right to vote such stock.   Affiliate Agreement(s). As described in Section 12.1.   Agreement. As described in the opening paragraph.   Alternative Offer. As described in Section 10.5(c).   Annual Capital Budget. As described in Section 6.6(b).   Annual Operating Budget. As described in Section 6.6(a).   Approved Financial Statement. As described in Section 7.4.   ARC’s Initial Contribution. As described in Section 4.1.   ARC’s Lender List. As described in Section 6.7(b).   Augmented Capital Account. As described in Section 9.4(a).   Augmented Members’ Capital. As described in Section 9.4(c)(1).   Book Basis. With respect to any asset of the Company, the adjusted basis for federal income tax purposes of such asset, except that in the case of any asset contributed to or owned by the Company on the date of a revaluation of the Capital Accounts of the Members in accordance with Treasury Regulations Section 1.704-l(b)(2)(iv), “Book Basis” shall mean the fair market value of such asset on the date of the contribution or revaluation as subsequently adjusted (e.g., for depreciation or amortization in accordance with federal income tax principles).   Capital Account. As described in Section 7.9.   Capital Contributions. Each Member’s initial contribution as set forth in Section 4.1 and each additional contribution made pursuant to Article 4 or as elsewhere specified in this Agreement.   Cash Purchase Price. As defined in Section 10.3(a).   3 --------------------------------------------------------------------------------   Cash Selling Price. As defined in Section 10.3(a).   Closing Date. As described in the Purchase Agreement, the date on which each of the Subsidiaries takes title to a Project.   Code. The Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.   Committee. As described in Section 6.1.   Company. SHP-ARC II, LLC.   Company Minimum Gain. As described in Section 9.2(d).   Default Price. As described in Section 13.2(c).   Defaulting Member. As described in Section 12.1.   Demand Notice. As described in Section 13.2(b).   Deposit. As described in Section 10.5(a).   Effective Date. The date this Agreement shall be signed by all of the Members.   Entire Interest. As described in Section 10.3(a).   ERISA. The Employee Retirement Income Security Act of 1974, as amended.   Excess Amount. As described in Section 7.4.   Excess Member. As described in Section 7.4.   Extraordinary Cash Flow. As described in Section 9.2(b).   Failing Member. As described in Section 4.6.   Finance Proposal Notice. As described in Section 6.7(b).   Financing Commitment Notice. As described in Section 6.7(b).   Governmental Plan. As defined in Section 3(32) of ERISA.   Improvements. Means all improvements, of whatsoever kind, located on the Project.   Indemnitee. As defined in Section 10.1(c).   Initial Financing. As described in Section 6.7(b).     4 --------------------------------------------------------------------------------   Initial Property Manager. Means ARC Management, LLC, a Tennessee limited liability company.   Initial Management Agreement. As described in Section 6.5.   Initiating Member. As described in Section 10.3(a).   Initiating Member Deposit. As described in Section 10.3(a).   IRR. Means a referenced interest rate that, when used as a discount rate, causes (i) the net present value (as of the date of this Agreement) of the aggregate distributions made to SHP or ARC, as the case may be, by the Company pursuant to Sections 9.3(a), 9.3(b), and 13.5, from the date of this Agreement through the computation date in question, to equal (ii) the net present value of SHP’s Initial Contribution (as of the date of this Agreement), or ARC’s Initial Contribution (as of the date of this Agreement), as the case may be, plus any Additional Capital Contributions made by SHP or ARC, as the case may be, after the date of this Agreement (as of the date so made) through the applicable computation date. For purposes of this definition, net present value shall be determined using monthly compounding periods and any Capital Contributions by and distributions to the applicable party during a month shall be deemed to occur on the first day of such month.   Initial Subsidiary Property Manager. Means ARC Management, LLC, a Tennessee limited liability company.   Initial Subsidiary Management Agreement. As described in Section 6.5.   Liquidating Member. The Member in sole charge of winding up the Company and having the powers described in Section 13.2.   Loan. Any loan made by any Member to the Company.   Loss. As described in Section 9.2(c).   Major Capital Event. One or more of the following: (i) sale of all or any part of or interest in Company or any Subsidiary property (including the Properties), exclusive of sales or other dispositions of tangible personal property in the ordinary course of business; (ii) placement and funding of any indebtedness, other than Loans, of the Company or any Subsidiary secured by some or all of their assets with respect to borrowed money, excluding short term borrowing in the ordinary course of business and any purchase money financing to acquire tangible personal property incurred in the ordinary course of business; (iii) condemnation of all or any material part of or interest in a Subsidiary’s Property through the exercise of the power of eminent domain; or (iv) any casualty, failure of title or otherwise of the Company’s or any Subsidiary’s property or any part thereof or interest therein that results in excess proceeds after restoration or repair.   Member(s). SHP and ARC, collectively, and either of them when the reference is singular, and their respective permitted successors in interest.     5 --------------------------------------------------------------------------------   Member Nonrecourse Debt. As set forth in Section 1.704 2(b)(4) of the Regulations.   Member Nonrecourse Debt Minimum Gain. An amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704 2(i)(3) of the Regulations.   Member Nonrecourse Deductions. As set forth in Sections 1.704 2(i)(1) and 1.704 2(i)(2) of the Regulations.   Nondefaulting Member. As described in Section 12.1.   Non Failing Member. As described in Section 4.6.   Nonrecourse Deductions. As described in Section 9.2(e).   Nonrecourse Liability. As set forth in Section 1.704 2(b)(3) of the Regulations.   Notice of Default. As described in Section 12.1.   Notice of Intention. As described in Section 4.6.   Notice to Finance. As described in Section 4.5(a).   Offeror. As described in Section 10.4(a).   Operating Cash Flow. As described in Section 9.2(a).   Operating Pro Forma. As described in Section 6.6(a).   Other Member. As described in Section 10.3(a).   Percentage Interest. As described in Section 9.1.   Plan Violation. A transaction, condition or event that would:   (i)       constitute a violation of ERISA; or   (ii)      constitute a violation of any applicable state statutes regulating investments of and fiduciary obligations with respect to any Governmental Plan.   Portfolio. As described in the Recitals.   Prime Rate. As described in Section 5.1.   Priority Capital Contribution. As described in Section 4.6.   Profit. As described in Section 9.2(c).   6 --------------------------------------------------------------------------------   Projects. As described in the Recitals.   Properties. As described in the Recitals.   Purchase Agreement. As described in the Recitals.   Qualified Income Offset Amount. As described in Section 9.6(e).   Receiving Member. As described in Section 10.4(a).   Receiving Member’s Deposit. As described in Section 10.4(b).   Regulations or Treasury Regulations. The Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).   Remaining Percentage Interest. As described in Section 10.7(j).   Sale. Means any transaction resulting in the sale or disposition of any Property.   Sale Proposal. As described in Section 10.5(a).   Selling Member. As described in Section 10.4(a).   SHP’s Lender List. As described in Section 6.7(b).   SHP’s Initial Contribution. As described in Section 4.1.   Special Loan. As described in Section 4.6.   Specified Value. As described in Section 10.3(a).   Subsequent Financing. The obtaining of new financing or a refinancing of the Initial Financing, whether secured or unsecured, by the Company on any Property.   Subsidiaries. As described in the Recitals.   Subsidiary Management Agreements. As described in Section 6.5.   Subsidiary Property Manager. Means, from time to time, any person or entity named as the property manager under the then-current Subsidiary Management Agreements.   Termination Notice. As described in Section 10.3(a).   Third Party Loans. Any loans to the Company or to any Subsidiary, other than those made by a Member or an Affiliate of a Member.   TMP. As described in Section 7.6.     7 --------------------------------------------------------------------------------   Transfer. As described in Section 10.1(a).   Unreturned Capital Contributions. With respect to each Member, the aggregated amount of all Capital Contributions made to the Company by such Member, reduced by all distributions previously made to such Member pursuant to Section 9.3(b)(1), Section 9.3(b)(2), or Section 13.5(d).   The definitions in this Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The term “person” includes individuals, partnerships, corporations, trusts, and other associations. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.   1.2  Exhibits. The exhibits to this Agreement are incorporated herein by reference as if fully set forth herein.   ARTICLE 2. THE COMPANY   2.1  Formation of Limited Liability Company. The Members hereby form a limited liability company (the “Company”) pursuant to the provisions of the Act. The terms and provisions hereof will be construed and interpreted in accordance with the Act.    2.2  Name of Company. The Company will be conducted under the name “SHP-ARC II, LLC”. The Committee shall have the power to change the name of the Company at any time.   2.3  Purpose of Company. The purpose of the Company is to carry on the business of purchasing, owning, repositioning, operating, managing, improving, repairing, renting, mortgaging, refinancing, selling, conveying and otherwise dealing with the Properties through the Subsidiaries and all the activities of the Projects reasonably related thereto including, without limitation, making all decisions with respect to the real estate operations of the Properties. Except as permitted by this Section 2.3, the Company shall not engage in any other business. In furtherance of the foregoing purposes, but expressly subject to the other provisions of this Agreement, the Company is empowered to enter into contracts containing agreements to arbitrate disputes to the extent such contracts are approved by the Committee. The Company is authorized to take any legal measures which will assist it in accomplishing its purpose or benefit the Company.   2.4  Principal and Registered Office. The principal office of the Company shall initially be at the offices of ARC at 111 Westwood Place, Suite 200, Brentwood, Tennessee 37027, or such other place as the Members may from time to time determine. The registered agent and the registered address, respectively, of the Company shall be Corporation Service Company, 2711 Centerville Road, Suite 400, New Castle County, Wilmington, Delaware 19808. The Members may elect to change the Company’s registered agent and the Company’s registered and principal offices by complying with the relevant requirements of the Act.    8 --------------------------------------------------------------------------------   2.5  Governing Law; Member Relations; Ownership of Property; Taxation as a Partnership. Except as is expressly herein provided to the contrary, the business, affairs, administration and termination of the Company shall be governed by the Act, but, to the extent permitted thereby, shall not be governed by any amendments to such law that become effective subsequent to the date of this Agreement and that would only be applicable to the Company absent a provision in this Agreement to the contrary, unless such amendments are adopted as amendments to this Agreement pursuant to Section 16.10. The foregoing notwithstanding, the Members’ duties and obligations to one another under circumstances not provided for in the Act or this Agreement shall be the same as partners in a partnership governed by the relevant provisions of the Delaware Uniform Partnership Act and the case law interpreting such act. In no event shall the previous sentence be construed or applied in such a manner to cause the Company to be treated as a partnership for any purpose other than the determination of the Members’ respective duties and obligations to one another. The interest of each Member in the Company shall be personal property for all purposes. All real and other property owned by the Company shall be deemed owned by the Company as a company and no Member, individually, shall have any ownership interest in any real or other property owned by the Company. The Members shall use the Company’s assets solely for the benefit of the Company. No assets of the Company shall be transferred or encumbered for or in payment of any individual obligation of a Member. Notwithstanding anything in this Section 2.5 to the contrary, the Members intend that the Company shall at all times be operated in such a manner that it will be taxed as a partnership for federal and state income tax purposes.   2.6  Further Assurances. The Members will execute whatever certificates and documents, and will file, record and publish such certificates and documents, which are required to form and operate a limited liability company under the laws of the State of Delaware. The Members will also execute and file, record and publish, such certificates and documents as they, upon advice of counsel, may deem necessary or appropriate to comply with other applicable laws governing the formation and operation of a limited liability company, including, without limitation, any certificates and documents required to qualify the Company to do business in the States where the Properties are located.   2.7  No Individual Authority. Except as otherwise expressly provided in this Agreement, neither Member acting alone shall have any authority to act for, undertake or assume any obligations or responsibility on behalf of the other Member or the Company.   2.8  No Restrictions. Nothing contained in this Agreement shall be construed so as to prohibit either Member or any firm or corporation controlled by or controlling such Member or any other Affiliate of a Member from owning, operating, or investing in any real estate or real estate development not owned or operated by the Company, wherever located. Each Member agrees that the other Member, any Affiliate or any director, officer, employee, partner or other person or entity related to either thereof may engage in or possess an interest in another business venture or ventures of any nature and description, independently or with others, including, but not limited to, the ownership, financing, leasing, operation, management, syndication, brokerage and development of real property and senior living communities, and neither the Company nor the Members shall have any rights by virtue of this Agreement in and to said independent ventures or to the income or profits derived therefrom.    9 --------------------------------------------------------------------------------   2.9  Neither Responsible for Other’s Commitments. Neither the Members nor the Company shall be responsible or liable for any indebtedness or obligation of the other Member incurred either before or after the execution of this Agreement, except as to those joint responsibilities, liabilities, debts or obligations incurred pursuant to the terms of this Agreement, and each Member indemnifies and agrees to hold the other Member and the Company harmless from such obligations and debts, except as aforesaid.   2.10  Affiliates. Any and all activities to be performed by SHP hereunder may be performed by officers or employees of one or more Affiliates of SHP, provided that all actions taken by such persons on behalf of SHP in connection with this Agreement shall be binding upon SHP.   2.11  (Intentionally Omitted.)   2.12  Representations by Members. Each Member represents and warrants to the other Member that (i) its execution and delivery of this Agreement, its initial capital contribution to the Company and the acquisition and development of the Properties by the Company have been duly authorized by all necessary action and do not require the consent or approval of any third party, that has not been obtained, (ii) it has all necessary power with respect thereto, (iii) the consummation of such transactions will not (and with the giving of notice or lapse of time or both would not) result in a breach or violation of, or a default or loss of contractual benefits under its charter, by-laws or agreement of partnership, any agreement by which it or any of its properties is bound, or any statute, regulation, order or other law to which it or any of its properties is subject, or give rise to a lien or other encumbrance upon any of its properties or assets, (iv) this Agreement is a valid and binding agreement on the part of such Member, enforceable in accordance with its terms, subject to applicable debtor relief laws, and (v) such Member is not a foreign person as that term is defined in Section 1445 of the Code.   ARTICLE 3. TERM   3.1  Term. Unless otherwise terminated or extended by the Committee, the existence of the Company shall commence on the Effective Date and shall continue until the first to occur of the following:   (a)  December 31, 2050; or   (b)  Acquisition of all of one Member’s interest by the other; or   (c)  The sale or other disposition of all or substantially all of the Properties and distribution of the proceeds therefrom, other than to a nominee or trustee of the Company for financial or other business purposes; provided, however, that such sale or other disposition shall not terminate the existence of the Company if such sale or other disposition is financed by the Company and the Members elect to continue the Company’s existence; or   (d)  Dissolution of the Company pursuant to the express provisions of Article 10, 11, 12 or 13; or     10 --------------------------------------------------------------------------------   (e)  The occurrence of any event or circumstance that would cause the dissolution of the Company under the Act.   ARTICLE 4. CAPITAL CONTRIBUTIONS OF THE MEMBERS   4.1  Capital Contributions of the Members. On or before the Effective Date, the Members of the Company will make Capital Contributions to the Company of cash as set forth on Exhibit C hereto. The amount of cash contributed by each Member shall be credited to such Member’s Capital Account. The amount shown on Exhibit C shall be ARC’s Initial Contribution and SHP’s Initial Contribution.   4.2  No Other Contributions. Except as expressly required by this Article 4, neither Member shall have any obligation to make any additional contribution to the Company, nor to advance any funds thereto.   4.3  No Interest Payable. Except as otherwise provided herein, no Member shall receive any interest on its contributions to the capital of the Company.   4.4  No Withdrawals. The capital of the Company shall not be withdrawn, except as hereinafter expressly stipulated.   4.5  Additional Contributions.    (a)  Capital Expenses.   (1)  Unanimous Committee Approval. If the Committee unanimously decides that a Subsidiary is in need of additional funding for capital improvements not contemplated in the then-effective Annual Capital Budget for such Subsidiary (as defined in Section 6.6(b)), the Committee shall amend the Annual Capital Budget to account for such capital improvements, and if the revenue generated from the operation of such Subsidiary’s Project is not sufficient to pay for such capital improvements, the Committee shall cause a Notice to Finance to be given to each Member stating the total additional funding required. Within ten (10) days following the date upon which a Notice to Finance is given, each of the Members shall contribute to the Company, as additional Capital Contributions, an amount determined by multiplying that Member’s Percentage Interest by the required additional funding amount, and the Company shall contribute such Capital Contributions to the Subsidiary to be used for the capital improvements needed for such Subsidiary’s Project.     11 --------------------------------------------------------------------------------   (2)  Non Unanimous Committee Approval. If the Committee cannot unanimously agree to engage in any capital improvement not then contemplated in an Annual Capital Budget for a Subsidiary, either Member shall have the right to give to the other Member a Notice to Finance. If, within ten (10) days following the date upon which such Notice to Finance is given, the other Member does not contribute its portion (based upon the scale set forth in the immediately preceding subparagraph) of the funds necessary to engage in such capital improvement, the Member desiring to engage in such capital improvement for such Subsidiary shall have the right (but not the obligation) to fund one hundred percent (100%) of the costs associated with the design and construction of such capital improvement for such Subsidiary as an additional Capital Contribution and such funded amount shall be treated as a Capital Contribution for all purposes under this Agreement. Upon receipt of such Capital Contributions, the Company shall contribute such funds to the Subsidiary to be used for the capital improvements needed for such Subsidiary’s Project. Notwithstanding the foregoing to the contrary, no Member may engage in any capital improvement that materially alters the character or scope of a Project, absent the unanimous approval of the Committee.   (b)  Operating Expenses. If the Committee unanimously determines that a Subsidiary is in need of additional funding for payment of any operating expenses of such Subsidiary and operating costs of such Subsidiary for the balance of such Subsidiary’s then-current calendar year or, if less than six (6) months remain in the current calendar year, the subsequent calendar year, the Committee shall cause a Notice to Finance to be given to each Member stating the total additional funding required. Within ten (10) days following the date upon which such a Notice to Finance is given, each of the Members shall contribute to the Company, as additional Capital Contributions, an amount determined by multiplying that Member’s Percentage Interest by the required additional funding amount, and the Company shall contribute such Capital Contributions to the Subsidiary for the benefit of such Subsidiary’s operation.   Any and all funds contributed by the Members pursuant to this Section 4.5 shall be credited to their Capital Accounts and treated as Capital Contributions for all purposes of this Agreement.   4.6  Non-Failing Member Options. If a Member fails to contribute an amount equal to the entire amount required to be contributed by it within ten (10) days after a Notice to Finance is given, as provided in Section 4.5(a)(1) or Section 4.5(b) (the “Failing Member”), and if the other Member (the “Non Failing Member”) makes its proportionate contribution within such ten (10) day period, so notifying the Failing Member in writing, and the Failing Member fails fully to remedy its failure to contribute within an additional ten (10) days thereafter (the “Notice of Intention”), then the Non-Failing Member may, in its sole discretion, but shall have no obligation to do any of the following (it being the intention that none of the following shall be exclusive of any other remedy):    (a)  Withdraw from the Company its most recent proportionate contribution made pursuant to Section 4.5(a)(1) or Section 4.5(b), in which case the Company shall promptly repay the amount of such withdrawn contribution to the Non-Failing Member, or   12 --------------------------------------------------------------------------------   (b)  make a loan to the Company (a “Special Loan”) in an amount equal to the sum of (i) the contribution which the Failing Member failed to make pursuant to Section 4.5(a)(1) or Section 4.5(b), and (ii) the contribution made by the Nonfailing Member, in which case the contribution made by the Nonfailing Member shall be deemed instead of a Capital Contribution to be part of the funds advanced in connection with making such Special Loan. If made, a Special Loan shall bear interest and be payable upon the terms described in Article 5 and any accrued interest shall be considered to be part of such Special Loan for all purposes, or   (c)  make an additional contribution to the Company not in excess of the amount the Failing Member was to have contributed (a “Priority Capital Contribution”), or   (d)  not withdraw its most recent proportionate contribution made pursuant to Section 4.5(a)(1) or Section 4.5(b) and not make a Special Loan or an additional contribution to the Company as described immediately above, or   (e)  commence the dissolution of the Company pursuant to Articles 12 and 13.   4.7  Change in Percentage Interest. If either Member makes a Priority Capital Contribution pursuant to Section 4.6, that amount together with each timely Capital Contribution made by the Non Failing Member pursuant to Section 4.5(a)(1) or Section 4.5(b), shall be credited to the Capital Account of the Non Failing Member for all purposes of this Agreement, in which case the Non Failing Member’s Percentage Interest in the Company shall be increased by the percentage by which (A) the quotient (rounded to the nearest one hundredth, but not greater than ninety nine per cent (99%)) obtained by dividing (I) a sum equal to (x) the Non Failing Member’s total Unreturned Capital Contributions immediately before the making of additional Capital Contributions pursuant to the Notice of Intention, plus (y) the sum of (1) the additional Capital Contribution made by the Non Failing Member pursuant to Section 4.5(a)(1) or Section 4.5(b), and (2) the product of the Priority Capital Contribution made by the Non Failing Member multiplied by one and one half (1.5), by (II) the sum of both Members’ Unreturned Capital Contributions immediately after such contributions, exceeds (B) if SHP is the Non Failing Member, 80%, and if ARC is the Non Failing Member, 20%. In turn, the Failing Member’s Percentage Interest in the Company shall simultaneously be reduced to a percentage equal to one hundred percent (100%), less the Non Failing Member’s new Percentage Interest in the Company, as calculated pursuant to the preceding clause of this Section 4.7 (as illustrated by the example set forth on and attached as Schedule 4.7).    13 --------------------------------------------------------------------------------   4.8  Effect of Change of Percentage Interest. If the Percentage Interests of the Members are changed pursuant to the operation of Section 4.7 above or any of the other terms of this Agreement during any calendar year, the amounts of all items to be credited, charged or distributed to such Members for such entire calendar year in accordance with their respective Percentage Interest in the Company shall be allocated to the portion of such calendar year which precedes the date of such change (and if there shall have been a prior change in such calendar year, which commences on the date of such prior change) and to the portion of such calendar year which occurs on and after the date of such change (and if there shall be a subsequent change in such calendar year, which precedes the date of such subsequent change), in proportion to the number of days in each such portion, and the amounts of the items so allocated to each such portion shall be credited, charged or distributed to such Members in proportion to their respective Percentage Interest in the Company during each such portion of the calendar year in question. For purposes of this Section 4.8, the first calendar year shall commence on the date of this Agreement and shall end on December 31 of the year in which this Agreement is dated.   ARTICLE 5. LOANS BY MEMBERS   5.1  Loans. Neither Member shall be obligated to lend any money to the Company or to any Subsidiary and the Members may not require a Loan to be made. Except as provided in Section 6.7, and except for Special Loans made pursuant to Section 4.6, the Company and each Subsidiary shall not borrow any money without the approval of the Committee. If, following such approval, either or both Members or an Affiliate of either Member shall lend any money to the Company or to any Subsidiary, such Special Loan or Loan, as the case may be shall not be considered a capital contribution of such Member and shall not increase the Capital Account or Percentage Interest of such Member or entitle it to any increase in its share of the distributions of the Company. Each Special Loan or Loan made by either Member or any Affiliate thereof to the Company or to any Subsidiary on behalf of the Company shall be an obligation of the Company, provided that (i) neither Member shall be personally obligated to repay the Special Loan or Loan or to make any contribution to the capital of the Company to enable the Company to repay the Special Loan or Loan, and (ii) the Special Loan or Loan shall be payable or collectible only out of the assets of the Company. All Special Loan or Loans shall be unsecured and shall bear interest at the market rate then in effect as determined by the Committee. All Special Loans made pursuant to Section 4.6 shall bear interest at the rate of 5% per annum above the prime rate published in The Wall Street Journal (the “Prime Rate”) from time to time, compounded annually, while such Special Loans are outstanding. If The Wall Street Journal ceases to publish the Prime Rate, the Committee shall reasonably determine a substitute method for determining the Prime Rate. In no event shall the rate of interest on a Loan exceed the highest rate permitted by law for the lender which, if exceeded, could subject the lending Member or an Affiliate to penalties or forfeiture of all or any part of the interest or principal; such rate of interest on a Loan shall automatically be reduced to the highest level permitted without violating any such law.   14 --------------------------------------------------------------------------------   5.2  Payment of Special Loan and Loans. Subject to the other provisions of this Section 5.2, all Operating Cash Flow and Extraordinary Cash Flow (but without deduction for payment of interest or principal on Special Loan or Loans ) shall, to the extent of available cash, be applied and paid monthly, first to the payment of accrued interest on any Special Loans, then to the payment of principal of any Special Loans, then to the payment of accrued interest on any Loans, and then to the payment of principal of any Loans, before any distribution is made to a Member as stipulated in Article 9. If at any time Special Loans by both Members shall be outstanding, and if the aggregate balances, including accrued interest, of such outstanding Special Loans made by the respective Members shall not be in the proportion of the respective Percentage Interests of the Members, then payment shall be made only upon the Special Loan of the Member whose Special Loan balance, including accrued interest, is disproportionately high, until the balances (including interest) payable on the respective Member’s Special Loans to the Company shall be in the ratio of the respective Percentage Interests of the Members. If at any time Loans by both Members shall be outstanding, and if the aggregate Loan balances, including accrued interest, of such outstanding Loans made by the respective Members shall not be in the ratio of the respective Percentage Interests of the Members, then payment shall be made only upon the Loan of the Member whose Loan balance, including accrued interest, is disproportionately high, until the balance (including interest) payable on the respective Members’ Loans to the Company shall be in the ratio of the Members’ respective Percentage Interests. When the amounts of the Special Loan and/or Loan balances (including interest), as the case may be, of the respective Members are in the ratio of the Percentage Interests of the respective Members, all payments of interest on and repayments of the principal of such Special Loans or Loans shall be pro rata in accordance with the remaining balance (including interest) of each of the Special Loans or Loans.   ARTICLE 6. MANAGEMENT OF THE COMPANY   6.1  Managing Committee. The Members shall have responsibility for the management, supervision and control of the Company through its managing committee (the “Committee”), which shall be responsible for the establishment of policy and operating procedures respecting the business affairs of the Company and its Subsidiaries in its good-faith business judgment. No action shall be taken, nor shall obligations be incurred or amounts expended (other than in accordance with any Annual Capital Budget or any Annual Operating Budget which has been approved by the Committee), by the Company without the unanimous consent of the members of the Committee, except to the extent expressly provided herein or otherwise delegated by the Committee. The day to day operations of the Projects shall be managed by the Initial Subsidiary Property Manager or another Subsidiary Property Manager acceptable to the Committee, pursuant to the terms, conditions and limitations set forth in the Subsidiary Management Agreements. The Committee shall at all times consist of four (4) members, two (2) of whom shall be appointed by SHP, and two (2) by ARC.   15 --------------------------------------------------------------------------------   Each Member may appoint an alternate for each member appointed by it to the Committee, who shall have all the powers of the Committee member in his absence or inability to serve. Each Member shall have the power to remove any member or alternative member of the Committee appointed by it by delivering written notice of such removal to the Company and to the other Member in the manner required by Section 15.1. Vacancies on the Committee shall be filled by the Member that appointed the Committee member previously holding the position which is then vacant.   Each Committee member shall be entitled to cast one (1) vote with respect to any decision made by the Committee, provided that the members who are actually present at a meeting of the Committee shall be entitled to cast the vote of the member not present who was appointed by the same Member as the member casting the vote.   The Committee shall meet at least semiannually, upon thirty (30) days’ written notice to all members, at the offices of the Company or by conference call with the results confirmed in writing or by facsimile (unless such meeting shall be waived by all members thereof), or, in the event of an emergency, on the call of any two (2) Committee members upon two (2) business days’ notice to all Committee members by telephone, electronic mail, telex, telecopy or telegraph. An agenda for each meeting shall be prepared in advance by the Members in consultation with each other. Three (3) members of the Committee shall constitute a quorum. Except as specifically set forth herein to the contrary where certain rights are granted to individual Members, the casting of four (4) concurring votes shall be required for all actions of the Committee except adjournment (which shall only require a majority of the votes present), and four (4) concurring votes shall constitute the approval by the Committee of the matter being considered and shall be binding on the Company and the Members for all matters, including, without limitation, financing, refinancing, sale of some or all of the Company’s assets and dissolution of the Company. The Committee may act without a meeting if the action taken is unanimously approved in advance in writing by the Committee members. The Committee shall cause written minutes to be prepared of all actions taken by the Committee and shall deliver a copy thereof to each member of the Committee within seven (7) days after the date of the meeting. Such minutes shall be prepared by one of the members appointed by ARC. Each Subsidiary has four (4) officers designated by the Committee. The Committee may change the designations of any officers of any Subsidiary upon the unanimous consent of the Committee. All the officers of each Subsidiary shall be entitled to execute leases, resident agreements and service contracts on behalf of the Subsidiary (and/or may delegate such signing authority to the Initial Property Manager) so long as such documents are consistent with the then current approved Annual Operating Budget but the officers of such Subsidiary may not otherwise execute any documents on behalf of the Subsidiary without the unanimous approval of the Committee; provided, however, that the officers designated by SHP as its representatives to each Subsidiary (initially John Dark and Noah Levy) may execute any and all documents on behalf of the Subsidiary to take actions which SHP, in its capacity as a member, has the sole and exclusive right to undertake pursuant to the provisions of Section 6.7 of this Agreement; provided, further, that Todd Kaestner has been authorized to execute closing documents on behalf of the Company with respect to the initial acquisition of the Portfolio and the obtaining of the Initial Financing.   16 --------------------------------------------------------------------------------   6.2  Bank Accounts. The Company will maintain separate bank accounts in such banks as the Committee may designate exclusively for the deposit and disbursement of all funds of the Company. All funds of the Company shall be promptly deposited in such accounts. The Committee from time to time shall authorize signatories for such accounts.   6.3  Reimbursement for Costs and Expenses. Subject to the terms of Section 6.5, the Committee will fix the amounts, if any, by which the Company will reimburse each Member for any costs and expenses incurred by such Member on behalf and for the benefit of the Company or any of its Subsidiaries; provided, however, that except as otherwise provided herein or in any separately-executed agreement relating to the business and operation of the Company or any of its Subsidiaries, no overhead or general administrative expenses of any person or entity anyone other than the Company itself shall be allocated to the operation of the Company, and no salaries, fees, commissions or other compensations shall be paid by the Company to any Affiliate of any Member or to any partner, officer or employee of either Member or its Affiliates for any services rendered to the Company, except as may be expressly provided herein or by other written agreement approved by the Committee.    6.4  Fidelity Bonds and Insurance. The Committee on behalf of each Subsidiary shall cause each Subsidiary Property Manager (including, without limitation, the Initial Subsidiary Property Manager) to obtain fidelity bonds with reputable surety companies, covering all persons having access to the such Subsidiary’s funds and indemnifying such Subsidiary against loss resulting from fraud, theft, dishonesty and other wrongful acts of such persons. Each Subsidiary shall carry or cause to be carried on its behalf, in companies acceptable to the Committee all property, liability and worker’s compensation insurance as shall be required under applicable mortgages, leases, agreements, and other instruments and statutes or as may be required by the Committee or in accordance with risk management guidelines agreed upon by the Committee. The expense of such fidelity bond shall be paid by the respective Subsidiary Property Managers (including, without limitation, the Initial Subsidiary Property Manager), but the cost of the insurance shall be an expense of each Property.   6.5  Management Agreement. On or about the date of this Agreement, each Subsidiary will enter into a management agreement (each an “Initial Subsidiary Management Agreement”) with Initial Subsidiary Property Manager, in the form and containing the provisions of Exhibit D hereto attached and made a part hereof, providing that Initial Subsidiary Property Manager will, subject to the Company’s direction, manage the day-to-day operation of the Subsidiary’s Project, as an independent contractor, for the compensation and term specified therein. Should such Initial Subsidiary Management Agreement terminate for any reason, each Subsidiary will enter into an agreement for management of the Property with an operator or operators satisfactory to the Company (a “Subsidiary Property Manager”). Such Initial Subsidiary Management Agreement or any other management agreement entered into by the Company after the termination or expiration of such Initial Subsidiary Management Agreement, as the same may be amended or restated from time to time, is referred to herein as the “Subsidiary Management Agreement”.    6.6  Annual Budgets. The annual operating budget for each Project and the annual capital expenditures budget for each Project will be approved subject to the following terms:   17 --------------------------------------------------------------------------------   (a)  Annual Operating Budget. So long as each Project is performing such that (i) the aggregate, gross level of revenues for that Project are meeting or exceeding the operating pro forma approved by SHP on or before December 15, 2005 (the “Operating Pro Forma”) and (ii) the aggregate, gross level of expenses for that Project are equal to or less than the Operating Pro Forma, the current Annual Operating Budget must be approved by unanimous consent of the Committee. To the extent that the applicable Project is performing such that either the aggregate, gross revenues or aggregate gross expenses for that Project are not equal to or better than the Operating Pro Forma, SHP shall have the right to unilaterally approve any proposed annual operating budget. Any annual operating budget as approved pursuant to this Section 6.6(a) is referred to as the “Annual Operating Budget.”   ARC shall prepare and deliver to SHP, on or before ninety (90) days prior to the expiration of the then current fiscal year, a proposed Annual Operating Budget for each Project for the upcoming fiscal year. The exact form of the Annual Operating Budget shall be agreed upon by ARC and SHP but shall include, without limitation, reasonably detailed and itemized estimates of all projected income and expenses of such Subsidiary for the upcoming fiscal year (except items included in the proposed Annual Capital Budget), and specifically including reserves and working capital for such Subsidiary and a detailed leasing report describing all vacant units within the Project, the square footage of each vacant unit and the total square footage of all vacating units within the Project. To the extent that the Annual Operating Budget for a particular Project is not approved prior to the commencement of the fiscal year to which such budget is to relate, the Annual Operating Budget for such Subsidiary for the prior fiscal year, plus a three percent (3%) increase for each line item contained in such budget, shall be utilized in connection with the operation of such Property.   (b)  Annual Capital Budget. On or before ninety (90) days prior to the expiration of the then current fiscal year, ARC shall deliver to SHP, along with the proposed Annual Operating Budget for each Project, a proposed Annual Capital Budget for each Project for the upcoming fiscal year. Approval of the annual capital budget (the “Annual Capital Budget”) must be made by the unanimous consent of the Committee. If the Committee cannot unanimously agree upon the Annual Capital Budget for a particular Project for any year, there shall be no Annual Capital Budget for such Project for such year and the provisions of Section 4.5(a) shall govern capital improvements to such Project during such year. To the extent that funds are reserved for items set forth in the Annual Capital Budget for a particular Project and are not spent in a given year for which the Annual Capital Budget for such Project relates, the funds will be carried over into a separate reserve account for future use on items included within a future Approved Capital Budget for such Project, but may not be used for any other purpose. This separate reserve account will be held by, or on behalf of, SHP for the benefit of the applicable Subsidiary.   6.7  SHP’s Rights.   (a)  Notwithstanding anything to the contrary in this Article 6, SHP, in its capacity as a Member, and not in a representative capacity, shall have the sole and exclusive right, without the approval of the Committee, to cause or permit the Company to do or perform the following:   18 --------------------------------------------------------------------------------   (1)  from and after November 1, 2007 and subject to the provisions of Section 10.5, to cause the entire Portfolio or any one of the Properties or any group of the Properties to be sold or to market the Portfolio;   (2)  subject to Section 6.7(b), to cause the Company or a Subsidiary to incur debt financing for the entire Portfolio or any one of the Properties or any group of the Properties on terms determined by SHP;   (3)  subject to Section 6.7(b), to cause the Company to refinance any loan obtained by the Company or a Subsidiary pursuant to the foregoing Section 6.7(a)(2), or put in place at the time of the Company’s acquisition of the Properties;   (4)  to exercise any of the Company’s rights to terminate an Initial Subsidiary Management Agreement (or any subsequent Subsidiary Management Agreement) and to cause a Subsidiary to enter into a Subsidiary Management Agreement with a new Subsidiary Property Manager; provided, however, that the Subsidiary’s right to terminate the Initial Subsidiary Management Agreement, without cause, upon thirty (30) days prior notice, as provided in Section 12.2(e) of the Initial Subsidiary Management Agreement, may be exercised only by unanimous agreement of the Members;   (5)  (Intentionally Omitted);   (6)  (Intentionally Omitted); and   (7)  to determine whether and to what extent the Property should be repaired or restored in the event of (i) a loss by fire or other casualty, if the estimated costs of repair or restoration (as determined by the Company’s property insurance carrier) exceed $7,500,000.00, or (ii) a condemnation of any portion of a Property, the fair market value of which (as determined by an experienced, reputable M.A.I. appraiser selected by the Committee), exceeds $7,500,000.00.   (b)  SHP and ARC have agreed to obtain financing for the Projects, as of the Closing, in the original principal amount of $85,000,000.00, from Merrill Lynch Capital pursuant to the terms of that certain Credit and Security Agreement, dated ________, 2005 (“Initial Financing”). If SHP determines to refinance a Property pursuant to Section 6.7(a)(2) or 6.7(a)(3), SHP shall deliver a notice to ARC (a “Finance Proposal Notice”) of SHP’s intent, which notice shall include the proposed terms of such refinancing and a list of the lenders from which SHP intends to seek such refinancing (“SHP’s Lender List”). While SHP is trying to obtain such refinancing from a lender, ARC may concurrently seek alternatives to SHP’s proposed refinancing from other lenders provided ARC has delivered a notice to SHP of ARC’s intent, which notice shall include a list of the lenders from which ARC intends to seek such refinancing (“ARC’s Lender List”). ARC shall not, without the unanimous prior written approval of the Committee, have any authority to bind the Company or any Subsidiary to any loan commitment. ARC’s Lender List shall not include any of the lenders included in SHP’s Lender List. The Members shall coordinate their efforts to assure that ARC does not approach prospective lenders which are on SHP’s Lender List and SHP does not approach prospective lenders which are on ARC’s Lender List.   19 --------------------------------------------------------------------------------   When SHP has determined the actual refinancing structure it wishes to obtain and has identified the lender willing to provide such refinancing, SHP shall deliver a second notice to ARC (a “Financing Commitment Notice”) setting forth the terms of such refinancing and the identity of such lender. If (i) ARC notifies SHP within ten (10) days after ARC’s receipt of the Financing Commitment Notice that ARC has identified an alternative lender which will provide refinancing on the same or better terms as that proposed by SHP (including loan amount, term, amortization schedule, interest rate, prepayment penalties and participation features) at a lower cost and which will not result in a Plan Violation; and (ii) SHP, in SHP’s sole and absolute discretion, determines that the refinancing from the alternative lender identified by ARC will provide comparable refinancing on the same or better terms as that proposed by SHP, including operation and ownership constraints, and that the Company or a Subsidiary, as the case may be, will be able to obtain such refinancing within the time parameter determined by SHP, then SHP and ARC shall pursue such refinancing from such alternative lender, otherwise SHP shall be free to proceed to close the refinancing outlined in the Financing Commitment Notice. Notwithstanding anything to the contrary set forth hereinabove, neither Member shall have the right, without the other Members consent, to seek any refinancing which: (i) is recourse to the other Member; (ii) is convertible or includes any participating mortgage structure (i.e., a mortgage which grants to the mortgagee an equity interest or an option to convert some or all of the debt into an equity interest); (iii) commits the other Member to relinquish any of its equity in the Company or dilute its Percentage Interest or its interest in any item of income, loss or cash; or (iv) will result in such Property having a debt service coverage ratio (as of the date of the closing of the refinancing) of less than 1.25 to 1. As used above, the term Debt Service Coverage Ratio shall mean the ratio of (x) the Subsidiary’s annualized cash flow (including both Operating Cash Flow and Extraordinary Cash Flow and based upon the four calendar months immediately preceding the date the new refinancing will be closed) prior to the payment of debt service of the Subsidiary to (y) the annual debt service payable under all outstanding debt of the Subsidiary (excluding Loans and Special Loans) immediately after funding of the new refinancing, including debt service on such financing or refinancing.   6.8  Indemnification. Neither Member shall be liable to the Company or to the other Member for any act performed or omitted to be performed by the Member in connection with Company business, unless the Member’s course of conduct was in breach of this Agreement or constituted fraud, unauthorized acts, bad faith, willful misconduct or gross negligence. A Member shall defend and indemnify the Company and the other Member against, and hold it and them harmless from, any loss, damage, claim, judgment, cost, expense or liability, including reasonable attorneys’ fees, incurred or sustained by the Company or the other Member or either of them by reason of the indemnifying Member’s fraud, bad faith, willful misconduct, gross negligence, unauthorized acts or breach of this Agreement. The Company shall defend and indemnify each Member against, and hold it and them harmless from, any loss, damage, claim, judgment, cost, expense or liability, including reasonable attorneys’ fees, incurred or sustained by the Member by reason of any act performed by it on behalf of the Company or in furtherance of the Company’s interests other than by fraud, bad faith, willful misconduct, gross negligence, unauthorized acts or breach of this Agreement. The Company shall defend and indemnify any person executing the original Certificate of Formation against, and hold such person harmless from, any loss, damage, claim, judgment, cost, expense or liability, including reasonable attorneys’ fees, incurred or sustained by such person by reason of having prepared or filed the original Certificate of Formation or his status as the organizer of the Company, except to the extent of such person’s fraud, bad faith, willful misconduct or gross negligence.   20 --------------------------------------------------------------------------------   6.9  Operation as a REOC. The Committee shall conduct the activities of the Company so as to qualify the Company as a “real estate operating company” (“REOC”) within the meaning of 29 C.F.R. §2510.3-101 (the “Plan Assets Regulation”). The “annual valuation period” of the Company for purposes of qualifying as a REOC under the Plan Assets Regulation shall be the 90-day period commencing on each Anniversary Date (as defined below) unless the Company pre-specifies an earlier annual valuation period in accordance with the Plan Assets Regulation. “Anniversary Date” means each anniversary of the Company’s first investment other than a short-term investment pending long-term commitment.   6.10  Third Party Loans. Notwithstanding anything to the contrary in this Agreement, each Member’s rights under the Agreement shall at all times be subject to the terms and conditions of any Third Party Loan, and neither Member (a) shall take, or fail to take, any action that would conflict with any material term or condition of any Third Party Loan or cause a default or event of default under any Third Party Loan, or (b) shall cause the Company to take, or fail to take, any action that would conflict with any material term or condition of any Third Party Loan or cause a default or event of default under any Third Party Loan.   6.11  Rights of SHP’s Member. ARC hereby acknowledges that the sole member of SHP, acting in such capacity, shall have the right to direct all actions, make all decisions and exercise all rights of SHP under this Agreement. ARTICLE 7. BOOKS AND RECORDS, AUDITS, TAXES, ETC.   7.1  Books; Statements. In addition to the establishment and maintenance of Capital Accounts pursuant to Section 7.9, the Company shall keep such other books and records as the Committee shall determine. The books and records shall be prepared in accordance with generally accepted accounting principles consistently applied. Except where specifically provided for in this Agreement, the Committee shall determine the methods to be used in the preparation of financial statements.    Following the Effective Date of the Agreement:   (a)  each Subsidiary shall prepare or cause to be prepared, by the Subsidiary Property Manager for the Company’s approval and in accordance with the terms of the Subsidiary Management Agreement, a statement setting forth the calculation of Operating Cash Flow for such Subsidiary for each period of time, but not less often than quarterly, at the end of which the Company is to make periodic distributions of Operating Cash Flow as provided in Section 9.3, and the Company shall furnish a copy of such cash flow statement to each Member within fifteen (15) days after the end of such period;   21 --------------------------------------------------------------------------------   (b)  no later than the twenty fifth (25th) day of each month during the term of this Agreement, each Subsidiary shall prepare, or cause to be prepared by the Subsidiary Property Manager, and shall submit to the Company, an accrual basis balance sheet for such Subsidiary dated as of the end of the preceding month, together with an accrual basis profit and loss statement for such Subsidiary for the calendar month next preceding with a cumulative calendar year accrual basis profit and loss statement to date, and a statement of change in each Member’s Capital Account with respect to such Subsidiary’s operations for the preceding month and year to such date; and   (c)  as soon as practicable, but no later than ninety (90) days, after the end of each fiscal year of the Company, a general accounting and audit shall be taken and made by independent certified public accountants of recognized standing, selected by the TMP in accordance with Section 7.6 and retained by the Company, which accounting and/or audit shall cover the assets, properties, liabilities and net worth of the Company and its Subsidiaries, and their dealings, transactions and operations during such fiscal year, and all matters and things customarily included in such accountings and audits, and a full, detailed certified statement shall be furnished to each Member showing on an accrual basis the assets, liabilities, properties, net worth, profits, losses, net income, Unrecovered Capital Contributions, Priority Capital Contributions, Operating Cash Flow, Extraordinary Cash Flow, changes in the financial condition of the Company and the Subsidiaries for such fiscal year and each Member’s capital in the Company together with a full and complete report of the audit scope and audit findings in the form of a management audit report with an internal control memorandum.   7.2  Where Maintained. The books, accounts and records of the Company shall be at all times maintained at its principal office. If requested by the Company, the Subsidiary Property Manager shall, pursuant to the terms of its Subsidiary Management Agreement, keep and maintain such books, accounts and records, and its only payment for doing so shall be the fees paid under the Subsidiary Management Agreement. The Committee may, at any time, transfer the responsibility for keeping and maintaining such Company books and records to another party if it determines that the Company may recognize cost savings by doing so.   7.3  Audits. Either Member may, at its option and at its own expense, conduct internal audits of the books, records and accounts of the Company and its Subsidiaries. Audits may be on either a continuous or a periodic basis, or both, and may be conducted by employees of either Member, or an Affiliate of either Member, or by independent auditors retained by the Company or by either Member.   22 --------------------------------------------------------------------------------   7.4  Objections to Statements. Each Member shall have the right to object to the statements described in Sections 7.1(a), (b) and (c) by giving notice in writing to the other Member within thirty (30) days after such statements are received by each Member, indicating in reasonable detail the objections of such Member and the basis for such objections. If either Member shall fail to give such notice within said thirty (30) day period, such statements and the contents thereof shall, in the absence of fraud or willful misconduct by the other Member or the independent certified public accountants certifying the statements, be deemed conclusive and binding upon such party so failing to give such written notice, subject, in the case of the statements provided for in Sections 7.1(a) and (b), to the audit provided for in Section 7.1(c). Objections to any statement and any disputes concerning the findings of, and questions raised as the result of, audits of the Company’s or any Subsidiary’s books shall be settled by the Committee.   Upon approval or deemed approval of the statement described in Section 7.1(c) (the “Approved Financial Statement”), a comparison shall be made of the actual Operating Cash Flow to the Operating Cash Flow distributed pursuant to Section 9.3. To the extent that the Company has made a distribution to a Member (the “Excess Member”) in excess of the amount which the Excess Member should have received based on a distribution of Operating Cash Flow set forth in the Approved Financial Statement, the Excess Member shall recontribute to the Company, within fifteen (15) days after the creation of the applicable Approved Financial Statement, the excess amount (the “Excess Amount”) received by it. The Company shall then distribute such Excess Amount (1) first, to any Member who received a distribution less than such Member should have received based on the distribution of Operating Cash Flow set forth in the Approved Financial Statement, an amount equal to such deficiency and (2) second, to the extent of the remaining Excess Amount, in accordance with Section 9.3.   7.5  Tax Returns. The Company shall be treated and shall file its tax returns as a partnership for Federal, state, municipal and other governmental income tax and other tax purposes. The Company shall prepare or cause to be prepared, on an accrual basis, all Federal, state and municipal partnership tax returns required to be filed by it or by any of its Subsidiaries. Unless otherwise determined by the Committee, such tax returns shall be prepared by independent certified public accountants selected pursuant to Section 7.6, who shall sign such returns as income tax preparers (as defined in Section 7701(a)(36) of the Code). The Company shall submit the returns to each Member for review and approval no later than thirty (30) days prior to the due date of the returns, but in no event later than March 15th of each year. Each Member shall notify the other Member(s) upon receipt of any notice of tax examination, tax deficiency or tax adjustment of the Company by Federal, state or local authorities.   23 --------------------------------------------------------------------------------   7.6  Tax Matters Partner. ARC shall be the tax matters partner (“TMP”), as defined in Section 6231 (a)(7) of the Code, with respect to operations conducted by the Company during the period that ARC is a Member. The TMP shall comply with the requirements of Section 6221 through 6232 of the Code. The TMP shall have the authority, in its reasonable discretion, to select and appoint independent certified public accountants to prepare tax returns and annual audited financial statements for the Company and its Subsidiaries, the expense of which shall be borne by the Company. Notwithstanding the foregoing, prior approval of the Committee shall be required to extend the statute of limitations for any federal income tax matters or to proceed with respect to the contest of any federal income tax matters in any forum other than the United States Tax Court.   7.7  Tax Policy. The Company shall make any and all tax accounting and reporting elections and adopt such procedures as the Committee, in its reasonable judgment, may determine.   7.8  Section 754 Election. At the request of a Member, the Company shall make and file a timely election under Section 754 of the Code (and a corresponding election under applicable state or local law) in the event of a transfer of an interest in the Company permitted hereunder or the distribution of property to a Member. Any adjustments resulting from such an election shall be reflected in the Capital Accounts of the Members only to the extent provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m). Any Member or transferee first requesting an election hereunder shall reimburse the Company for reasonable out of pocket expenses incurred by the Company in connection with such election, including, without limitation, any legal or accountants’ fees; thereafter, each transferee shall reimburse such expenses with respect to adjustments under Section 743 of the Code in the proportion which the interest of each transferee bears to the sum of the interests of all transferees; the Company shall bear the expenses of any adjustments under Section 734 of the Code.   7.9  Capital Accounts.   (a)  There shall be established on the books of the Company a single capital account (the “Capital Account”) for each Member. The opening balance of each Member’s Capital Account shall be equal to each Member’s Initial Contribution as set forth in Section 4.1 of this Agreement.   (b)  The Capital Account of each Member (regardless of the time or manner in which such Member’s interest was acquired) shall be maintained in accordance with the rules of Section 704(b) of the Code and the Treasury Regulations thereunder (including particularly Section 1.704-1(b)(2)(iv) of the Regulations). Adjustments shall be made to the Capital Accounts for all distributions and allocations (other than allocations pursuant to Section 9.6) as required by the rules of Section 704(b) of the Code. In general, a Capital Account shall be:   24 --------------------------------------------------------------------------------   (1)  increased by (i) the amount of money contributed by the Member to the Company (including the amount of any Company liabilities that are assumed by such Member other than in connection with the distribution of Company property and including any amounts contributed to the Company pursuant to Section 7.4), (ii) the fair market value of property contributed by the Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code), and (iii) except as provided in Section 7.9(b)(3) and Section 7.9(b)(4), allocations to the Member of Company profits and gain for federal income tax purposes (or items thereof), including profits and gain exempt from taxation;   (2)  decreased by (i) the amount of money distributed to the Member by the Company (including the amount of such Member’s individual liabilities that are assumed by the Company (other than in connection with contributions of property to the Company) and including any amounts distributed to such Member by the Company pursuant to Section 7.4), (ii) the fair market value of property distributed to the Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to Section 752 of the Code), (iii) allocations to the Member of expenditures of the Company not deductible in computing the Company’s taxable income and not properly chargeable to capital, and (iv) except as provided in Section 7.9(b)(3) and Section 7.9(b)(4), allocations to the Member of Company loss and deduction for federal income tax purposes (or items thereof);   (3)  where Section 704(c) of the Code applies to Company property, adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) as to allocations to the Members of depreciation, depletion, amortization and gain or loss, as computed for book purposes with respect to such Company property; and   (4)  except as provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), computed without regard to any election under Section 754 of the Code which may be made by the Company.   If there is a transfer of all or a part of an interest in the Company by a Member, the Capital Account of the transferor that is attributable to the transferred interest shall carry over to the transferee of such Member.   7.10  Ownership Representation. Each Member represents and warrants to the Company and to the other Members that it is a U.S. person as that term is defined under Section 7701(a)(30) of the Code.   ARTICLE 8. FISCAL YEAR   8.1  Calendar Year. The fiscal year of the Company shall be the calendar year, unless (subject to obtaining consent of the Internal Revenue Service) the Members shall hereafter in writing agree otherwise.   25 --------------------------------------------------------------------------------   ARTICLE 9.   DISTRIBUTIONS AND ALLOCATIONS   9.1  Percentage Interests in Company. Except as otherwise expressly provided in this Agreement, the percentage interest of the respective Members in the Company shall be as follows:   SHP        80% ARC    20%   The percentage interest of each Member, which is subject to the preferred and priority rights provided for herein, is hereinafter called such Member’s “Percentage Interest”.   9.2  Certain Definitions. The following terms shall have the following meanings when used herein:   (a)  “Operating Cash Flow” shall mean the net income or loss of the Company or a Subsidiary, as applicable, for the fiscal period in question, as determined by the Committee in accordance with generally accepted accounting principles, taking into account all of the income and all of the operating expenses from all of the Properties or a Property, as applicable, and adjusted as follows:   (1)  Additions. There shall be added to such net income or subtracted from such loss, without duplication, the following items: (i) the amount charged during such period for depreciation, amortization or any other deduction not involving a cash expenditure, (ii) the amount of cash expenditures paid out of cash reserves during such period, to the extent that such expenditures were deducted in determining net income or loss, (iii) cash Capital Contributions to the Company or a Subsidiary, as applicable, during such period, excluding SHP’s Initial Contribution and ARC’s Initial Contribution, (iv) rental receipts, collection of receivables and other cash receipts during such period which were included in determining net income or loss in a prior accounting period, (v) the costs and expenses incurred by the Company or a Subsidiary, as applicable, during such period in connection with a Major Capital Event, to the extent deducted from gross income in the determination of net income or loss, except to the extent that net receipts of the Company or a Subsidiary, as applicable, from such Major Capital Event were insufficient to pay such costs and expenses, (vi) proceeds of short term borrowings in the ordinary course of business during such period, (vii) capital expenditures and other cash sums expended during such period for items deducted in determining net income or loss of the Company or a Subsidiary, as applicable, to the extent paid from proceeds of a Major Capital Event, and (viii) any amount during such period by which cash reserves previously established by the Committee in order to retain sufficient working capital in the Company or a Subsidiary, as applicable, or to properly reserve for actual or contingent obligations of the Company or improvements to the Properties or the Property, as applicable, have been reduced (other than through payment of expenditures described in clause (ii) above).   26 --------------------------------------------------------------------------------   (2)  Deductions. There shall be subtracted from such net income or added to such loss, without duplication, the following items: (i) the amount of payments made on account of principal upon mortgage loans secured by Company or Subsidiary property, as applicable, and upon any other loans made to the Company or a Subsidiary, as applicable, other than Special Loans or Loans by Members, (ii) capital expenditures and any other cash sums expended during such period for items not deducted in determining net income or net loss of the Company or a Subsidiary, as applicable, except to the extent paid from the proceeds of a Major Capital Event, (iii) any amount included in determining net income or loss during the relevant accounting period but not received in cash by the Company or a Subsidiary, as applicable, (iv) the proceeds during such period of a Major Capital Event, to the extent included in determining net income or loss, (v) any amounts distributed during such period to the Members in payment of any guaranteed payment within the meaning of Section 707(c) of the Code, and any amounts paid to a Member during such period for services rendered other than in its capacity as a Member of the Company within the meaning of Section 707(a) of the Code, to the extent not previously taken into account as a deduction in determining net income or loss, (vi) the amount of principal and interest under then-outstanding Special Loans and Loans which are to be repaid to the Members making the same in accordance with Article 5, and (vii) any amount applied to establish, replenish or increase during such period cash reserves pursuant to a determination of the Committee that such reserve and the amount thereof is necessary or appropriate in order to retain sufficient working capital in the Company or a Subsidiary, as applicable, to properly reserve for other actual or contingent obligations of the Company or improvements to the Properties or the Property, as applicable, to properly reserve for capital expenditures, or to reserve for fixtures, furniture and equipment.   (b)  “Extraordinary Cash Flow” shall mean the net cash receipts of the Company or a Subsidiary, as applicable, from a Major Capital Event as reduced by (i) the costs and expenses incurred by the Company or a Subsidiary, as applicable in connection with such Major Capital Event, including title, survey, appraisal, recording, escrow, transfer tax and similar costs, brokerage expense and attorney and other professional fees, (ii) funds deposited in reserves pursuant to a determination of the Committee that such reserve and the amount thereof is required or appropriate to provide for actual or contingent obligations of the Company or a Subsidiary, as applicable, or improvements to the Property or Properties, as applicable, (iii) funds applied to pay or prepay any indebtedness of the Company or a Subsidiary, as applicable (including Special Loans and Loans from Members and interest thereon to be repaid in accordance with Article 5), in connection with such Major Capital Event , (iv) any amounts previously deducted in determining Operating Cash Flow and (v) amounts received from a condemnation or casualty which are used for reconstruction. To the extent that any amount received pursuant to a Major Capital Event has been set aside as a reserve for expenses relating to a Major Capital Event and the Committee thereafter determines that all or a portion of such amount is not required for such purposes, such amount shall be included in Operating Cash Flow when the Committee determines that it is no longer necessary or appropriate to retain such amount as a reserve. Any non cash consideration received pursuant to a Major Capital Event, including, without limitation, promissory notes or deferred payment obligations, shall only be deemed to be included in Extraordinary Cash Flow when received in cash by the Company or a Subsidiary, as applicable; provided, however, that, in the discretion of the Committee, such noncash assets may be distributed in kind to the Members, in lieu of cash, treating the fair market value of such non cash assets at the date of distribution as Extraordinary Cash Flow.   27 --------------------------------------------------------------------------------   (c)  “Profit” or “Loss” shall mean, for each fiscal year, the net income or net loss of the Company for such fiscal year, as the case may be, including any items of income, gain, loss or deduction that are separately stated for purposes of Section 702(a) of the Code, as determined in accordance with federal income tax accounting principles as adjusted by Treasury Regulation Section 1.704-l(b)(2)(iv), provided that any item of income that is not subject to federal income taxation and any expenditure described in Section 705(a)(2)(B) of the Code or treated as an expense under Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), shall be taken into account. If the context requires, “Profit” or “Loss” may be used herein and such terms shall have meanings identical to those described earlier in this Section 9.1(c).   (d)  “Company Minimum Gain” shall mean the minimum amount of gain that would be recognized by the Company for federal income tax purposes if the Company disposed of property subject to non recourse liabilities (that is, liabilities for which no Member bears the economic risk of loss pursuant to Treasury Regulation 1.752-1(a)(2)) in full satisfaction and for the amount thereof, computed in accordance with Treasury Regulation Section 1.704-2(d).   (e)  “Nonrecourse Deductions”, pursuant to the provisions of Treasury Regulations Sections 1.704-2(b)(1) and 1.704-2(c) of the Company for any taxable year, shall mean an amount equal to the excess, if any, of the net increase in the amount of the Company’s Minimum Gain during such year over the aggregate amount of any distributions during such year of proceeds of nonrecourse liability that are allocable to an increase in the Company’s Minimum Gain.   9.3  Cash Flow Distributions.   (a)  Operating Cash Flow. The Company shall distribute all Operating Cash Flow generated by all of the Subsidiaries for each calendar quarter during the term of the Company in which there is Operating Cash Flow based on the operating statements prepared by each of the Subsidiary Property Managers pursuant to the Subsidiary Management Agreements and approved by the Committee pursuant to Section 7.1(a), said distribution to be made not later than ten (10) days subsequent to the issuance of the operating statement for each such calendar quarter to the Members pro rata in accordance with their Percentage Interests.   (b)  Extraordinary Cash Flow. With respect to any Major Capital Event that occurs with respect to any one or more of the Subsidiaries, the Company shall distribute Extraordinary Cash Flow to the Members, within three (3) business days of the completion of a Major Capital Event as follows:   (1)  first, eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and ARC receive payment in full for their Unreturned Capital Contributions;   (2)  second, to SHP until SHP has achieved an IRR of twelve and one-half (12.5%) on its Unreturned Capital Contributions;   (3)  third, to ARC until ARC has achieved an IRR of twelve and one-half percent (12.5%) on its Unreturned Capital Contributions;   28 --------------------------------------------------------------------------------   (4)  fourth, eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and ARC have achieved an IRR of fifteen percent (15%) on their Unreturned Capital Contributions; and   (5)  fifth, any remaining balance shall be distributed sixty percent (60%) to SHP and forty percent (40%) to ARC.   Notwithstanding the foregoing to the contrary, in the event that SHP, by exercising its authority under Section 6.7(a)(1), has caused the sale of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties on or before November 1, 2010, distributions of Extraordinary Cash Flow shall be distributed within three (3) days of the completion of a Major Capital Event as follows: (6)  first, eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and ARC receive payment in full for their Unreturned Capital Contributions;   (7)  second, eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and ARC have each achieved an IRR of fifteen percent (15.0%) on their Unreturned Capital Contributions; and   (8)  third, any remaining balance shall be distributed sixty percent (60%) to SHP and forty percent (40%) to ARC.   9.4  Allocation of Profits and Losses For Capital Account Purposes.   (a)  After giving effect to the allocations set forth in Sections 9.4(b) and 9.6 hereof, Profit or Loss for any fiscal year shall be allocated between the Members so that the Capital Account of each Member, increased by such Member’s “share of partnership minimum gain” and “share of partner nonrecourse debt minimum gain” (as so increased, a Member’s Capital Account is hereinafter referred to as such Member’s “Augmented Capital Account”), is, as nearly as possible, positive in the amount that would be distributed to such Member if the Company were to distribute an amount equal to any surplus in Augmented Members’ Capital between the Members pursuant to Section 9.3(b); provided, however, that no Loss shall be allocated to any Member for any fiscal year to the extent that such Loss would create or increase a deficit in such Member’s Adjusted Augmented Capital Account.   29 --------------------------------------------------------------------------------   (b)  If, after giving effect to the allocations set forth in Section 9.6 hereof, an allocation of Profit or Loss (determined as though no items were allocable pursuant to this Section 9.4(b)) for any fiscal year would leave the Augmented Capital Account of any Member short of (less than) the amount that would be distributed to such Member under the hypothetical circumstances described in Section 9.4(a) above while leaving the Augmented Capital Account of the other Member above (more than) the amount that would be distributed to such other Member under such circumstances, then items of income or gain shall be allocated to the former Member, and items of loss or expense shall be allocated to the latter Member, until either (i) Profit or Loss (determined without regard to the items of income, gain, expense or loss allocated pursuant to this Section 9.4(b)) can be allocated so as to cause each Member’s Augmented Capital Account to equal the amount that would be distributed to such Member under the hypothetical circumstances described in Section 9.4(a) above, or (ii) there are no more items to allocate; provided, however, that no items of expense or loss shall be allocated to any Member for any fiscal year to the extent such time would create or increase a deficit in such Member’s Adjusted Augmented Capital Account.   (c)  For purposes of this Agreement:   (1)  “Augmented Members’ Capital” at the end of any year means the total amount of capital (assets minus liabilities) appearing on the Company’s balance sheet as computed for book purposes within the meaning of Section 7.9(b) (taking into account Profit or Loss and all items of income, gain, expense or loss for such year), increased by the amount of “partnership minimum gain” and “partner nonrecourse debt minimum gain” of the Company at the end of such year.   (2)  “Adjusted Augmented Capital Account” means, with respect to any Member as of the end of any fiscal year, such Member’s Augmented Capital Account (i) reduced by those anticipated allocations, adjustments and distributions described in Section 1.704-1(b)(2)(ii)(d)(4) (6) of the Treasury Regulations, and (ii) increased by any deficit in such Member’s Capital Account that such Member is deemed obligated to restore under Section 1.704-1(b)(2)(ii)(c) or the Treasury Regulations as of the end of such fiscal year.   (3)  All terms set off in quotation marks and not otherwise defined shall have the meanings ascribed to them in Section 1.704-2 of the Treasury Regulations.   (d)  It is the intention of the Members that allocations of Profits and Losses pursuant to this Section 9.4 shall result in a Capital Account balance for each Member at least equal to the total amount of Operating Cash Flow and Extraordinary Cash Flow which would be distributed to such Member under Section 9.3(a) and 9.3(b) if such distribution were made without regard to Capital Account balances. To the extent the foregoing allocations do not accomplish this result, the Committee will allocate or reallocate Profits and Losses (including allocations of gross income or gain and gross deductions or losses) differently than expressly provided herein, if permitted under the Code and applicable Treasury Regulations, so as to achieve such result as closely as possible (including filing amended income tax returns for prior years).   30 --------------------------------------------------------------------------------   9.5  Distributed Property. Notwithstanding the foregoing provisions of Article 9, upon the distribution of property to a Member, for the purposes of computing Profits and Losses, such property shall be treated as if it had been sold for its fair market value on the date of such distribution.   9.6  Special Allocations. The following special allocations shall be made in the following order:   (a)  Nonrecourse Deductions shall be allocated among the Members in accordance with their Percentage Interests.   (b)  For purposes of determining the Members’ respective shares of nonrecourse liabilities of the Company under Treasury Regulations Section 1.752-3, each Member’s “percentage interest in partnership profits” shall be equal to such Member’s Percentage Interest.   (c)  Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Article 9, if there is a net decrease in Company Minimum Gain during any Company taxable year, each Member shall be specially allocated items of Company income and gain for such taxable year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 9.6(c) is intended to comply with the minimum gain chargeback requirement in Section 1.704 2(f) of the Regulations and shall be interpreted consistently therewith.   (d)  Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Article 9, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Company taxable year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 9.6(d) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith.   31 --------------------------------------------------------------------------------   (e)  The allocation contained in this Section 9.6(e) is intended to be a “qualified income offset” as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) on the date hereof and shall be interpreted in a manner consistent with such regulation. Notwithstanding the provisions of Section 9.6(e), a Member shall not be allocated Losses or deductions if such allocation would cause or increase a deficit balance in such Member’s Adjusted Capital Account (as defined below) as of the end of the calendar year to which such allocation relates. Any such Losses or deductions that would have been allocated to such Member but for the preceding sentence shall, to the extent permitted by this Section 9.6(e), be allocated to the other Member. In addition, if in any taxable year, a Member unexpectedly receives an adjustment, allocation or distribution that exceeds offsetting increases to such Member’s Adjusted Capital Account in such taxable year (other than increases pursuant to this Section 9.6(e)), then such Member shall be allocated gross income equal to the “Qualified Income Offset Amount”. The Qualified Income Offset Amount is an amount equal to the amount by which zero exceeds a Member’s Adjusted Capital Account. If in any taxable year to which this Section 9.6(e) applies the items of gross income of the Company are less than the amount of the Qualified Income Offset Amounts for all of the Members to which this Section 9.6(e) applies, then each Member to which this Section 9.6(e) applies shall be allocated a pro rata amount of gross income, and in subsequent taxable years each of such Members shall be allocated gross income, equal to the amount which, when added to the allocations to such Member pursuant to this Section 9.6(e) in prior taxable years, will equal the Qualified Income Offset Amount applicable to such Member for such prior taxable year and for such subsequent taxable years. A Member’s “Adjusted Capital Account” shall mean such Member’s Capital Account (i) reduced for distributions that, as of the end of the taxable year, reasonably are expected to be paid to such Member to the extent that such distributions exceed offsetting increases to such Member’s Capital Account that reasonably are expected to occur during (or prior to) the taxable years in which such distributions reasonably are expected to be made (other than increases resulting from allocations pursuant to Section 9.6(c)) and (ii) increased for (a) the amount of such Member’s share of Company Minimum Gain, (b) the amount of such Member’s Nonrecourse Debt Minimum Gain and (c) such Member’s future obligations to contribute to the Company (if any). For purposes of determining the amount of expected distributions and expected Capital Account increases, the Book Basis will be presumed to be the fair market value of Company property.   (f)  Any Member Nonrecourse Deductions for any taxable year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).   (g)  Any special allocations of items of income, gain, loss or deduction pursuant to this Section 9.6 (including such allocations as have been made in the past as well as such allocations as are reasonably expected to be made in the future) shall be taken into account for the purpose of equitably adjusting subsequent allocations of items of income, gain, loss or deduction so that the net allocations, in the aggregate, allocated to each Member pursuant to this Article 9, and the Capital Accounts of each Member, shall to the extent possible without violating the constraints set forth in Section 9.4 and this Section 9.6, be the same as if no special allocations had been made under this Section 9.6.   32 --------------------------------------------------------------------------------   9.7  Allocations of Profits and Losses for Tax Purposes. For federal tax purposes, in accordance with Section 704(c) of the Code and any regulations thereunder, gain with respect to any property which may be contributed to the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted tax basis of such property to the Company and the fair market value at the time of contribution.   9.8  Recapture and Investment Credits.   (a)  Investment tax credits, if any, shall be allocated to the Members in accordance with their respective Percentage Interests.   (b)  Any recapture of depreciation deductions or investment tax credits shall be allocated to the Member to whom (or to the predecessors in interest of whom) were allocated the prior depreciation deductions or investment tax credits, as the case may be.   ARTICLE 10. ASSIGNMENT AND OFFER TO PURCHASE   10.1  Transfers.   (a)  Neither Member, nor any permitted assignee or successor in interest of either Member, may sell, assign, give or otherwise transfer (collectively, “Transfer”) its interest in the Company, or any part thereof, except as provided in this Article 10. Neither Member, nor any permitted assignee or successor in interest of either Member, may pledge, hypothecate or encumber its interest in the Company, or any part thereof, without the prior written consent of the other Member (which consent may be withheld or denied in the sole and absolute discretion of the other Member). Except as provided in Sections 10.1(d), 10.1(e), 10.6(c) or 10.7(i) and for the limited purpose described therein, neither Member shall have the right to Transfer less than all of its Entire Interest.   (b)  Transfer by SHP of its Entire Interest in the Company to an Affiliate shall be a Transfer permitted under this Article 10 and SHP shall not be required to obtain the consent of, nor offer the interest to be transferred to, ARC. A Transfer by ARC of its Entire Interest in the Company to an Affiliate shall be a Transfer permitted under this Article 10 and ARC shall not be required to obtain the consent of, nor offer the interest to be transferred to, SHP; provided that such Affiliate is at least 51% owned by Acceptable Persons who have the right to control such Affiliate.   (c)  In the event of a termination of the Company within the meaning of Section 708 of the Code because of the dissolution of or a Transfer of any interest in a Member or an entity owning directly or indirectly a beneficial interest in a Member or a Transfer of a Member’s interest in the Company, such Member shall indemnify the other Member (the “Indemnitee”) and hold the Indemnitee harmless for, from and against any and all net adverse federal, state or local tax consequences (including any diminution or delay in any depreciation, recovery or amortization deductions and any and all penalties, interest, expenses and taxes on payments made pursuant to this Section 10.1(c)) which the Indemnitee shall sustain as a result of such termination.   33 --------------------------------------------------------------------------------   (d)  Without regard to the restrictions imposed by this Article 10 (excepting the obligation set forth in Section 10.1(c)), SHP may transfer or allocate all or part of its interest in the Company to any separate account formed by The Prudential Insurance Company of America pursuant to the provisions of Section 17B:28-7 N.J.S.A.   (e)  If either Member shall transfer a portion of its interest in the Company, as provided in Section 10.3 or 10.5(d) that, together with other interests in the Company Transferred during the preceding 12 months, represents more than a 49% interest in the total profits and capital of the Company, such Transfer, at either Member’s option, shall be effected so as to avoid a termination of the Company for federal income tax purposes under Section 708(b)(1)(B) of the Code, and for that purpose the Members agree to negotiate modifications to this Agreement in good faith.   (f)  It shall be a condition precedent to any Transfer permitted under Section 10.1(b) that the transferee shall have executed and delivered to the Members an agreement in form and substance satisfactory to them to the effect that the transferee agrees to be bound by all of the terms and conditions of this Agreement, and that the transferee is acquiring an interest in the Company subject thereto.   10.2     Other Assignments Void.   (a)  Any purported transfer of an interest in the Company not otherwise permitted by this Article 10 shall be null and void and of no effect whatsoever.   (b)  Subject to the provisions of Section 10.1(c), ARC shall not, without the prior written consent of SHP, which may be granted or withheld in SHP’s sole and absolute discretion, transfer, pledge, convey or encumber any of the interest in ARC or in the Initial Property Manager to any person who is not an Acceptable Person or to any entity controlling interest of which is not owned by an Acceptable Person.   10.3     Sale of Entire Interest to Other Member; Buy-Sell.   (a)  Either Member (the “Initiating Member”) may, at any time from and after November 1, 2007, give the other Member (the “Other Member”) a written notice (the “Termination Notice”) setting forth (i) the value (“Specified Value”) which the Initiating Member places on all the assets of the Company, (ii) the selling price, which must consist wholly of cash (the “Cash Selling Price”), for the Initiating Member’s entire equity interest in the Company (“Entire Interest”) and (iii) the purchase price, which must consist wholly of cash (the “Cash Purchase Price”), for the Other Member’s Entire Interest in the Company. The Cash Selling Price and the Cash Purchase Price specified in the Termination Notice shall be the amounts determined by a reputable independent  certified  public accountant  (computed  at  the  Initiating  Member’s  expense)  that  the  Initiating  Member and the Other Member would receive (excluding repayments of Special Loans and Loans) if the Company were to liquidate all of its assets at the   34 --------------------------------------------------------------------------------   Specified Value and the Company were to dissolve and distribute the proceeds of liquidation (in accordance with the procedures and priorities stated in Article 13) effective as of the date of the Termination Notice. The calculation of the amounts a Member would receive in exchange for its Entire Interest in the Company, if the Company were to dissolve, liquidate its assets and distribute the liquidation proceeds effective as of the date of the Termination Notice, shall be made in accordance with the provisions of Section 13.5; provided, however, that, in making such calculation, it shall be assumed that no reserves are required pursuant to Section 13.5(b) with respect to contingent liabilities and no deduction from the hypothetical liquidation proceeds shall be made with respect to transfer and other taxes. The Termination Notice shall be accompanied by an earnest money deposit in an amount equal to 5% of the Cash Purchase Price (said amount, together with any interest earned thereon, being hereinafter called the “Initiating Member’s Deposit”).   (b)  The Other Member shall, on or before the date that is ninety (90) days after the date of receipt of the Termination Notice, either accept the offer to sell the Other Member’s Entire Interest to the Initiating Member, or accept the offer of the Initiating Member to sell the Initiating Member’s Entire Interest to the Other Member. If the Other Member elects to accept the Initiating Member’s offer to sell the Initiating Member’s Entire Interest, its notice of such election shall be accompanied by (i) the return of the Initiating Member’s Deposit and (ii) its own earnest money deposit in an amount equal to 5% of the Cash Selling Price (said amount, together with any interest earned thereon, being hereinafter called the “Other Member’s Deposit”). If the Other Member fails to respond to the Termination Notice within such ninety (90) day period, the failure to respond shall be deemed the Other Member’s election to accept the offer of the Initiating Member to purchase the Entire Interest of the Other Member in accordance with the Termination Notice.   (c)  Funding of the purchase and sale pursuant to this Section 10.3 shall occur on the date which is not later than ninety (90) days after the Other Member’s election or deemed election pursuant to Section 10.3(b), or at such other time as may be otherwise agreed to in writing by the Other Member and the Initiating Member. The closing shall occur at the office of SHP’s counsel, unless otherwise agreed by the Members. The Initiating Member’s Deposit or the Other Member’s Deposit, as the case may be, shall be credited against the total purchase price for the Entire Interest being purchased pursuant to this Section 10.3; provided, however, if the closing shall fail to occur because of a default by the purchasing Member, the selling Member shall have the right, as its exclusive remedy, to retain the earnest money deposit as liquidated damages, it being agreed that in such instance such selling Member’s actual damages would be difficult, if not impossible, to ascertain.   (d)  In connection with the sale of one Member’s Entire Interest to the other Member pursuant to this Section 10.3, all of the provisions of Section 10.7 shall be applicable to such sale.   35 --------------------------------------------------------------------------------   10.4  Right of First Refusal for Sale of Entire Interest to Third Party.   (a)      Either Member may, at any time from and after November 1, 2007, sell its Entire Interest in the Company to a third party, provided such Member shall comply with the provisions of this Section 10.4. If such Member shall receive from a third party (the “Offeror”) a bona fide, arm’s-length offer (the “Offer”), in writing, signed by the Offeror setting forth all the material terms of the Offer, for the purchase, without financing contingency, on a date set forth in such Offer (which shall be no less than ninety (90) nor more than one hundred eighty (180) days after the Other Member’s receipt of the Offer), of such Member’s Entire Interest, then the Member who shall have received such Offer (the “Selling Member”) shall within thirty (30) days after receipt thereof, if it wishes to accept the Offer, forward a true copy thereof to the other Member (the “Receiving Member”) together with reasonable information as to the identity of the Offeror, its partners or directors, officers and controlling shareholders.   (b)      If the Selling Member has forwarded a copy of the Offer to the Receiving Member, the Receiving Member may, within forty-five (45) days after receiving a copy of the Offer, elect one of the three following options:   (1)      notify the Selling Member that the Receiving Member has no objection to the Selling Member accepting the Offer, in which event the Selling Member may sell its Entire Interest to the Offeror upon the terms and conditions contained in the Offer; or   (2)      notify the Selling Member of the Receiving Member’s election to purchase the Selling Member’s Entire Interest upon the same terms and conditions contained in the Offer except as to hour and place of closing, and except that the purchase price must consist wholly of cash. Such notification shall be accompanied by an earnest money deposit in an amount equal to 5% of the price payable pursuant to this Section 10.4(b)(2) (said amount, together with any interest earned thereon, being hereinafter called the “Receiving Member’s Deposit”). Notice of election to purchase shall be addressed to the Selling Member and shall set forth the hour and place of closing which, unless the Members shall otherwise agree, shall be at the office of SHP’s counsel, during usual business hours on a date not less than forty (40) nor more than sixty (60) days from the date of the giving of the notice of election to the Selling Member. The Receiving Member’s Deposit shall be credited against the total purchase price for the Entire Interest being purchased pursuant to this Section 10.4; provided, however, that if the closing shall fail to occur because of a default by the Receiving Member, the Selling Member shall have the right, as its exclusive remedy, to retain the Receiving Member’s Deposit as liquidated damages, it being agreed that in such instance such Selling Member’s actual damages would be difficult, if not impossible, to ascertain; or   (3)      notify the Selling Member that the Receiving Member objects to the Offeror becoming a member in the Company.   If the Receiving Member shall not have given written notice to the Selling Member, as described in subsections (1), (2) or (3) above, within such forty-five (45) day period, the Receiving Member shall be deemed to have exercised the option provided in subsection (3) above.   36 --------------------------------------------------------------------------------   (c)      If the Receiving Member gives notice to the Selling Member, within the required forty-five (45) day period objecting to the Offeror becoming a member in the Company (or is deemed to object due to its failure to respond within such forty-five (45) day period), then the Selling Member shall have the right and option (to be exercised by written notice to such effect within forty-five (45) days after the earlier of the date the Selling Member shall have received such written objection from the Receiving Member in the manner provided in Section (b) above or the expiration of the original forty-five (45) day period without response by the Receiving Member) to either:   (1) reject the Offer in which case the terms of this Agreement shall remain in effect and continue to be binding on the Members; or   (2) sell or assign its Entire Interest to the Offeror upon the terms submitted in the Offer, in which case, subject to the provisions of Section 10.7, the Offeror shall become a Member; provided, however, that such sale or assignment to the Offeror shall give the Receiving Member the option, to be exercised within forty-five (45) days after receipt by the Receiving Member of such sale or assignment (notice of which shall be given by the Selling Member to the Receiving Member within ten (10) days following the effective date of the sale or assignment) to dissolve the Company pursuant to Article 13 and, in the event of such dissolution, such Receiving Member shall be the Liquidating Member.   (d)      In connection with the sale of one Member’s Entire interest to the other Member pursuant to this Section 10.4, all of the provisions of Section 10.7 shall be applicable to such sale, except that for the purposes of this Section 10.4, the date the Receiving Member receives a copy of the Offer from the Selling Member shall be the governing date referred to in Sections 10.7(e) and (f), rather than the date of giving of the Termination Notice.   (e)      Whether or not any transaction contemplated by the foregoing provisions of this Section 10.4 is consummated pursuant to the provisions of the Offer (and any modifications thereto which provide only for an increased price or more favorable terms to the Selling Member), all the provisions of this Section 10.4 shall apply to any subsequent offer or offers.   10.5  Right of First Offer for Sale of Portfolio, Property or Properties.   (a)  SHP may, at any time from and after November 1, 2007, require the sale by the Company of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties to a third party purchaser for not less than the amount, and upon such terms (including a closing date), as SHP may propose in a notice (“Sale Proposal”) to ARC.   37 --------------------------------------------------------------------------------   (b)  Within ninety (90) days after receiving the copy of the Sale Proposal, ARC shall notify SHP that either:   (1)  ARC is agreeable to the sale of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, by the Company to a third party purchaser in accordance with the terms set forth in the Sale Proposal (in such event ARC’s election to permit such sale shall be binding upon ARC for one (1) year) and during such one (1) year period the Company shall make every reasonable effort to effect such sale to a third party as evidenced by a letter of interest (or at SHP’s election, a letter of intent or purchase agreement) to be executed within such one (1) year period, with closing to occur within one hundred twenty (120) days after the execution of the letter of interest (or letter of intent or purchase agreement, as the case may be) and SHP shall have the right, but not the obligation, to conduct and perform all marketing of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, on behalf and at the expense of the Company during such one (1) year period), or   (2)  ARC both objects to such Sale Proposal and elects to purchase (a “Purchase Election Notice”) (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, from the Company, for a total price equal to (i) the total price set forth in the Sale Proposal, less (ii) an amount equal to the outstanding mortgages or liens, if any, encumbering (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, proposed in the Sale Proposal to be and actually assumed, and otherwise upon terms and conditions substantially similar to, and no less advantageous to the Company than, those set forth in the Sale Proposal; provided, however, that the purchase price to be paid by ARC for (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, shall consist wholly of cash. ARC’s objection and Purchase Election Notice shall be accompanied by an earnest money deposit, payable to SHP, in an amount equal to 5% of the purchase price of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, (said amount, together with any interest earned thereon, being hereinafter called the “Deposit”). If within such ninety (90) day period ARC shall deliver a Purchase Election Notice together with the Deposit to SHP, then the Members shall promptly proceed with the purchase and sale pursuant to this Section 10.5(b)(2), the closing to take place within sixty (60) days following the date of the Purchase Election Notice, in which event the Deposit shall be credited to ARC against the total purchase price of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable; provided, however, that if such closing shall fail to occur because of a default by ARC, then SHP shall have the right, as its exclusive remedy, to retain the Deposit as liquidated damages, it being agreed that in such instance its actual damages would be difficult, if not impossible, to ascertain. After any such default by ARC, SHP shall have the right to require the Company to sell (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to any provisions of this Article 10 including, without limitation, by reinstituting the procedures set forth in this Section 10.5. If no default occurs, the closing shall take place during normal business hours at the office of SHP’s counsel or as otherwise agreed by the Members. The provisions of Sections 10.7(a), (b), (d), (e), (f), (g), (h) and (i) shall apply to the sale, except the date of delivery of the Purchase Election Notice shall be the governing date referred to in Sections 10.7(e) and (f) rather than the date of the Termination Notice. All prorations of real estate taxes, rents, etc., shall be made as of the date of sale. All real property transfer taxes shall be paid for by the Company and all recording fees shall be paid for by ARC. Failure of ARC to object to the Sale Proposal and to deliver a Purchase Election Notice and the Deposit within such ninety (90) day period shall be deemed an election by ARC to allow SHP to proceed with a sale of the Property under Section 10.5(b)(1).   38 --------------------------------------------------------------------------------   (c)  If (i) SHP shall have the right and authority to effect a sale of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to Section 10.5(b)(1); and (ii) SHP receives, during the one (1) year period in which the Sale Proposal is in effect pursuant to Section 10.5(b)(1), an offer from a third party to purchase (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, for a purchase price less than ninety-four percent (94%) of the price or on terms materially less favorable to the Company than those set forth in the Sale Proposal (the “Alternative Offer”), which Alternative Offer is acceptable to SHP, then SHP shall give notice to ARC of such Alternative Offer, which notice shall include all of the relevant terms and conditions of such Alternative Offer. ARC shall have the right, for a period of thirty (30) days after its receipt of such notice from SHP, to elect to purchase (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, in the manner set forth in Section 10.5(b)(2) and on the terms set forth in the Alternative Offer, except that ARC’s purchase price shall be payable wholly in cash. If ARC shall deliver notice of such election during such thirty (30) day period to purchase (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, as aforesaid, the purchase and sale pursuant to this Section 10.5(c) shall occur within sixty (60) days after receipt by SHP of the notice of such election. The provisions of Sections 10.7(a), (b), (d), (e), (f), (g), (h) and (i) shall apply to the sale except that the date SHP gives ARC notice of the Alternative Offer shall be the governing date referred to in Sections 10.7(e) and (f) rather than the date of the Termination Notice. If ARC shall not elect, within such thirty (30) day period, to purchase (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to the foregoing provisions of this Section 10.5(c), SHP shall have the right to effect a sale of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to the terms of the Alternative Offer provided that the closing of such sale shall occur not later than the closing date specified in the Sale Proposal then in effect pursuant to Section 10.5(b)(1).   (d)  ARC may specify in a Purchase Election Notice delivered pursuant to Section 10.5(b)(2) or 10.5(c) that it desires to purchase SHP’s Entire Interest in the Company rather than (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable. In such event, the Purchase Election Notice shall be accompanied by an earnest money deposit (the “ARC Deposit”) in an amount equal to 5% of the price specified in the next sentence. In such event, ARC shall be obligated to purchase and SHP shall be obligated to sell SHP’s Entire Interest in the Company for a price equal to the amount, determined, by a reputable, independent certified public accountant designated by SHP, (at the expense of ARC), SHP would have received (excluding payment of Loans and Special Loans) if (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, were sold pursuant to the terms of the Sale Proposal and the Company were to dissolve and distribute the proceeds of liquidation (in accordance with the procedures and priorities stated in Article 13, provided that in making such calculation, it shall be assumed that no reserves are required pursuant to Section 13.5(b) with respect to contingent liabilities and no deduction from the hypothetical liquidation proceeds shall be made with respect to transfer or other taxes). In connection with the sale of SHP’s Entire Interest to ARC pursuant to this Section 10.5(d), all of the provisions of Section 10.7 shall be applicable to such sale except the date of the delivery of the Purchase Election Notice or the Alternative Offer, as the case may be, shall be the governing date referred to in Section 10.7(e) and (f) rather than the date of the Termination Notice. The ARC Deposit shall be credited against the total purchase price for SHP’s Entire Interest being purchased pursuant to this Section 10.5(d), provided, however, that if the closing shall fail to occur because of default by ARC, SHP shall have the right, as its exclusive remedy, to retain the ARC Deposit as liquidated damages, it being agreed that in such instance SHP’s actual damages would be difficult, if not impossible, to ascertain. After any such default by ARC, SHP shall have the right to require the Company to sell (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to any provisions of this Article 10 including, without limitation, by reinstituting the procedures set forth in this Section 10.5.   39 --------------------------------------------------------------------------------   (e)  Whether or not any transaction contemplated by the foregoing provisions of this Section 10.5 is consummated pursuant to the provisions of the Sale Proposal, all the provisions of this Section 10.5 shall apply to any subsequent sale proposals.   (f)  During any period of time when SHP or the Company is actively marketing (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to this Section 10.5, (i) neither Member shall exercise its right to deliver a Termination Notice pursuant to Section 10.3, (ii) ARC’s and SHP’s right to sell its Entire Interest pursuant to the terms of Section 10.4 shall be suspended, and (iii) ARC and SHP shall suspend all marketing efforts or negotiations it may have commenced with respect to the sale of its Entire Interest.   (g)  In no event shall SHP be in default or have any liability to ARC or the Company for a failure by a third party to complete the purchase of (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group of Properties, as applicable, pursuant to this Section 10.5.   10.6         Assumption by Assignee; Compliance with Legal Requirements Following Assignment; Option to Reduce Interest Being Sold.   (a)  Any assignment of an Entire Interest in the Company to a third party pursuant to Section 10.4 shall be in writing, and, except as provided in Section 10.6(c), shall be an assignment and transfer of all of the assignor’s rights and obligations thereafter accruing hereunder, and the assignee shall expressly agree in writing to be bound by all of the terms of this Agreement and assume and agree to perform all of the assignor’s agreements and obligations existing or arising at the time of and subsequent to such assignment. Upon any assignment of the assignor’s Entire Interest and after such assumption, the assignor shall be relieved of its agreements and obligations hereunder arising after such assignment and the assignee shall become a Member in place of the assignor; provided, however, that the agreements and obligations of the assignor which existed at the time of such assignment, shall continue in force and effect in accordance with their respective terms and shall survive an assignment by ARC or SHP, as the case may be. An executed counterpart of each such assignment of an Entire Interest in the Company and assumption of a Member’s obligations thereafter accruing shall be delivered to each Member and to the Company. The assignee shall pay all expenses incurred by the Company or the continuing Member in admitting the assignee as a Member. Except as otherwise expressly provided herein, no permitted assignment shall dissolve the Company. As a condition to any assignment of an Entire Interest, the selling Member shall obtain such consents as may be required from third parties, if any, or waivers thereof. The Other Member shall cooperate with the selling Member in obtaining such consents or waivers at no expense to the Other Member.   40 --------------------------------------------------------------------------------   (b)  If an assignment of an Entire Interest in the Company shall take place pursuant to the provisions of Section 10.4, then unless the Company is dissolved by such assignment, the continuing Members promptly thereafter shall take all such actions as may be required by law to reflect such assignment.   (c)  A Member undertaking to sell its Entire Interest to a third party pursuant to the provisions of Section 10.4(a) shall have the option, if required in order to avoid a termination of the Company for federal income tax purposes under Section 708(b)(1)(B) of the Code, of initially selling only that portion of the selling Member’s Entire Interest which, together with other interests in the Company Transferred during the preceding 12 months, represents no more than 49% of the total interests in the capital and profits of the Company. The purchase price shall be the price the purchaser would have paid for the selling Member’s Entire Interest as provided in Section 10.4(a) multiplied by a fraction the numerator of which is the selling Member’s Percentage Interest being Transferred and the denominator of which is the selling Member’s Percentage Interest. If the selling Member shall exercise such option, it shall have the further option to sell and, upon request by the other Member, shall be obligated to sell at the earliest time or times as will not cause a termination of the Company under Section 708(b)(1)(B) of the Code, the remainder of its Percentage Interest (the “Remaining Percentage Interest”) to the holder of the interest so sold, and the selling Member shall not be required in connection with the sale of such Remaining Percentage Interest to obtain the consent of, nor offer such Remaining Percentage Interest to, the other Member, provided the sale of such Remaining Percentage Interest shall remain subject to the provisions of Section 10.1(c).   10.7         General Transfer Provisions. All of the subsections of this Section 10.7 shall apply to the sale of one Member’s Entire Interest to the other Member pursuant to Section 10.3, 10.4 or 10.5(d). Subsections (a), (b), (d), (e), (f), (g), (h) and (i) of this Section 10.7 shall apply to the sale of the Property by the Company to a Member pursuant to Section 10.5:   (a)  In the event of the sale of an Entire Interest, the purchase price shall be paid, at the selling Member’s option, by certified check drawn to the order of the selling Member, or by wire transfer of immediately available funds to an account which is designated by the selling Member. In the event of a sale of the Portfolio, Property or group of Properties, the purchase price shall be paid, at the Company’s option, by certified check drawn to the order of the Company, or by wire transfer of immediately available funds to an account which is designated by the Company. At the closing there shall be an accounting as of the closing of the Company’s books and there shall be an adjustment of the purchase price based upon a proration of any accrued income and expenses as of the closing date. Within ninety (90) days after the closing the Accountants for the Company shall complete an audit of such accounting and proration and shall deliver their audit report to the selling Member and the purchasing Member. If such audit report shall adjust such proration, the party in whose favor such adjustment is made shall promptly be paid by the other party the amount of such adjustment. At the closing either Member shall have the right to require to be placed in escrow with an escrow agent reasonably acceptable to the other Member an amount not to exceed the maximum likely post-closing adjustment of the proration as agreed by the Members or, if they shall be unable to agree, as estimated by a reputable independent certified public accountant reasonably acceptable to both parties, and the escrow agent shall distribute the escrowed amount to the party or parties entitled thereto promptly after the delivery of the audit report. If such escrow is established at the request of the purchasing Member, a portion of the purchase price shall be set aside for such purpose, and if such escrow is established at the request of the selling Member, additional funds shall be deposited by the purchasing Member at closing. At closing the selling Member shall deliver to the purchasing Member a “nonforeign affidavit” as referred to in the Foreign Investment in Real Property Tax Act in form and substance reasonably satisfactory to the purchasing Member together with original counterparts or certified copies of all leases and service contracts affecting the Property.   41 --------------------------------------------------------------------------------   (b)  If the purchasing Member desires to receive a new or updated title insurance policy or survey or both, it shall pay for same at its own expense.   (c)  If there shall be any outstanding Special Loan(s) or Loan(s) by the selling Member to the Company, such Special Loan(s) or Loan(s), including interest thereon accrued and unpaid, shall be purchased by the purchasing Member for the principal amount thereof and accrued and unpaid interest thereon as a condition precedent to such sale. The purchase price for such Special Loan(s) and Loans(s) shall be paid, at the selling Member’s option, by certified check drawn to the order of the selling Member, or by wire transfer of immediately available funds to an account designated by the selling Member. At the closing, the selling Member shall deliver to the purchasing Member, each note evidencing such Special Loans(s) or Loan(s).   (d)  On payment of the purchase price, the purchasing Member shall, at its option, as to each Company debt, obligation or claim against the Company for which the selling Member or any of its Affiliates is or may be personally liable except for any debts, obligations or claims which are fully insured by public liability insurer(s) acceptable to the selling Member (the public liability insurer(s) of the Company shall be deemed to be acceptable), elect one of the following options: (i) obtain a release of the selling Member and its Affiliates from all liability, direct or contingent, by all holders of each such Company debt, obligation or claim, or (ii) cause the same to be paid in full at the closing to the satisfaction of the selling Member. In addition, the purchasing Member shall defend, indemnify and hold the selling Member and its Affiliates (and, if the selling Member is ARC, their Affiliates) harmless for, from and against all debts, liabilities and obligations of, and all claims against, the Company, whether then existing or thereafter to arise, not paid in full or released pursuant to the preceding sentence; provided, however, that such indemnification shall not extend to those claims arising in whole or in part from intentional acts or omissions or gross negligence proximately caused by the selling Member. Both Members and the Company shall also execute a mutual general release pursuant to which the selling Member shall release the Company and the purchasing Member and its Affiliates (and, if the purchasing Member is ARC, their Affiliates) and the purchasing Member shall release the Company and the selling Member and its Affiliates (and, if the selling Member is ARC, their Affiliates) from all liabilities and obligations (whether known or unknown, foreseen or unforeseen or previously accrued or thereafter accruing) relating to the Company or the Property, other than those arising from the indemnities given pursuant to this subsection 10.7(d).   42 --------------------------------------------------------------------------------   (e)  Both Members (including the selling Member) shall be entitled to any distributions of Operating Cash Flow from the Company in accordance with Section 9.2(a) following the giving of the Termination Notice pursuant to Section 10.3 (or following such other event as set forth in Section 10.4 or 10.5) and until the closing. Except as provided in Section 10.7(j), the purchasing Member shall receive all distributions of the selling Member’s share of Operating Cash Flow after the closing.   (f)  If any Property is damaged by fire or other casualty, or if any entity possessing the right of eminent domain shall give notice of an intention to take or acquire a substantial part of any Property, and such damage occurs, or such notice is given, between the date of the giving of the Termination Notice pursuant to Section 10.3 (or such other date as set forth in Section 10.4 or 10.5) and the closing date of the purchase of an interest in the Company or the purchase of the Property the following shall apply:   (1)  If such Property is damaged by a casualty not resulting in substantial damage or if the taking or acquisition shall not result in a substantial reduction in the income producing capacity of such Property, then the Members shall be required to complete the transaction and the purchasing Member shall in lieu of any reduction in purchase price (except as provided in Section 10.7(f)(3)) accept an assignment of the insurance or condemnation proceeds.   (2)  If such Property is damaged by a casualty resulting in substantial damage, or if the taking or acquisition shall result in a substantial reduction in the income producing capacity of such Property, then the purchasing Member shall have the option (to be exercised within thirty (30) days from the date of the occurrence of the casualty or receipt of the notice of condemnation) to either (i) accept such Property in an “as is” condition together with the right to receive any insurance proceeds, settlements and awards, or (ii) cancel the purchase of such Property.   (3)  The purchase price otherwise to be paid at closing shall be adjusted downwards by an amount equal to the deductible, if any, for any insured casualty or, in the case of the closing of the sale of a Member’s interest in the Company, the amount by which the purchase price payable to the selling Member would be reduced if the amount of such deductible were a liability of the Company.   If the purchase of an individual Property or Properties is canceled by the purchasing Member pursuant to the above provisions, the terms of this Agreement shall remain in effect and continue to be binding on the Members. For purposes of this Section 10.7(f), substantial damage to the Property shall mean damage which would cost 20% or more of the value of the Property (prior to such damage) to repair and a substantial reduction in the income producing capacity of the Property shall mean a reduction of 20% or more.   43 --------------------------------------------------------------------------------   (g)  At the closing of a sale of the Property, the Members shall both execute, as members of the Company, and deliver a limited or special warranty deed, a bill of sale to the purchaser of all of the assets of the Company and assignments to the purchaser of any and all leases or service contracts affecting the Property, subject only to the liens and encumbrances listed in the Sale Proposal. In the case of the sale of an interest in the Company, the selling Member shall execute an assignment of such interest, free and clear of all liens, encumbrances and adverse claims, which assignment shall otherwise be in form and substance reasonably satisfactory to the purchasing Member, and such other instruments as the purchasing Member shall reasonably require to assign the interest of the selling Member to such person or entity as the purchasing Member may designate. Such documents shall be prepared by the purchasing Member and closing costs and all other charges involved in closing the sale (except for attorneys’ fees (each party paying their own) and title insurance costs (to be paid by the purchaser)) shall be prorated between SHP and ARC in the ratio of the Percentage Interests of the Members. Stamp, recording, transfer or similar taxes arising in connection with the sale of the interest, if any, shall be paid by the selling Member.   (h)  The Company shall be dissolved as of the closing date of a sale of the Property, and on the closing date the Members shall file, or cause to be filed, a written notice of winding up with the Delaware Secretary of State in accordance with Act Section 18-203 and such other documents as shall be necessary or desirable to effectuate such dissolution. The Members shall cooperate in taking all steps necessary in connection with the dissolution of the Company. Subject to Section 3.1(b), in the case of the sale of an interest in the Company, the Company shall not be dissolved, but the Members will execute and file on the closing date such amendment to the Certificate of Formation as may be appropriate to reflect the change in the identity of the Members.   (i)  It is the intent of the parties to this Agreement that the requirements or obligations, if any, of one Member to sell its Entire Interest (or a portion thereof), or to join in the conveyance by the Company of the Portfolio in accordance with the provisions of Section 10.3 or 10.5, shall be enforceable by an action for specific performance of a contract relating to the purchase of real property or an interest therein. It is the intent of the parties to this Agreement that the requirements or obligations, if any, of one Member to purchase the Entire Interest (or a portion thereof) of the Other Member pursuant to Section 10.3 (and ARC’s obligation to purchase in Section 10.5) shall be subject to the liquidated damages provisions contained in Sections 10.3 (and as described in Section 10.5), and that SHP shall have no liability for the failure of a third party to purchase in accordance with Section 10.5. If the selling Member shall have created or suffered any unauthorized liens, encumbrances or other adverse interest against either the Portfolio or the selling Member’s interest in the Company, the purchasing Member shall be entitled either to an action for specific performance to compel the selling Member to have such defects removed, in which case the closing shall be adjourned for such purpose, or, at the purchasing Member’s option, to an appropriate offset against the purchase price.   44 --------------------------------------------------------------------------------   (j)  The purchasing Member when purchasing the Entire Interest of the selling Member pursuant to the provisions of Section 10.3, 10.4 or 10.5 shall have the option of initially purchasing only that portion of the selling Member’s Entire Interest which, when aggregated with other interests in the Company Transferred during the preceding 12 months, represent a 49% interest in the total profits and capital of the Company. The purchase price shall be the price the purchasing Member would have paid for the selling Member’s Entire Interest as provided in Section 10.3, 10.4(b)(2) or 10.5(d), as the case may be, multiplied by a fraction the numerator of which is the selling Member’s Percentage Interest being Transferred and the denominator of which is the selling Member’s Percentage Interest. For example, if the selling Member owned a 65% interest in the Company, and if no other interests in the Company profits and capital had been Transferred during the preceding 12 months, the purchasing Member may elect initially to purchase approximately 75% of the selling Member’s Entire Interest (which represents a 49% interest in the Company) and the Member’s remaining Percentage Interest (the “Remaining Percentage Interest”) would be a 16% interest in the Company. In its notice fixing the closing date as provided in Section 10.3, 10.4(b)(2) or 10.5, the purchasing Member shall state whether or not it chooses to purchase the selling Member’s Entire Interest or only such percentage of the selling Member’s interest as is provided in the preceding three sentences. If the purchasing Member exercises the latter option, then:   (1)  The selling Member’s Percentage Interest shall be reduced to the Remaining Percentage Interest and the purchasing Member’s Percentage Interest increased to 100% less the Remaining Percentage Interest effective as of the date of the closing.   (2)  Subsections (e) and (g) of Section 10.7 shall not be applicable to a purchase pursuant to this Section 10.7(j). The selling Member’s right to distributions, ordinary or extraordinary, from the Company shall be reduced to its Remaining Percentage Interest, but if the Remaining Percentage Interest does not exceed 1%, no contributions to the Company shall be made by such Member after the closing of the purchase.   (3)  Subsections (a), (b), (c), (d), (f), (i) and (k) of Section 10.7 shall be applicable to a purchase pursuant to this Section 10.7(j) except that with respect to subsection (f) the insurance or condemnation proceeds referred to shall be paid over to the Company rather than the purchasing party.   (4)  If the Remaining Percentage Interest shall not exceed 1%, beginning with the closing, the purchasing Member (or, if reasonably requested, a credit-worthy guarantor) shall indemnify the selling Member and hold it harmless for, from and against all liability, loss, cost, damage and expense (including, but not limited to, reasonable attorneys’ fees and costs incurred in the investigation, defense and settlement of the matter) the selling Member shall ever suffer or incur because of any claim whether meritorious or not, arising out of facts occurring after the closing made against the selling Member as a Member or against the Company, except for claims made against the selling Member arising out of its own acts or omissions whether as a Member or otherwise.   45 --------------------------------------------------------------------------------   (5)  If the Remaining Percentage Interest shall not exceed 1% after the closing, the purchasing Member shall at all times be absolutely free to terminate the Company, deal with the Portfolio as its own, cause the Company to borrow money from the purchasing Member, an Affiliate of the purchasing Member or an unrelated party, and regardless of any contrary provisions contained in Article 10, the purchasing Member shall be absolutely free at any time and from time to time to transfer all or any part of its interest in the Company to anyone without restriction, provided the conditions of Section 10.6 are satisfied.   (6)  Either the selling Member or the purchasing Member may, by written notice to the other Member, require the transfer to the purchasing Member, or its nominee, of the Remaining Percentage Interest of the selling Member for cash at a purchase price equal to the fair market value, determined at the time of such transfer, of the Entire Interest held by the selling Member on the date of the Termination Notice multiplied by a fraction, the numerator of which shall be the selling Member’s Remaining Percentage Interest and the denominator of which shall be the selling Member’s Percentage Interest held on the date of the Termination Notice, payable in full on the date specified for transfer in the notice, but in no event may the selling Member require such transfer sooner than thirteen (13) months after the closing. The fair market value of such Remaining Percentage Interest shall be determined by a nationally recognized investment banking firm having experience in commercial real estate matters designated by the Members or designated by a court as hereinafter provided. If the Members are unable to agree upon and designate such investment banking firm within thirty (30) days of the receipt of a notice to transfer such Remaining Percentage Interest, either party may apply to a judge of the county or Chancery Court in the jurisdiction within which the particular Property is located for the designation of such firm. The firm so designated shall be instructed to report its determination of the fair market value of the Remaining Percentage Interest within sixty (60) days after it has been designated. The fee of such firm shall be paid by the purchasing Member.   (k)  In the event of the purchase of an interest in the Company of one Member by the other Member, at the option of the purchasing Member, the interest (subject to Section 10.7(j)) will be transferred to a nominee of the purchasing Member.   10.8        Avoidance of Plan Violation. In connection with any closing of a transaction pursuant to this Article 10, ARC and SHP each agree to provide written certification to each other, in a form reasonably satisfactory to both parties, to establish that no Plan Violation would result from the transaction. The Company will not enter into any agreements, or suffer any conditions, that SHP determines would result in a Plan Violation. SHP and ARC will cooperate to discover and correct Plan Violations.   ARTICLE 11. DISSOLUTION OR BANKRUPTCY OF A MEMBER   11.1         Dissolution or Merger. If any Member (for purposes of this Article 11 only, the term Member shall also include the managing general partner of any such Member) that is an entity shall be dissolved or merged with or consolidated into another corporation or entity, or if all or substantially all of its assets shall be sold or transferred, then unless such dissolution, merger, consolidation, sale or transfer is expressly permitted under Article 10, such dissolution, merger, consolidation, sale or transfer shall be a dissolution of the Company, and the other Member shall be the Liquidating Member in the dissolution of the Company.   11.2        Bankruptcy, etc. In the event:   (a)  either Member shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or seek any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief for itself under the present or any future federal bankruptcy code or any other present or future applicable federal, state, or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of said Member or its interest in the Company (the term “acquiesce” includes but is not limited to the failure to file a petition or motion to vacate or discharge any order, judgment or decree providing for such appointment within ten (10) days after the appointment); or   (b)  a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against either Member seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy code or any other present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, and said Member shall acquiesce in the entry for such order, judgment or decree (the term “acquiesce” includes but is not limited to the failure to file a petition or motion to vacate or discharge such order, judgment or decree within ten (10) days after the entry of the order, judgment or decree) or such order, judgment or decree shall remain unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of said Member or of all or any substantial part of said Member’s property or its interest in the Company shall be appointed without the consent or acquiescence of said Member and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive); or   (c)  either Member shall admit in writing its inability to pay its debts as they mature; or   (d)  either Member shall give notice to any governmental body of insolvency, or pending insolvency, or suspension or pending suspension of operations; or   (e)  either Member shall make an assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors;   46 --------------------------------------------------------------------------------   then, any such event shall cause the dissolution of the Company and the other Member shall be the Liquidating Member.   ARTICLE 12. DEFAULT   12.1       Defaults. After the Effective Date, (i) if either Member fails to perform any of its obligations hereunder, breaches any of the terms, conditions or covenants of this Agreement or (ii) in the event of an uncured default by any Affiliate under the Management Agreement as well as any other agreement entered into between the Company and ARC or an Affiliate of ARC (collectively, the “Affiliate Agreements”), then the other Member (“Nondefaulting Member”) shall have the right to give such party (“Defaulting Member” (which, in the case of any default by ARC or an Affiliate under clause (ii) above, shall be ARC)) a notice of default (“Notice of Default”). The Notice of Default shall set forth the nature of the obligation which the Defaulting Member (or its Affiliate, if applicable) has not performed.    (a)  If such default is not curable by the payment or expenditure of money and if, within the thirty (30) day period following receipt of the Notice of Default or within such shorter time period that may be specified in the Affiliate Agreement, the Defaulting Member (or its Affiliate, if applicable) in good faith commences to perform such obligation and cure such default and thereafter prosecutes to completion with diligence and continuity the curing thereof and cures such default within a reasonable time (not to exceed one hundred eighty (180) days), then it shall be deemed that the Notice of Default was not given and the Defaulting Member shall lose no rights hereunder. If, within such thirty (30) day period the Defaulting Member (or its Affiliate, if applicable) does not commence in good faith the curing of such default or does not thereafter prosecute to completion with diligence and continuity the curing thereof, then the Nondefaulting Member shall have the rights set forth in Section 12.1(d).   (b)  If such default is curable by the payment or expenditure of money other than a default described in Section 4.6 which sets forth its own time periods for cure, and if such sums of money shall be paid within fifteen (15) days after receipt of the Notice of Default with respect thereto, then it shall be deemed that such Notice of Default was not given and the Defaulting Member shall lose no rights hereunder. If such sums are not so paid within such fifteen (15) day period, then the Nondefaulting Member shall have the rights set forth in Section 12.1(d) in addition to the rights under Section 4.6 (to the extent applicable).   (c)  (Intentionally Omitted.)   (d)  If any default is not cured as set forth in Sections 12.1(a) or 12.1(b) or if any default set forth in Section 12.1(c) occurs, the Nondefaulting Member shall have the right to terminate this Agreement by giving the Defaulting Member written notice thereof, whereupon such default may be treated by the Nondefaulting Member as a dissolution of the Company, and the Nondefaulting Member shall be the Liquidating Member.   47 --------------------------------------------------------------------------------   Failure by a Nondefaulting Member to give any notice of a default as specified herein, or any failure to insist upon strict performance of any of the terms of this Agreement, shall not constitute a waiver of any such breach or any of the terms of this Agreement. No breach shall be waived nor shall any duty to be performed be altered or modified except by written instrument. One or more waivers or failure to give notice of default shall not be construed as a waiver of a subsequent or continuing breach of the same covenant.   12.2       Negation of Right to Dissolve by Will of Member. Except as set forth in Articles 10 and 11 and in Section 12.1, neither Member shall have the right to terminate this Agreement or dissolve the Company by its express will or by withdrawal without the consent of the other Member. Upon any dissolution occurring by operation of law or caused by the express will or withdrawal of one of the Members in contravention of this Agreement, the Member not causing the dissolution shall be the Liquidating Member.   12.3      Non Exclusive Remedy. The rights granted in Section 12.1 shall not be deemed an exclusive remedy of the Nondefaulting Member, but all other rights and remedies, legal and equitable, shall be available to it, subject to any express limitations on remedies provided in specific circumstances elsewhere in this Agreement (e.g. in Article 10).   ARTICLE 13. DISSOLUTION   13.1      Winding Up by Members. Upon dissolution of the Company by expiration of the term hereof, by operation of law, by any provision of this Agreement or by agreement between the Members, the Company’s business shall be wound up and all its assets distributed in liquidation. In such dissolution, except as otherwise expressly provided in Articles 10, 11 and 12, the Members shall be co liquidating Members and shall continue to act through the Committee. In such event the Members shall have rights acting through the Committee to wind up the Company and shall proceed to cause the Company’s property to be sold and to distribute the proceeds of sale as provided in Section 13.5. Except in respect of (i) all assets on which a single, non severable mortgage or other lien will be in effect after such distribution, and (ii) any assets which the Members shall determine are not readily severable or distributable in kind, the Members, to the extent that liquidation of such assets is not required to fulfill the payments, if any, under subsections (a), (b), (c) and (d) of Section 13.5, shall, if they agree, have the right to distribute, in kind, all or a portion of the assets of the Company to the Members.   13.2      Winding Up by Liquidating Member. In a dissolution pursuant to Article 10, 11 or 12, the Liquidating Member shall be as therein provided and such Liquidating Member shall have the right to:   (a)  Wind up the Company and cause the Company’s assets to be sold and the proceeds of sale distributed as provided in Section 13.5; or   48 --------------------------------------------------------------------------------   (b)  Deliver to the other Member within thirty (30) days after the commencement of dissolution of the Company a notice (a “Demand Notice”) demanding that the other Member deliver, within forty-five (45) days after the date of the Demand Notice, a Termination Notice in the manner and setting forth the information required under Section 10.3(a). Upon receipt of the Termination Notice, the Liquidating Member shall have the rights of the Other Member under Section 10.3(b).   (c)  If the other Member refuses or fails, within forty-five (45) days after the giving of the Demand Notice to the other Member, to give the Liquidating Member a Termination Notice setting forth the information required by Section 10.3(a), the Liquidating Member may elect to purchase the other Member’s Entire Interest for such price (the “Default Price”) as the Liquidating Member may choose in its sole discretion. The other Member shall be notified of such election within thirty (30) days after expiration of the 45-day period referred to in the preceding sentence.   All of the provisions of Section 10.7 shall apply to a purchase under this Section 13.2(c) except that for the purposes of this Section 13.2(c), the date the other Member receives the Demand Notice shall be the governing date referred to in Sections 10.7(e) and (f) rather than the date of the giving of the Termination Notice. As soon as possible after the dissolution of the Company, the Liquidating Member shall file a certificate of cancellation with the Delaware Secretary of State as required by Act Section 18-203.   13.3  Offset for Damages. In the event of dissolution resulting from an event described in Article 11 or 12, the Liquidating Member shall be entitled to deduct from the amount payable to the other Member pursuant to Section 13.2(a) or (b), Section 13.4 or Section 13.5 the amount of reasonable, out of pocket costs incurred by the Liquidating Member proximately resulting from any such event.   13.4  Distributions of Operating Cash Flow. Subject to Section 13.5 hereof as to proceeds of liquidation, upon the dissolution of the Company for any reason during the period of liquidation and until termination of the Company the Members shall continue to receive the Operating Cash Flow and to share profits and losses for all tax and other purposes as provided elsewhere in this Agreement.   13.5  Distributions of Proceeds of Liquidation. For purposes of this Section 13.5, “proceeds of liquidation” shall equal cash available for liquidation, net of liens secured by the Portfolio, provided that neither the Company nor either of the Members shall be personally liable on, or they shall be released from such debts. The proceeds of liquidation shall be applied in the following order of priority:   (a)  First. To the payment of:   (1)  debts and liabilities of the Company except Loans and Special Loans (as referenced in Sections 13.5(c), below) that may have been made by either of the Members to the Company, and   (2)  expenses of liquidation.   49 --------------------------------------------------------------------------------   (b)  Second. To the setting up of any reserves which the Liquidating Member or Members, as the case may be, may deem necessary for any contingent or unforeseen liabilities or obligations of the Company or of the Members arising out of or in connection with the Company. Said reserves may be deposited by the Company in a bank or trust company acceptable to the Liquidating Member or Members, as the case may be, to be held by it for the purpose of disbursing such reserves in payment of any of the aforementioned liabilities or obligations, and at the expiration of such period as the Liquidating Member or Members, as the case may be, shall deem advisable, distributing the balance, if any, thereafter remaining, in a manner hereinafter provided.   (c)  Third. To the repayment of any Loans and Special Loans that may have been made by either of the Members pursuant to Section 5.1, but if the amount available for such repayment shall be insufficient to repay all Loans and Special Loans, then repayment shall be made pro rata in accordance with the outstanding principal balances, including accrued interest, on such Loans and Special Loans.   (d)  Fourth. After allocation of all Profit or Loss upon the liquidation of the Company pursuant to the provisions of Sections 9.4 through 9.8, to the Members with positive Capital Account balances in proportion to and to the extent of such positive Capital Account balances.   (e)  Fifth. The excess proceeds, if any, after applying the proceeds as described in (a) through (d) above, shall be distributed as Extraordinary Cash Flow.   13.6        Orderly Liquidation. A reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the discharge of liabilities to creditors so as to enable the Members to minimize the losses normally attendant upon a liquidation.   13.7       Financial Statements. During the period of winding up, a reputable independent certified public accountant selected by the Liquidating Member shall prepare and furnish to each of the Members, until complete liquidation is accomplished, all the financial statements provided for in Section 7.1.   13.8      Restoration of Deficit Capital Accounts. At no time during the term of the Company shall a Member with a deficit balance in its Capital Account have any obligation to the Company or to another Member or to any other person to restore such deficit balance.   13.9  Intention of the Members. It is the intention of the Members that the liquidating distributions described in Section 13.5 shall be accomplished in a manner such that the economic effect of such distributions to the Members will be consistent with the economic effect the Members would have recognized had all liquidating distributions been made in accordance with the provisions of Section 9.3(b) hereof. The Liquidating Member shall take any and all actions permissible under the Code and Regulations, including but not limited to, special allocations of gross income, Loss and Profit, to accomplish the purposes of this Section 13.9.   50 --------------------------------------------------------------------------------   ARTICLE 14. MEMBERS   14.1  Liability. A Member shall not be personally liable for the debts, liabilities or obligations of the Company. Notwithstanding the foregoing, a Member will be liable for any distributions made to it, if, after such distribution, the outstanding liabilities of the Company (other than liabilities to Members on account of their interests in the Company and liabilities for which the recourse of creditors is limited to specific Company property) exceed the fair value of the Company’s assets (provided that the fair value of Company property that secures recourse liability shall be included only to the extent its fair value exceeds such liability) and the Member had knowledge of this fact at the time the referenced distribution was received.   ARTICLE 15. NOTICES   15.1  In Writing; Address. All notices, elections, offers, acceptances, demands, consents and reports (collectively “notices”) provided for in this Agreement shall be in writing and shall be given to the Company, the Members or the other Member at the address set forth below or at such other address as the Company or any of the parties hereto may hereafter specify in writing.   To SHP: PIM Senior Portfolio, LLC c/o The Prudential Insurance Company of America Two Ravinia Drive - Suite 1400 Atlanta, Georgia 30346-2110 Attention: John W. Dark Telecopy No.: (770) 399-5363 Telephone No.: (770) 395-8635   With a copy to: With a copy to: Senior Housing Partners III, L.P. c/o The Prudential Insurance Company of America Real Estate Law Department Arbor Circle South 8 Campus Drive, 4th Floor Parsippany, New Jersey 07054-4490 Attention: Joan N. Hayden Telecopy No.: (973) 683-1788 Telephone No.: (973) 683-1772   With a copy to: Alston & Bird, LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attention: Mark C. Rusche, Esq. Telecopy No.: (404) 881-7777 Telephone No.: (404) 881-7281     51 --------------------------------------------------------------------------------      To ARC: ARC Epic Holding Company, Inc. c/o American Retirement Corporation 111 Westwood Place, Suite 200 Brentwood, Tennessee 30727 Attention: Chief Executive Officer Telecopy No.: (615) 221-2269 Telephone No.: (615) 221-2250   With a copy to: Bass, Berry & Sims, PLC 315 Deaderick Street, Suite 27000 Nashville, Tennessee 37238 Attention: T. Andrew Smith Telecopy No.: (615) 742-2766 Telephone No.: (615) 742-6266   All notices hereunder shall be deemed sufficiently given or served for all purposes when delivered (i) by personal service or courier service, and shall be deemed given on the date when signed for or, if refused, when refused by the person designated as an agent for receipt of service, (ii) by facsimile transmission and shall be deemed given when printed confirmation of completion of transmission is generated by the sender’s facsimile transmission instrument to any party hereto at its address above stated or such other address of which a party shall have notified the party giving such notice in writing as aforesaid, or (iii) by United States registered or certified mail, return receipt requested, postage prepaid, deposited in a United States post office or a depository for the receipt of mail regularly maintained by the post office or sent by any reputable overnight courier service that obtains a signature upon delivery and shall be deemed to have been received by the addressee on the third business day following the date of such mailing. Such notices, demands, consents and reports may also be delivered by hand, or by any other method or means permitted by law. For purposes hereof, notices may be given by the parties hereto or by their attorneys identified above.   A copy of any notice or any written communication from the Internal Revenue Service to the Company shall be given to each Member at the addresses provided for above.   15.2  Copies. A copy of any notice, service of process, or other document in the nature thereof, received by either Member from anyone other than the other Member, shall be delivered by the receiving Member to the other Member as soon as practicable.   ARTICLE 16. MISCELLANEOUS   16.1  Additional Documents and Acts. In connection with this Agreement as well as all transactions contemplated by this Agreement, each Member agrees to execute and deliver such additional documents and instruments, and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement, and all such transactions. All approvals of either party hereunder shall be in writing.   52 --------------------------------------------------------------------------------   16.2  Estoppel Certificates. Each Member shall at any time and from time to time upon not less than twenty (20) days prior written notice from the other execute, acknowledge, and send to the other a statement in writing certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the Agreement is in full force and effect as modified and stating the modifications) and stating whether or not as to both Members either is in default in keeping, observing or performing any of the terms contained in this Agreement, and if in default, specifying each such default (limited, as regards the other’s defaults, to those defaults of which the certifying Member has knowledge).   16.3  Interpretation. This Agreement and the rights and obligations of the Members hereunder shall be interpreted in accordance with the internal laws of the State of Delaware, without reference to the conflicts of laws or choice of law provisions thereof.   16.4  Entire Agreement. This instrument and the other documents referenced or attached as Exhibits contain all of the understandings and agreements of whatsoever kind and nature existing between the parties hereto with respect to this Agreement and the rights, interests, understandings, agreements and obligations of the respective parties pertaining to the Company and supersede all prior agreements.   16.5  References to this Agreement. Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated.   16.6  Headings. All headings herein are inserted only for convenience and ease of reference and are not to be considered in the construction or interpretation of any provision of this Agreement.   16.7  Binding Effect. Except as herein otherwise expressly stipulated to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties signatory hereto, and their respective distributees, successors and assigns.   16.8  Counterparts. This Agreement may be executed in any number of counterparts, each of which shall for all purposes constitute one agreement which is binding on all of the parties hereto.   16.9  Confidentiality. The terms and provisions of this Agreement shall be kept confidential and shall not, without the other Member’s prior written consent (which shall not be unreasonably withheld), be disclosed by a Member or by a Member’s agents, managers, members, representatives and employees to any person or entity that this Agreement has been signed and exists; provided, however, that this Section 16.9 shall not prohibit the disclosure of the terms of this Agreement by any Member to its agents for business reasons consistent with Section 2.4. No publicity, media communications, press releases or other public announcements concerning this Agreement or the transactions contemplated hereby shall be issued or made by either Member without the consent of the other Member, except as required by law.   53 --------------------------------------------------------------------------------   16.10  Amendments. This Agreement may not be amended, altered or modified except by a written instrument signed by all parties; provided, however, that ARC and any other Member shall agree to any amendments of this Agreement reasonably required by SHP in order for the Company to comply with applicable state law which do not adversely affect the economic interests of ARC or any other Member hereunder.   16.11  Exhibits. All exhibits and schedules annexed hereto are expressly made a part of this Agreement, as fully as though completely set forth herein, and all references to this Agreement herein or in any of such exhibits or schedules shall be deemed to refer to and include all such exhibits or schedules.   16.12  Severability. Each provision hereof is intended to be severable and the invalidity or illegality of any portion of this Agreement shall not affect the validity or legality of the remainder.   16.13  Forum. Any action by one or more Members against the Company or by the Company against one or more Members which arises under or in any way relates to this Agreement, actions taken or failed to be taken or determinations made or failed to be made by the Members or relating to the Company including, without limitation, transactions permitted hereunder or otherwise related in any way to the Company, may be brought only in the state courts of the State of Delaware or United States District Court for the sitting in Delaware. Each Member hereby consents to the jurisdiction of such courts to decide any and all such actions and to such venue.   16.14  Assignment to Company. To the extent not already assigned to the Company, the Members shall, and they do hereby assign to the Company all of their right, title and interest, if any, in, to and under the following:   (a)  Fee simple title to the Properties, Projects and all appurtenances thereto;   (b)  All plans, specifications, engineering studies and working drawings prepared or obtained in connection with the Improvements, and any other work product related to the Improvements;   (c)  All licenses, permits, consents, approvals or other evidences of authorization to construct, own, occupy and/or operate the Properties issued by or received from any applicable governmental authorities having jurisdiction over or otherwise affecting the Properties;   (d)  All ownership interest in and all other rights, options, or interests, if any, related to the Properties and/or the construction and development of the Improvements; and   (e)  All leases, commitments for leases, security deposits, tenant lead lists and any other document, account, right, or instrument pertaining to tenants or prospective tenants of the Properties.   54 --------------------------------------------------------------------------------   16.15  Broker’s Indemnity. Each Member represents that it has not dealt with any broker or agent in connection with this Agreement or any of the transactions contemplated hereby, and hereby agrees to indemnify the other Member and the Company and hold them each harmless from and against all liability, loss, cost, damage and expense (including attorneys’ fees and costs incurred in the investigation, defense and settlement of the matter) which the other Member or the Company shall ever suffer or incur by reason of any claim by any broker or agent, whether or not meritorious, for any compensation with respect to such indemnifying Member’s dealings in connection with this Agreement or such indemnifying Member’s contribution or other transactions provided for or referred to herein.   16.16  Attorneys’ Fees. If any action arising out of this Agreement is brought by either party hereto against the other, then and in that event the unsuccessful party to such action shall pay to the prevailing party all costs and expenses, including reasonable attorneys’ fees, incurred by such prevailing party, and if the prevailing party shall recover judgment in such action, such costs, expenses and attorneys fees shall be included in and as part of such judgment.   16.17  Prudential Affiliation. The Company will not use the name Prudential in its advertising with respect to the Project. ARC will not make any disclosures or representations whatsoever to third parties concerning SHP’s affiliation with the Prudential Insurance Company of America, except as authorized in writing by SHP.   [The following page is the signature page.]         55 --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement, as of the day and year first above written.     SHP:            PIM SENIOR PORTFOLIO, LLC, a Delaware limited liability company       By: PIM Warehouse, Inc., a Delaware corporation, its sole member       By:      Name: Peter R. Eckert   Title: Vice President         ARC:            ARC EPIC HOLDING COMPANY, INC., a Tennessee Corporation       By:     Name:     Title:     56 --------------------------------------------------------------------------------     EXHIBIT A   Legal Description                     --------------------------------------------------------------------------------   EXHIBIT B   Subsidiaries     Project Subsidiaries 1.   Freedom Inn of Sun City West ARC Sun City West, LLC 2.   Freedom Inn of Roswell ARC Roswell, LLC 3.   Heritage Club Las Vegas ARC Vegas, LLC 4.   Freedom Inn Ventana Canyon ARC Tucson, LLC 5.   Freedom Inn at Overland Park ARC Overland Park, LLC 6.   Freedom Inn Minnetonka ARC Minnetonka, LLC 7.   Heritage Club at Denver Tech Center ARC Denver Monaco, LLC 8.   Hampton Assisted Living at Tanglewood ARC Tanglewood, L.P. ARC Tanglewood GP, LLC       --------------------------------------------------------------------------------   EXHIBIT C     Names and Interests of Members: Percentage Interest Initial Cash Contribution       SHP 80% $_________________       ARC 20% $_________________       TOTAL 100% $_________________           2 --------------------------------------------------------------------------------     EXHIBIT D   Initial Subsidiary Management Agreement                 --------------------------------------------------------------------------------   SCHEDULE 4.7   Percentage Interest Adjust Example     Pursuant to Section 4.7, if a Member fails to make a required contribution, the Percentage Interests of the Members may, at the election of the Non Failing Member, be adjusted as a result of making a Priority Capital Contribution. The following examples (which are examples only and do not reflect any actual facts) illustrate the effects of these provisions:   Example 1: Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned Capital Contributions for purposes of this computation only are deemed to be $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and SHP contributes its $90,000, but that ARC is the Defaulting Member on an obligation to contribute its $10,000 and that SHP has made a Priority Capital Contribution of such amount.   The Members’ initial Percentage Interests are:   SHP   90% ARC   10%     The resulting Percentage Interests of the Members are computed as follows:   SHP’s Unreturned Capital Contributions + $90,000+ (1.5 x $10,000) Total Unreturned Capital Contributions   9,105,000  =   90.15% 10,100,000   SHP’s Percentage Interest will be increased by .15% (90.15% 90%) and ARC’s Percentage Interest will be reduced by .15%.   Example 2: Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned Capital Contributions for purposes of this computation only are deemed to be $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and ARC contributes its $10,000, but that SHP is the Defaulting Member on an obligation to contribute its $90,000 and that ARC has made a Priority Capital Contribution of such amount.   The Members’ initial Percentage Interests are:   SHP                               90% ARC                              10%   The resulting Percentage Interests of the Members are computed as follows:   --------------------------------------------------------------------------------   ARC’s Unreturned Capital Contributions + $10,000 +(1.5 x $90,000) Total Unreturned Capital Contributions   1,145,000    =   11.34% 10,100,000   ARC’s Percentage Interest will be increased by 1.34% (11.34% 10%) and SHP’s Percentage Interest will be reduced by 1.34%.     -------------------------------------------------------------------------------- 2  

  Exhibit 10.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT      This Amendment No. 1 (this “Amendment”) is effective as of October 12, 2005, and is by and between Compex Technologies, Inc., a Minnesota corporation (the “Company”), and Scott Youngstrom, a resident of Minnesota (the “Employee”). All capitalized terms used in this Amendment and not otherwise defined shall have the meanings assigned to them in the Employment Agreement (as defined below).      WHEREAS, the Company and the Employee entered into an Employment Agreement, dated as of December 2, 2002 (the “Employment Agreement”), pursuant to which the Company employs the Employee; and      WHEREAS, the Company and the Employee now desire to amend the Employment Agreement.      NOW, THEREFORE, in consideration of the foregoing recitals, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Employee, intending to be legally bound, hereby agree as follows:      1. Clause (v) of Section 9(a) of the Employment Agreement is amended and restated in its entirety as follows:           “(v) The Employee elects to terminate this Agreement without Good Reason and notifies the Company in writing of such election.”      2. The following new clause (vi) is added to Section 9(a) of the Employment Agreement:           “(vi) The Employee elects to terminate this Agreement with Good Reason and notifies the Company in writing of such election.”      3. The second sentence of the paragraph immediately following clause (vi) of Section 9(a) of the Employment Agreement is amended and restated in its entirety as follows:           “If this Agreement is terminated pursuant to clause (iv), (v) or (vi) of this Section 9(a), such termination shall be effective 30 days after delivery of the notice of termination.”      4. Section 9(f) of the Employment Agreement is amended and restated in its entirety as follows:   (f)   Salary Continuation. (i) Termination other than in connection with a Change In Control. If the Employee’s employment by the Company is terminated at any time not described in clause (ii) of this paragraph (f) (a “Non-Change Termination”) pursuant to clause (ii) or (iv) of Section 9(a), the Company shall continue to pay to the Employee his base salary (less any payments received by the Employee from any disability income insurance policy provided to him by the Company) through the earlier of (a) the date that the Employee has obtained other full-time employment, or (b) six months from the date of termination of employment. In the event of a Non-Change termination pursuant to clauses (i), (iii), (v) or (vi) of Section 9(a), the Employee’s right to base salary and benefits shall immediately terminate, except as may otherwise be required by applicable law. 1 --------------------------------------------------------------------------------   (ii) After a Change in Control. If the Employee’s employment by the Company is terminated within one year after a Change in Control pursuant to clause (ii), (iv) or (vi) of Section 9(a), the Company shall pay to the Employee, simultaneous with termination and in lump sum, an amount equal to his annual base salary (less any payments received by the Employee from any disability income insurance policy provided to him by the Company) as of the date of termination of employment; provided, however, that if termination is made pursuant to clause (vi) of Section 9(a), no payment shall be due under this Section 9(f)(ii) unless such termination occurs in the calendar year during which such Change in Control occurs, or prior to March 15 of the next following calendar year. All payments under this Section 9(f)(ii) shall be subject to the restriction that the Employee shall not be entitled to any amount pursuant to this Agreement which constitutes an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor provision or regulations promulgated thereunder. In case of uncertainty as to whether some portion of a payment might constitute an excess parachute payment, the Company shall initially make the payment to the Employee and the Employee agrees to refund to the Company any amounts ultimately determined to be excess parachute payments. If this Agreement is terminated after a Change in Control pursuant to clauses (i), (iii) or (v) of Section 9(a), the Employee’s right to base salary and benefits shall immediately terminate, except as may otherwise be required by applicable law.      5. The following new clause (g) is added to Section 9 of the Employment Agreement:   (g)   “Good Reason” Defined. “Good Reason” means: (i) a change in the Employee’s duties that is inconsistent with or materially diminishes Employee’s position prior to a Change in Control (provided, however, that the fact that the Employee holds a position as a subsidiary of a reporting company, rather than a position as an officer of a reporting company, shall not in itself constitute Good Reason); (ii) a reduction by the Company in Employee’s compensation as in effect immediately prior to a Change in Control; (iii) except to the extent otherwise required by applicable law, the failure by the Company, or the entity that acquires the Company, to continue in effect benefits that are, in the aggregate, comparable to the benefits in which Employee is participating immediately prior to a Change in Control, or the taking of any action by the Company which would adversely affect Employee’s participation in, or materially reduce Employee’s benefits under, any of such plans; provided, however, that nothing in this clause (c) shall require any entity that acquires the Company to establish and provide to Employee any benefit that such acquiring entity did not provide to similarly situated employees prior to such Change in Control and the failure to provide such new benefit shall not be deemed “Good Reason”; (iv) any requirement that Employee move his office to a location more than 50 miles from the Company’s office occupied by Employee prior to the Change in Control; (v) the failure by the Company to obtain, as specified in Section 11(e) hereof an assumption of the obligations of the Company to perform this Agreement by any successor to the Company; or 2 --------------------------------------------------------------------------------   (vi) any transaction following the Change in Control that would constitute a change in control as defined in Section 9(h) (that is, a second change in control within one year of the Change in Control). Notwithstanding the foregoing, none of the forgoing events shall be considered “Good Reason” if it occurs in connection with the Employee’s death or disability.      6. The following new clause (h) is added to Section 9 of the Employment Agreement:   (h)           “Change in Control” Defined. “Change in Control” means the occurrence of any of the following events as a result of a transaction or series of transactions: (a) a change in control of the Company of a nature required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), whether or not the Company is then subject to such reporting requirement; (b) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities; (c) individuals who at the date hereof constitute the Board of Directors of the Company cease to constitute a majority thereof, provided that such change is the direct or indirect result of a proxy fight and contested election for positions on the Board; or (d) the Board of Directors of the Company determines, in its sole and absolute discretion, that there has been a change in control of the Company.      7. The provisions of this Amendment shall be applied and interpreted in a manner consistent with each other so as to carry out the purposes and intent of the parties hereto, but if for any reason any provision hereof is determined to be unenforceable or invalid, such provision or such part thereof as may be unenforceable or invalid shall be deemed severed from this Amendment and the remaining provisions carried out with the same force and effect as if the severed provision or part thereof had not been a part of this Amendment.      8. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Amendment.      9. Except as amended hereby, the Employment Agreement shall remain in full force and effect. [Remainder of page left intentionally blank; signature page follows.] 3 --------------------------------------------------------------------------------        IN WITNESS WHEREOF, the undersigned have executed this Amendment.                   COMPEX TECHNOLOGIES, INC.                       By:  /s/ DAN GLADNEY   Name:  Dan Gladney         Its:  Chief Executive Officer                     /s/ SCOTT YOUNGSTROM                   Scott Youngstrom     4

Exhibit 10.37 ADCENTER LICENSE, HOSTING AND SUPPORT AGREEMENT This AdCenter License, Hosting and Support Agreement (“Agreement”) is entered into as of May 16, 2005 (the “Effective Date”), by and between Ask Jeeves, Inc., a Delaware corporation (“Partner”) and LookSmart, Ltd., a Delaware corporation (“LookSmart”). RECITALS The parties wish to provide for a hosted private-label solution to enable Partner to access and use the LookSmart Advertising Center and associated systems (including any improved version(s) or features of the LookSmart Advertising Center implemented and made generally commercially available to private label AdCenter customers by LookSmart after the Effective Date) (together, the “AdCenter”) on the Partner Network, on the terms and conditions herein. NOW, therefore, for good and adequate consideration, the receipt of which is acknowledged, the parties agree as follows:   1) DEFINITIONS.     a) “Billable Clicks” means the number of clicks on Partner advertisements occurring on the Partner Network as recorded by the AdCenter (provided that such clicks do not exceed the maximum CPC or account budgets set by the advertiser). “Billable Clicks” shall in no event include any Test Traffic, Promotional Traffic, or clicks that are determined by the AdCenter to be fraudulently generated clicks.     b) “Gross Revenues” means amounts collected by Partner from advertisers who advertise on the Partner Network using the AdCenter.     c) “Licensed Marks” means the trademarks, trade names and related logos owned by Partner.     d) “Licensed Rights” means the rights licensed to Partner in Section 2 hereof.     e) “Partner Network” means Internet sites owned and operated by Partner, its subsidiaries or other affiliates, and its syndication network.     f) “Promotional Traffic” means clicks provided by Partner to its customers without charge as part of any advertiser incentive or promotional plan or arrangement. For the avoidance of doubt, traffic shall be considered “Promotional Traffic” only if (i) Partner notifies LookSmart in writing in advance of its intention to conduct a promotion, and (ii) such traffic shall comprise no more than 0.1% of the number of Billable Clicks per month.     g) “Test Traffic” means automatically generated ‘clicks’ on AdCenter-supported advertising generated for test purposes by Partner servers using predefined test syndicate codes agreed by the parties. For the avoidance of doubt, traffic shall be considered “Test Traffic” only if (i) Partner notifies LookSmart in advance of its intention to conduct a test, and (ii) such traffic shall comprise no more than 1% of the number of Billable Clicks per month. -------------------------------------------------------------------------------- 2) LICENSE.     a) License. LookSmart grants to Partner, subject to the terms, limitations and conditions herein and during the Term hereof, a non-exclusive, non-transferable, worldwide, royalty-free (except as set forth in Section 3) license to access the AdCenter for the limited purposes of making the AdCenter available on the Partner Network to Partner’s advertising customers who become AdCenter account holders and who advertise on the Partner Network.     b) Limitations on License. The license granted above is limited by the following restrictions: (i) except as expressly permitted herein, Partner will not display, use, reproduce, distribute, make derivative works from, modify, sell, resell, rent, license, sublicense, transfer, assign or redistribute in any way the Licensed Rights; (ii) Partner will not attempt to alter, reverse engineer, decompile, disassemble or otherwise attempt to derive the Licensed Rights or any of LookSmart’s databases, computer code, computer programs, patents, copyrights, other proprietary rights or any other information furnished to Partner by LookSmart; (iii) Partner will not display, sublicense or syndicate the Licensed Rights on or to any third party or web site outside of the Partner Network unless it first obtains LookSmart’s written consent; (iv) Partner will use tracking URLs, as reasonably requested by LookSmart, for all advertisements intended to be tracked through the AdCenter which are displayed on the Partner Network (though Partner may use the display URLs for purposes of displaying the listing); (v) Partner will not use or authorize its advertisers to use the AdCenter in connection with the advertisement of illegal activities or the violation of third party rights; and (vi) Partner will not encourage, aid, abet, authorize or permit any employee, affiliate, contractor, agent, representative or third party to do or attempt to do any of the foregoing.   3) PAYMENTS AND REPORTING.     a) Subscription Payment. Partner shall pay the following subscription payment to LookSmart for Gross Revenues collected by Partner in each calendar month during the Term. For the avoidance of doubt, the revenue share payments described in this section shall be due and payable (at the time specified in Section 3(d) below) beginning as soon as Partner customers use the AdCenter, regardless of whether any of the launch dates described herein have occurred.   Tier   Gross Revenue in Calendar Month    LookSmart Share (for applicable Tier)   1   $[***]    [***] % 2   $[***]    [***] % 3   $[***]    [***] % 4   $[***]    [***] % 5   $[***] and higher    [***] %     b) For example, if Partner collects $[***] of Gross Revenues in a given month, then the applicable subscription payment to LookSmart would be [***]. Setup Fee. The setup fee of $[***] (the “Setup Fee”) for the provision of integration services by LookSmart as described in Exhibit B shall be due and payable by Partner as follows: (a) $[***] shall be paid to LookSmart within three business days after the Effective Date, (b) $[***] shall be paid within three business days after the Version 1.0 Launch Date (as defined below), and (c) $[***] shall be paid within three business days after the Version 1.1 Launch Date (as defined below). All Setup Fees paid or payable under this section are non-refundable.   [***] indicates redacted text   2       --------------------------------------------------------------------------------   c) Annual License Fee. Annual license fees of $[***] (the “Annual License Fee”) shall be due and payable by Partner as follows: (i) $[***] shall be paid to LookSmart within three business days after the Version 1.0 Launch Date (as defined below), and (ii) subject to the remainder of this paragraph, an additional $[***] shall be paid on the first anniversary of the Version 1.0 Launch Date. All Annual License Fees paid or payable under this section are non-refundable. If on the first anniversary of the Version 1.0 Launch Date, the Gross Revenues collected by Partner from its customers using the AdCenter during the preceding twelve months exceeds $[***], then the Annual License Fee for the second twelve-month period shall not become due and payable from Partner.     d) Payment and Reporting. LookSmart will make available to Partner daily reports describing Billable Clicks generated. The Billable Clicks numbers in such reports shall be final and may be relied upon by Partner for the purposes of this Agreement starting 10 days after the date on which the clicks occurred. Partner shall pay LookSmart its revenue share portion of Gross Revenues collected, and shall provide reasonable documentation detailing the amounts of such payments, within thirty (30) days after the end of each calendar month. Within 30 days after the third calendar month of each calendar quarter, LookSmart shall provide a report including information regarding any penalties to be paid by LookSmart for such calendar quarter as required by the SLA, and Partner may offset such amount against its subsequent monthly payment to LookSmart.     e) “Version 1.0 Launch Date” means the date on which (i) the private label AdCenter, meeting all aesthetic and functional requirements set forth for Version 1.0 of the private label AdCenter, as set forth in Exhibit B, may be accessed by Partner’s advertising customers, which access and functionality shall in any case be no less than the AdCenter access and functionality that LookSmart makes then available to LookSmart’s advertising customers, and (ii) LookSmart has provided to Partner all Version 1.0 documentation set forth in Exhibit B. For the purposes of clarity, the parties shall write and initial here to acknowledge the Version 1.0 Launch Date once it has occurred: Version 1.0 Launch Date: 8/1/2005 LookSmart Initials: __________ Partner Initials: _____________ On or immediately after the Version 1.0 Launch Date, LookSmart shall notify Partner via email that the Version 1.0 Launch Date has occurred. Partner shall, within two business days of receipt of such notice, indicate its agreement and the parties shall complete and initial the Version 1.0 Launch Date definition above. If Partner disagrees in good faith that the Version 1.0 Launch Date has occurred, Partner shall notify LookSmart via email, including reasonable detail as to what aspects or features of the AdCenter are not substantially completed. If LookSmart does not resolve the discrepancy to Partner’s satisfaction within ten days of receipt of such email, Partner shall have the right to terminate this Agreement.     f) “Version 1.1 Launch Date” means the date on which (i) the private label AdCenter, meeting all aesthetic and functional requirements set forth for Version 1.1 of the private label AdCenter, as set forth in Exhibit B, may be accessed by Partner’s advertising customers, which access and functionality shall in any case be no less than the AdCenter access and functionality that LookSmart makes then available to LookSmart’s advertising customers, and (ii) LookSmart has provided to Partner all Version 1.1 documentation set forth in Exhibit B. For the purposes of clarity, the parties shall write and initial here to acknowledge the Version 1.1 Launch Date once it has occurred:   [***] indicates redacted text   3       -------------------------------------------------------------------------------- Version 1.1 Launch Date: 9/1/2005 LookSmart Initials: __________ Partner Initials: _____________ On or immediately after the Version 1.1 Launch Date, LookSmart shall notify Partner via email that the Version 1.1 Launch Date has occurred. Partner shall, within two business days of receipt of such notice, indicate its agreement and the parties shall complete and initial the Version 1.1 Launch Date definition above. If Partner disagrees in good faith that the Version 1.1 Launch Date has occurred, Partner shall notify LookSmart via email, including reasonable detail as to what aspects or features of the AdCenter are not substantially completed. If LookSmart does not resolve the discrepancy to Partner’s satisfaction within ten days of receipt of such email, Partner shall have the right to terminate this Agreement.     g) Audit. Each party will maintain accurate records with respect to the calculation of all payments made or due made under this Agreement. The other party (the “Examining Party”) may, upon no less than 15 days prior written notice to the first party (the “Audited Party”) and no more than once in any twelve month period, cause an independent auditor of nationally recognized standing to inspect the appropriate records of the audited party reasonably related to the calculation of such payments during the Audited Party’s normal business hours. Such examination will be undertaken in a manner reasonably calculated not to interfere with the Audited Party’s normal business operations. The fees charged by such auditor in connection with the inspection will be paid by the Examining Party, unless the auditor discovers an underpayment of greater than [***]%, in which case the Audited Party will pay the reasonable fees of the auditor.   4) PARTNER OBLIGATIONS.     a) Customer Support. Partner (not LookSmart) shall enter into contractual relationships with all customers who purchase advertising through the AdCenter on the Partner Network. Such contractual relationship shall be governed by written terms and conditions which shall be consistent in all respects with the AdCenter’s features and functions. For the avoidance of doubt, Partner’s contracts with its customers shall include language ensuring the parties maximum flexibility to manage the AdCenter so that LookSmart may change, add or delete the features, functionality and appearance of the AdCenter at any time without notice. Partner shall be responsible for invoicing customers who choose to receive paper invoices and for all other billing and collection matters (except to the extent Billable Clicks data is produced by the AdCenter). Partner shall be responsible for all customer service issues with respect to customers who purchase advertising on the Partner Network, including all email and telephone service, and shall not refer customers to LookSmart at any time.     b) Tracking Codes. Partner shall ensure that all advertisements added by customers through the AdCenter include tracking codes as required to enable the AdCenter to track clicks. LookSmart shall provide specifications to Partner for such tracking codes, and Partner shall be responsible for ensuring that the tracking codes are properly used.     c) Promotion. LookSmart shall not be responsible for promoting the private label AdCenter or for generating customer interest in using the private label AdCenter. Any customer support, marketing, advertising, and sales conducted by Partner shall be conducted in a manner consistent with the functions and features of the AdCenter, and Partner shall not misrepresent or mislead customers or the public as to any of the functions or features of the AdCenter.   [***] indicates redacted text   4       --------------------------------------------------------------------------------   d) Trademarks. Partner grants to LookSmart, subject to the terms, limitations and conditions herein, a non-exclusive, non-transferable, non-sublicensable license during the term hereof to use and reproduce the Licensed Marks solely in connection with the hosting and serving of the private-label AdCenter as set forth herein. Partner grants no rights in the Licensed Marks other than those expressly granted in this section. LookSmart agrees not to take any action inconsistent with such ownership and to cooperate, at Partner’s request and expense, in any action (including the conduct of legal proceedings) which Partner deems necessary or desirable to establish or preserve its exclusive rights in and to the Licensed Marks.   5) LOOKSMART OBLIGATIONS.     a) Service Levels. Beginning on the Version 1.0 Launch Date (except for the reporting features of the AdCenter, which shall begin on the Version 1.1 Launch Date), LookSmart will use commercially reasonable efforts to provide the service levels and technical support as specified in the SLA attached hereto as Exhibit A. LookSmart shall have no customer service duties with respect to Partner’s customers.     b) Hosting/Integration. LookSmart shall provide the AdCenter on a private-label basis, branded with Partner’s “look and feel” so that Partner’s customers have a consistent branding experience on the Partner Network. LookSmart shall host and serve the AdCenter pages and integration shall proceed as outlined on Exhibit B. The parties shall agree as soon as practicable hereafter on a statement of work, to be executed by the parties, which shall set forth the specifications and details of the work required by Exhibit B (the “Statement of Work”).     c) Changes to AdCenter. Except as otherwise expressly provided herein, the AdCenter licensed to Partner hereunder shall be functionally the same as the AdCenter generally made available to LookSmart’s customers during the Term.     i) Upon Request. Partner may, at any time during the Term, request that LookSmart develop additional features or functions of the AdCenter. If the parties agree that such additional features or functions shall be developed, they will jointly develop a project plan (including appropriate specifications, timelines, and allocation of resources) and negotiate market-based pricing and payment terms. No such additional development work shall be required to be performed by LookSmart, and no payments shall be required from Partner, until the parties have developed a project plan, agreed on financial terms, and signed an addendum to this Agreement.     ii) By LookSmart. Other than as expressly set forth herein, LookSmart shall retain full ownership and discretion over all elements of the AdCenter and may make modifications, additions or deletions at any time in its discretion, provided that LookSmart does not reduce or remove any material features or functionality from the AdCenter which are required by Exhibit B. In the event that LookSmart makes significant modifications, additions or deletions to the AdCenter, LookSmart will provide Partner with advance notice of such changes, and will not implement such changes on the Partner Network without at least 10 days’ advance notice. Notwithstanding the above, LookSmart will not make any modifications to the AdCenter that would reduce or remove any material features or functionality from the AdCenter which are required by Exhibit B.     d) Data on Partner Network Customers. Upon request, LookSmart will provide data generated by the AdCenter regarding the customers who used the AdCenter to purchase advertisements on the Partner Network, in a format to be mutually agreed by the parties. Such data shall be owned --------------------------------------------------------------------------------   by Ask Jeeves and may be accessed by LookSmart solely for the purpose of carrying out its obligations pursuant to this Agreement. Without limiting the foregoing, LookSmart agrees not to use such Partner Network customer data for any prospecting purposes, or for any other purposes aside from those expressly contemplated by this Agreement; provided that nothing herein shall prevent LookSmart from engaging in sales, marketing and advertising activities based on customer lead information from any other sources. For the avoidance of doubt, nothing herein shall prevent (i) the parties, from time to time, from conducting customer acquisition activities toward advertisers who are customers of the other party, so long as such activities do not violate this section, or (ii) LookSmart from granting a limited license to third party vendors to assist with back-end features of the AdCenter, provided that LookSmart enters into contractual arrangements with such third parties that are at least as protective of Partner’s rights to such customer data as the protections contained herein.     e) Data on Partner Network Users. Upon request, LookSmart will provide data generated by the AdCenter regarding the Partner Network users who have clicked on AdCenter-supported advertisements, in a format to be mutually agreed by the parties. Such data shall be owned by Ask Jeeves and may be accessed by LookSmart solely for the purpose of carrying out its obligations pursuant to this Agreement. Without limiting the foregoing, LookSmart agrees not to disclose such Partner Network user data to third parties or to use such Partner Network user data for any purposes aside from those expressly contemplated by this Agreement, provided that LookSmart may grant a limited license to third party vendors to assist with back-end features of the AdCenter, so long as LookSmart enters into contractual arrangements with such third parties that are at least as protective of Partner’s rights to such customer data as the protections contained herein.     f) MFN. If LookSmart enters into any agreement with a third party that is similar to this agreement, and such agreement provides for a source code escrow, then LookSmart will offer a substantially similar source code escrow provision to Partner.     g) Training. LookSmart will provide Partner personnel designated by Partner with up to 40 hours of training on the operation of the AdCenter. Such training will be provided on-site at Partner’s designated location, on dates reasonably agreed upon by LookSmart and Partner, and at no additional charge. LookSmart will bear all of its expenses for such training. Any additional training shall be on such terms, and at such times and locations, as agreed by the parties based on then-prevailing market rates.     h) Internal Controls. LookSmart shall, throughout the term of this Agreement, (a) document all key internal controls governing all significant systems that are used to provide the services provided by LookSmart under this Agreement, and (b) test such controls in accordance with the requirements for public companies set forth in Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, adopted by the Public Company Accounting Oversight Board. Such documentation and testing will be performed as part of LookSmart’s annual Sarbanes-Oxley Section 404 compliance process and will be reported in its periodic filings with the SEC. LookSmart will (i) make available to Partner’s internal compliance personnel and/or to Partner’s consulting firm (e.g. Protiviti) (for purposes of interview) compliance personnel and consultants (if any are used by LookSmart) reasonably required by Partner to comply with Partner’s obligations under all applicable laws, including without limitation, and all documentation prepared by LookSmart under (a) and (b) above (which shall be made available for review and note-taking from time to time, as required by Partner to comply with all applicable laws, at reasonable times at LookSmart’s business offices, and which shall not be copied or removed from LookSmart’s premises, --------------------------------------------------------------------------------   except that Partner or its consultants may remove all notes that they may make with respect to such materials and interviews), (ii) use its best efforts to implement a plan to correct material weaknesses in such controls as soon as practicable, and at no charge to Partner, correct such material weakness as soon as reasonably practicable, (iii) promptly provide Partner with a report of any such material weaknesses determined to exist by LookSmart or its auditors, and (iv) provide Partner with a quarterly report of any significant deficiencies in key internal controls governing significant systems that are used to provide the services provided by LookSmart under this Agreement discovered by LookSmart or its auditors. If at any time LookSmart obtains a SAS-70 Type I or II compliance certification for any systems that are used to provide the services under this Agreement, or engages a third-party auditor to perform any review intended to result in such a certification, LookSmart shall promptly provide Partner with a copy of such certificate and a copy of any such report prepared by such auditor. LookSmart shall be required to comply with this paragraph (1) whether or not it has publicly traded securities or is subject to the requirements of the Sarbanes-Oxley Act of 2002, and (2) only if the Gross Revenues collected by Partner using the AdCenter are or are reasonably likely to be a material portion of revenues reported on Partner’s (or its parent company’s, if Partner is acquired) consolidated financial statements.   6) PUBLICITY. Other than as expressly set forth herein, neither party will make any public statement, press release or other announcement relating to the terms or existence of this Agreement without the prior written approval of the other party, provided that either party may make such disclosures as may be, in its reasonable opinion of counsel, advisable in order to comply with a subpoena or other legal process or with applicable laws, regulations or securities exchange rules. Within four months of the Version 1.0 Launch Date, as mutually agreed by the parties, the parties will issue a joint press release announcing in general terms the business relationship formed hereby, with the final text to be subject to both parties’ approval, which shall not be unreasonably withheld, delayed or conditioned. The parties agree that the subject matter of such press release shall be limited to the license relationship which is the subject matter of this Agreement, and shall not include any matters relating to any syndication network agreement between the parties. LookSmart may mention the relationship created hereby to prospective third party licensing customers after such third parties have executed confidentiality agreements that apply to such disclosures. After the issuance of the press release referred to above, or such earlier time as may be agreed to by Partner, LookSmart may also use Partner’s name for certain marketing purposes, limited to mentioning Partner as a customer in connection with the promotion and sales of the AdCenter licenses to third parties.   7) INTELLECTUAL PROPERTY OWNERSHIP.     a) Proprietary Rights of LookSmart. LookSmart will exclusively retain all right, title and interest in and to the AdCenter, the Licensed Rights, and all associated intellectual property and proprietary rights worldwide (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, algorithms, taxonomies, trade secrets and other intellectual property rights therein, including any that are created during the Term hereof), and this Agreement shall create no ownership interest or proprietary rights in any of the foregoing (other than the License Rights expressly created herein).     b) Proprietary Rights of Partner. Partner will retain all right, title, and interest in and to the Partner Network (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, customer lists and information, algorithms, taxonomies, trade secrets and other intellectual property rights therein), except for any Licensed Rights that are integrated into the Partner Network during the Term hereof. For the avoidance of doubt, (a) --------------------------------------------------------------------------------   Partner shall own all individually-identifiable customer information about customers who purchased advertising on the Partner Network through the AdCenter at any time during the Term hereof; provided that LookSmart shall be entitled to use, for its own purposes, aggregated customer information (i.e., information that contains no individually-identifiable customer information) about customers who purchased advertising on the Partner Network through the AdCenter at any time during the Term hereof; and (b) Partner shall own all data relating to users of the Partner Network, including without limitation, all data relating to such users interaction with any AdCenter-supported advertising.   8) TERM AND TERMINATION.     a) Term. The term of this Agreement (the “Term”) will begin on the Effective Date and will end [***] after the Version 1.0 Launch Date, unless earlier terminated in accordance with sections 3(e), 3(f), 8(b) or 8(c). Thereafter the parties may, at their option, extend the Term of the Agreement by mutual written consent.     b) Termination for Breach. Either party may terminate this Agreement (i) if the other party materially breaches its obligations hereunder and such breach remains uncured for thirty (30) days following delivery of written notice to the breaching party of the breach, or (ii) immediately upon written notice if the other party is subject to voluntary or involuntary bankruptcy proceedings, insolvency, liquidation or otherwise substantially discontinues its business operations.     c) Termination for Failure to Meet Monthly Minimum. Either party may terminate this Agreement on not less than ninety (90) days prior written notice if the Monthly Minimum is not achieved for any calendar month that begins more than six months after the Version 1.0 Launch Date. The “Monthly Minimum” for any given calendar month means that the revenue share payment to LookSmart pursuant to Section 3(a) exceeds $[***] (less any penalty paid or payable by LookSmart pursuant to Exhibit A as a result of a failure to meet SLA service levels). Partner shall have the option, at its discretion, to pay the difference between the revenue share payment to LookSmart pursuant to Section 3(a) and $[***] in any given month, and such aggregate payment shall be deemed to meet the Monthly Minimum for such calendar month for purposes of this paragraph, such that no termination right would come into effect as a result of a revenue share shortfall in such month. LookSmart shall have no termination right pursuant to this section if the cause of the shortfall in the applicable Monthly Minimum is due to a failure to meet SLA service levels.     d) Effect of Termination. Termination of this Agreement by either party will not act as a waiver of any breach of this Agreement and will not act as a release of either party hereto from any accrued liability (including payments as set forth in the following section) or liability for breach of such party’s obligations under this Agreement. Within thirty (30) days following the expiration or termination of this Agreement, each party will pay to the other party all sums, if any, due and owing as of the date of expiration or termination, net of any amounts due from the other party as of such date. Upon the expiration or termination of this Agreement for whatever reason, (i) Partner shall immediately remove all links to the AdCenter from the Partner Network, and cease to use the Licensed Rights, and (ii) each party shall immediately cease to use the other party’s trademarks, proprietary information, Licensed Rights, intellectual property (including derivative works or modifications thereof) and Confidential Information in any manner whatsoever, and shall destroy or return (at the option of the other party), any such property, or materials representing the same to the other party (except that, where required under applicable tax or accounting requirements, each party may keep one archival copy of transactional data for a period   [***] indicates redacted text   8       --------------------------------------------------------------------------------   of time not to exceed the applicable tax statute of limitations), and provide the other party with an officer’s certificate attesting to such return/destruction. For the avoidance of doubt, upon termination or expiration of this Agreement, the license granted hereunder shall terminate and Partner and its agents shall immediately cease all use of the Licensed Rights.     e) Termination Assistance. Upon any expiration or earlier termination of this Agreement, LookSmart shall provide any or all of the following reasonable termination assistance services requested by Partner, for a period of three months, on a time and materials basis at market-based time and materials rates: (a) return, reproduction, shipment or transmission of any Partner Network customer data or user data, on media and in data formats reasonably requested by Partner, (b) documentation of all associated metadata, (c) reasonable assistance in transitioning the services formerly provided by the AdCenter to any other software, system or service, and/or any other reasonable termination or transition services requested by Partner. The termination assistance services required to be provided by LookSmart shall be provided at such times and locations as mutually agreed by the parties.     f) Survival. The provisions of sections 1 and 6-12 (inclusive), and any relevant payment provisions of Section 3, will survive any termination or expiration of this Agreement for a period of three years.   9) CONFIDENTIALITY.     a) “Confidential Information” means information about the disclosing party’s (or its suppliers’) business, products, technologies, strategies, customers, syndication or distribution partners, financial information, operations or activities that is proprietary and confidential, including without limitation all business, financial, technical and other information disclosed by the disclosing party. Confidential Information will not include information that the receiving party can establish (i) is in or enters the public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, (iii) the receiving party knew prior to receiving such information from the disclosing party, or (iv) is independently developed by the receiving party without reference to the Confidential Information of the disclosing party.     b) Use of Confidential Information. Each party agrees (i) that it will not use or disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this Agreement or as required by a court of law or otherwise compelled to be disclosed pursuant to the legal process or existing laws or regulations, and (ii) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance.   10) WARRANTY AND INDEMNITY.     a) LookSmart Warranty. LookSmart warrants that it owns, or has obtained the right to distribute and make available as specified in this Agreement, the Licensed Rights provided to Partner in connection with this Agreement. Except as specifically provided in section 5(a), LookSmart does not guarantee or make any representations or warranties whatsoever with respect to the performance of the AdCenter or the completeness or accuracy of any information accessed through the AdCenter. LookSmart does not warrant, represent or guarantee that the use of the AdCenter or links thereto, or any other services provided hereunder will be uninterrupted, undisrupted or error-free. --------------------------------------------------------------------------------   b) Indemnification. Subject to the terms, conditions and limitations herein,     i) LookSmart will indemnify, defend and hold harmless Partner, its officers, directors and employees from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from (1) LookSmart’s breach of any warranty, representation or covenant in this Agreement, or (2) any claim that the Licensed Rights infringe or violate the rights of a third party (to the extent that such claim is not based on a modification of the Licensed Rights without LookSmart’s authorization), and     ii) Partner will indemnify, defend and hold harmless LookSmart, its officers, directors and employees from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from Partner’s breach of any warranty, representation or covenant in this Agreement. Each party’s obligation to indemnify is conditioned upon the other party providing prompt notification of any and all such claims, unless the failure to notify does not materially and adversely affect the defense. The indemnified party will reasonably cooperate with the indemnifying party in the defense and/or settlement thereof; provided that if any settlement requires an affirmative obligation of, results in any ongoing liability to or prejudices or detrimentally impacts the indemnified party in a material manner, then such settlement shall require the indemnified party’s written consent (not to be unreasonably withheld or delayed) and the indemnified party may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim at the indemnified party’s sole cost and expense.     c) Disclaimer. EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.     d) Mutual Warranties. Each party represents and warrants to the other party that: (i) such party has the full corporate right, power and authority to enter into this Agreement and to perform the acts required of it hereunder; (ii) the execution of this Agreement by such party, and the performance by such party of its obligations and duties hereunder, do not and will not violate any agreement to which such party is a party or by which it is otherwise bound; (iii) when executed and delivered by such party, this Agreement will constitute the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms; and (iv) such party acknowledges that the other party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in this Agreement.   11) LIMITATION OF LIABILITY.     a) Exclusion of Damages. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS OR REVENUE), WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.     b) Total Liability. OTHER THAN AS PROVIDED BELOW, IN NO EVENT WILL EITHER PARTY’S TOTAL LIABILITY HEREUNDER EXCEED THE LESSER OF (I) AN AGGREGATE OF THE SUM OF $1,500,000 AND 25% OF ALL GROSS REVENUES RECEIVED BY LOOKSMART HEREUNDER IN EXCESS OF $3,000,000 AND (II) $3,000,000 IN CONNECTION WITH ANY BREACH (OR ALLEGED BREACH) OF ANY REPRESENTATION, WARRANTY, OR COVENANT HEREIN, OR IN CONNECTION WITH THE INDEMNIFICATION PROVISIONS HEREIN. THIS LIMITATION SHALL NOT APPLY TO A FAILURE BY PARTNER TO PAY AMOUNTS DUE AND PAYABLE HEREUNDER, WHICH SHALL NOT BE LIMITED BY THIS SECTION. -------------------------------------------------------------------------------- 12) GENERAL.     a) Assignment/Change of Control. Neither party may assign this Agreement, in whole or in part, without the other party’s written consent (which will not be unreasonably withheld), except to any purchaser of all or substantially all of the stock or assets of the party.     b) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California, notwithstanding the actual state or country of residence or incorporation of the parties. The parties consent to the exclusive jurisdiction of the state or federal courts in the Northern District of California for all actions arising out of or related to this Agreement.     c) Notices. Any notice or other communication to be given hereunder will be in writing and will be (as elected by the party giving such notice): (i) personally delivered; (ii) transmitted by postage prepaid registered or certified mail, return receipt requested; (iii) deposited prepaid with a nationally recognized overnight courier service; or (iv) sent by facsimile. Unless otherwise provided herein, all notices will be deemed to have been duly given on: (a) the date of receipt (or if delivery is refused, the date of such refusal) if delivered personally or by courier; (b) three (3) Business Days after the date of posting if transmitted by mail; or (c) if transmitted by facsimile, the date a confirmation of transmission is received. Either party may change its address for purposes hereof on not less than three (3) Business Days prior notice to the other party. Notices hereunder will be directed to, unless otherwise instructed by the receiving party: If to Partner: Ask Jeeves, Inc. 555 12th Street, Suite 500 Oakland, CA 94607 Attn: VP, Product Management, AJ interactive Fax: 510-985-7410 If to LookSmart: 625 Second Street San Francisco, California 94107 Attn: Senior VP, Business Development Fax: 415-348-7030 with a copy to: 625 Second Street San Francisco, California 94107 Attn: Legal Department Fax: 415-348-7034 --------------------------------------------------------------------------------   d) No Agency. The parties are independent contractors and will have no power or authority to assume or create any obligation or responsibility on behalf of each other. This Agreement will not be construed to create or imply any partnership, agency or joint venture.     e) Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God, power outages and governmental restrictions.     f) Severability. In the event that any of the provisions of this Agreement are held by to be unenforceable by a court or arbitrator, the remaining portions of the Agreement will remain in full force and effect.     g) Entire Agreement. This Agreement is the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding and terminating any prior agreements and communications (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties.     h) Independent Contractors. The parties are independent contractors and not co-venturers. Neither party shall be deemed to be an employee, agent, or legal representative of the other party hereto for any purpose and neither party hereto shall have any right, power or authority to create any obligation or responsibility on behalf of the other party hereto nor shall this be deemed an exclusive or fiduciary relationship.     i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original or faxed copy and all of which together shall constitute one instrument.     j) Export. Both parties will adhere to all applicable laws, regulations and rules relating to the export of technical data and will not export or re-export any technical data, any products received from the other party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized.   LookSmart, Ltd.     Partner By:   /s/ David B. Hills     By:   /s/ Loni Knepper Name:   David B. Hills     Name:   Loni Knepper Title:   CEO     Title:   VP of Finance -------------------------------------------------------------------------------- EXHIBIT A Service Level Agreement   1.0 OVERVIEW LookSmart’s philosophy for offering a Service Level Agreement (“SLA”) is to enhance Partner’s confidence in the delivery of its service by defining specific performance metrics that can have a significant impact on Partner’s business and offering penalties for failure to deliver in areas that have the greatest impact on the Partner’s business. The penalty payments are not intended to financially compensate Partner for the impact on its business, but rather to penalize LookSmart sufficiently to ensure that it will do everything reasonable to deliver acceptable service levels. By formally defining these metrics we are able to properly set the Partner’s expectations as well as provide internal targets for our staff. Many times Partner dissatisfaction can be traced to expectations that are not in-sync with the internal targets set by a supplier. There are a variety of metrics that could be included in an SLA, but many may not be appropriate because they are either unimportant to the Partner, or not within the control of LookSmart. The following criteria are used to determine the applicability of all metrics.     •   Obligation to Deliver - The performance metric must be a documented obligation that LookSmart has as part of its agreement with Partner.     •   Impact to Partner’s business - Performance metrics must be related to a contractual obligation that has a direct impact on the performance of Partner’s business.     •   Ability to Measure Performance - The performance metrics must be defined unambiguously and must be measurable objectively.   2.0 LIMITATIONS     2.1 Circumstances beyond LookSmart’s control LookSmart will not be held responsible and will not pay penalties for any lapse in performance due to:     •   Natural disasters     •   Problems caused by Internet infrastructure other than our own or that of our ISP     •   Labor actions     •   Problems caused by viruses or hacker attacks     •   Problems caused solely by Partner or third-parties acting with Partner’s operation     •   Operation with untested hardware, software or data (at Partner’s request)     2.2 Maximum Penalty; Termination For any given Measurement Period, penalty payments will not exceed the average monthly service fee paid by Partner pursuant to Section 3(a) for the ADCENTER service during the three months immediately preceding the Measurement Period. The penalties set forth in this Exhibit A shall be the sole and exclusive monetary remedy available to Partner in event of a failure to meet the service levels set forth in this SLA (the only other remedy available to Partner in event of a failure to meet the service levels set forth in this SLA shall be termination of this Agreement upon 90 days’ prior written notice).     2.3 Payment History Partner must have a history of on-time payment of LookSmart invoices for each of the six (6) months (or, if fewer, the number of months that have elapsed since launch of the AdCenter for the Partner) previous to the end of the Measurement Period in order to be eligible to receive penalty credits.     2.4 Service Level Reports Within 30 days of the end of each calendar quarter during the term of the Agreement, LookSmart shall provide Partner with a report outlining LookSmart’s service performance for such quarter against all required service levels in Sections 4.1 and 4.2 and describing any significant failures to meet the service levels in Sections 4.3 and 4.6. Such report shall be included in the invoice delivered pursuant to Section 3(d) of the Agreement.   13 --------------------------------------------------------------------------------   2.5 Redundant Penalties In the event a problem occurs that results in LookSmart’s failure to meet more than one service-level metric, LookSmart will issue credits for the metric with the highest penalty only.     2.6 Sunset LookSmart shall not be liable for any penalties under this SLA if such penalties are not assessed within 180 days after the end of the corresponding quarterly Measurement Period.   3.0 DEFINITIONS ACTUAL AVAILABILITY - the percentage of Maximum_Available_Time that ADCENTER is operating normally during a Measurement Period. It is calculated as follows: (1 – (Total_Downtime / Maximum_Available_Time)) * 100). MAXIMUM AVAILABLE TIME - the total amount of time, in hours, in a Measurement Period. This does not consider leap years and assumes that all Measurement Periods are equal. It is calculated as follows: ((((Days_Per_Year) * Hours_Per_Day) / (12 / Months_in_Measurement_Period)) – Scheduled_Downtime) PRIORITY        Priority-1    Priority-2    Priority-3 Ad Delivery    Overall delivery has stopped, or is Significantly degraded (average delivery latency > 2 secs, as measured over any 10-minute period)    Moderately degraded (average delivery latency > 1 sec, as measured over any 30-minute period)    Reporting    Daily reports are greater than 24 hours later    Daily Reports are between 3 and 24 hours late    Daily Reports are less than 3 hours late User Interface    User interface is not available, or median response time to obtain a menu is greater than 10 sec (excluding large uploads/downloads), as measured over any 10-minute period    User interface response median time is between 5 and 10 secs (excluding large uploads/downloads), as measured over any 30-minute period    System Stability    System is unstable, crashing or creating significant disruption with a frequency of 30 days or less    System is unstable, crashing or creating significant disruption with a frequency of greater than 30 days    Other          Generic questions regarding setup or use of system RESPONSE TIME – The time that elapses between the time Partner initiates a request for support and the time that a qualified engineer is made available to Partner. SCHEDULED DOWNTIME – any time where the ADCENTER services are not available and Partner was given 48 hours notice of the disruption. Scheduled_Downtime will not exceed zero (0) hours for Advertisement delivery. In the event that emergency maintenance is required we will provide affected customers with 4 hour notification. MEASUREMENT PERIOD – Performance will be assessed and penalties will be paid on a calendar quarter basis. DAILY REPORTS – Shall contain the information specified in the Statement of Work. -------------------------------------------------------------------------------- Areas of Measurement     4.1 Availability of Advertisement Delivery     4.1.1 Impact on Partner’s business Since the delivery of Advertisements directly impacts the Partner’s ability to generate revenue, any period when Advertisements are not being delivered will have a significant negative impact to Partner’s business.     4.1.2 Targeted performance LookSmart’s targeted performance for Advertisement Delivery is an Actual Availability of 100%.     4.1.3 Measurement methodology LookSmart will monitor its systems, software and network infrastructure and keep a log of any disruptions that prevent Advertisements from being delivered. Using these logs, LookSmart will calculate Actual Availability as described above.     4.1.4 Penalties Should Advertisement Delivery Actual Availability drop below [***]% availability during the quarterly Measurement Period, LookSmart will issue a penalty credit of $[***] for every hour of unavailability below [***]% availability, calculated in 1-hour increments using standard rounding rules.     4.2 Availability of User Interface     4.2.1 Impact on Partner’s business Any time that the User Interface is unavailable, Partner will not be able to manage the delivery of advertisements and will not be able to access the Daily Reports. This could cause a delay in the delivery of campaigns or reports to Partner’s advertisers. This would cause a significant inconvenience to Partner’s personnel and have a moderate impact on Partner’s business.     4.2.2 Targeted performance LookSmart’s targeted performance for Actual Availability of the User Interface is [***]%.     4.2.3 Measurement methodology LookSmart will monitor its systems, software and network infrastructure and keep a log of any disruptions that prevent Partner from accessing the User Interface. Using these logs, LookSmart will calculate Actual Availability.     4.2.4 Penalties Should User Interface availability performance drop below [***]% availability during the quarterly Measurement Period, LookSmart will issue a penalty credit of $[***] for every hour of unavailability below [***]% availability, calculated in 1-hour increments.     4.3 Availability of Daily Reports     4.3.1 Impact on Partner’s business The Daily Reports produced by the ADCENTER service are used to determine the success of advertising.     4.3.2 Targeted performance LookSmart’s target for availability of the Daily Reports is to have the reports made available to Partner in a mutually agreed-upon format by 11:59 PM Pacific Time on the day following the day that is the subject of the reports.     4.3.3 Measurement methodology LookSmart will actively monitor report generation and record the time that reports are delivered each day.     4.4 Notification of Disruption in Delivery of Advertisements     4.4.1 Impact on Partner’s business   [***] indicates redacted text   15       -------------------------------------------------------------------------------- Since the delivery of Advertisements directly impacts Partner’s ability to generate revenue, any period when Advertisements are not being delivered will have a significant negative impact to Partner’s business. This also makes it imperative that the Partner is made aware of any disruption that interferes with delivery so that they can take any action, which may be appropriate.     4.4.2 Targeted performance LookSmart shall notify Partner of a service disruption within thirty (30) minutes of becoming aware of a disruption, LookSmart will send an e-mail broadcast notification to up to five (5) e-mail addresses designated by Partner. Since most pagers are addressable via e-mail, this method of notification is the timeliest possible when used in conjunction with a pager.     4.4.3 Measurement methodology LookSmart will use its delivery monitoring and e-mail logs to determine compliance.     4.5 Support Call Response Time     4.5.1 Impact on Partner’s business Depending upon the priority, a support call may have a significant impact on Partner’s business, and therefore a timely response is essential. A definition of problem Priorities can be found in Section 3.0 above. LookSmart shall notify Partner of its telephone and email contact information for this section as soon as practicable, but in any event before the Version 1.0 Launch Date.     4.5.2 Targeted performance LookSmart shall respond to requests for support by having a qualified engineer contact with Partner with a targeted response time:     •   Priority-1 – [***]     •   Priority-2 – [***]     •   Priority-3 – [***]     4.5.3 Measurement methodology LookSmart will use its trouble ticketing system to record all requests for support and all subsequent activity associated with the support call. Each activity will be date and time stamped by the system to accurately record the timing of events. Partner has the right to audit such trouble tickets with 30 days prior written notice by Partner.     4.6 Advertisement Delivery Latency     4.6.1 Impact on Partner’s business Any significant delay in the delivery of an advertisement lessens effectiveness of the ad and lessens the probability of capturing a click-through. This can obviously have a significant impact on the Partner’s business.     4.6.2 Targeted performance LookSmart’s Advertisement Delivery Latency shall be as follows:     •   Average Delivery Latency of less than [***]% of the time as measured quarterly     4.6.3 Measurement methodology LookSmart will monitor Advertisement Delivery Latency using automated instrumentation at various locations within its infrastructure to ensure that all components within its control are performing per specification. This effectively monitors the latency from when a request is received until an advertisement is delivered back to the Internet.     4.7 Queries per Month. AdCenter product architecture will support at least two billion queries per month for 2005 and three billion queries per month in 2006. Volume in excess of these limitations will be supported by LookSmart only if Partner provides 60 days’ prior written notice for each one billion additional queries per month over the foregoing monthly limitations.   [***] indicates redacted text   16       -------------------------------------------------------------------------------- Exhibit B High-Level Requirements for 1.0 and 1.1   Req ID    Requirement categories addressed by 1.0 and 1.1 (see Statement of Work for detailed requirements within each category) 1. General Requirements    10100    Private Labeled Solution 10200    Yield Ranking 10300    Yield Rank Preservation 10500    Credit Card Processing 10800    Targeting/Matching Options 12000    Flagging suspect listings 17000    Security Roles and User Level Access 2. Reporting Requirements    20100    General Reporting Requirements 20200    Downloadable File Formats 20300    Advertiser Reporting 20400    Syndication Partner Reporting 20599    Business Management Reporting 20511    Credit Card Activity 3. Advertiser Requirements    30601    Keyword Suggestion Tool 30701    Managing Keywords/Listings in Volume 30801    Online Support for ‘Self-Service’ tools. 30900    Creative Management 30100    Budgeting 31000    Targeting 4. Integration Requirements    40100    Systems Requirement -------------------------------------------------------------------------------- 40200    Account Creation 40301    Account Updates 40401    Atlas one point Integration 40501    Flight Dates 5. Operational Requirements    50100    Site Creation 50200    Pricing Floors 50300    Blocking/Filtering 50400    CPC discounting 50700    CTR Thresholding by Syndicate Partner 50800    Query String 50803    Categorization (Logging AJ’s adcat parameter) 50900    Product must enforce strict click fraud detection methods

Exhibit 10.4 Non-Employee Director Compensation Based on its annual review of director compensation, on June 9, 2006, Chesapeake Energy Corporation’s Board of Directors approved the annual compensation of its non-employee directors effective July 1, 2006 as follows: (1) $50,000 annual retainer to be paid in quarterly installments on the first business day of each calendar quarter; (2) $12,500 and $3,000 payable for each board meeting attended in person and telephonically, respectively, not to exceed $75,000 per year for board meetings attended; and (3) 12,500 restricted shares of Chesapeake’s common stock to be issued on the first business day in July of each year. One-quarter (1/4) of each restricted stock award will vest immediately upon award with the remaining three-quarters (3/4) of the award to vest ratably over the next three years following the date of the award.

AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made on ________________, 2006 by and between Tecstar Automotive Group, Inc. ("Tecstar" or the "Company") and Joseph E. Katona III ("Employee"). Capitalized terms not otherwise defined in the body of this Agreement shall have the meanings specified in Section 5 hereof. RECITALS WHEREAS, Employer desires to employ Employee in accordance with the terms and conditions of this Agreement and Employee desires to be so employed by Employer; WHEREAS, the terms and conditions of this Agreement have been approved by the Board of Directors and its Compensation Committee; and WHEREAS, by executing this Agreement, the parties desire to amend and restate that certain Employment Agreement by and between the Company and Employee dated March 3, 2005. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: . EMPLOYMENT. The Company hereby employs Employee as its Chief Financial Officer. Employee hereby accepts employment under this Agreement and agrees to devote his best effort and substantially full time, attention and energy to the Company's business. Employee's duties shall include all of the duties, including reasonable business-related travel, normally associated with the position named above, and shall include such other activities, responsibilities and duties that are consistent with such position as may be reasonably assigned from time to time by the CEO and COO of Quantum. The Company, through Quantum's CEO and COO, shall retain full direction and control of the manner, means and methods by which Employee performs the services for which he is employed hereunder. COMPENSATION. BASE SALARY. During the Term, Tecstar will pay Employee a base salary of One Hundred Eighty Thousand dollars ($180,000) per year. The Board of Directors and Compensation Committee shall review this base salary at least annually and approve any recommended increases. Said salary, including any increases, shall be paid to Employee in accordance with the Company's normal payroll policies as in effect from time to time. INCENTIVE COMPENSATION. During the Term, Employee shall be eligible for: (a) participation in any executive cash bonus plan adopted from time to time by Quantum and (b) awards under any long-term incentive compensation plans adopted from time to time by Quantum including, but not limited to, deferred compensation, stock options and restricted stock. BENEFITS. During the Term, Employee shall be entitled to the following benefits: Except as otherwise specified in this Agreement, the fringe benefits that from time to time the Company makes generally available to its executive officers. Term life insurance coverage, paid for by the Company, in the face amount of at least One Million dollars ($1,000,000). If Employee becomes eligible to receive payments under the Company's standard long-term disability ("LTD") insurance, supplemental LTD insurance coverage, such that the combination of monthly payments from the Company's standard LTD plan and from this supplemental LTD policy shall equal one twelfth (1/12) of sixty percent (60%) of Employee's annual base salary as in effect from time to time. Three (3) weeks of paid vacation each calendar year, pro rated on a daily basis for any period of the Term which is less than a full calendar year. The use of a Company owned or leased vehicle selected by Employee and approved by the Compensation Committee, or, at the option of Employee, a car allowance of Seven Hundred dollars ($700) per month, pro rated on a daily basis for any period of the Term which is less than a full month. If Employee becomes unable to work due to disability, sick leave that covers Employee at full base salary and continued participation in whatever other Company-sponsored pay and benefit arrangements that are in place for Employee immediately prior to such disability, until Employee is eligible for LTD benefits. Any unused sick leave shall not be accumulated or carried over, nor paid for upon termination of this Agreement. BUSINESS EXPENSE REIMBURSEMENT. During the Term, the Company shall reimburse Employee for reasonable and necessary out-of-pocket expenses incurred by Employee in performance of services for the Company under this Agreement (e.g. transportation, lodging and food expenses incurred while traveling on Company business), all subject to such policies and other requirements as the Company may from time to time establish for its employees generally. Employee shall maintain such records as will enable the Company to deduct such items as business expenses when computing its taxes. WITHHOLDING. Payment of compensation to Employee shall be subject to withholding of such amounts on account of payroll taxes, income taxes and other withholding as may be required by applicable law, rule or regulation of any governmental authority or as consented to by Employee. TERM AND TERMINATION PAYMENTS. TERM. The Term shall commence effective as of May 1, 2006 and shall continue until the earliest of: (a) the Company's termination of Employee's employment as set forth in Section 3.2 of this Agreement; (b) Employee's termination of employment as set forth in Section 3.3 of this Agreement; or (c) the Employee's Disability, Death or Retirement, as set forth in Section 3.4 of this Agreement. TERMINATION BY COMPANY. The Company may terminate Employee's employment with Cause effective immediately, or without Cause at any time by giving Employee written notice at least thirty (30) days prior to the effective date of termination; provided, that if such termination of employment is made by the Company without Cause, then Employee shall be entitled to the following severance benefits (the "Severance Benefits"): a lump sum cash payment equal to one (1) times the Employee's Base Salary in effect immediately prior to the date of termination. Said payment shall be paid to Employee within ten (10) days of Employee's execution of the Release (as hereinafter defined); continuation of the benefits provided pursuant to Section 2.3 (a) and (b) for a period of one (1) year following the date of termination (the "Severance Period") to the extent permitted by the applicable plans; provided, however, that said benefits shall cease immediately when Employee is next employed with reasonably comparable benefits; and further provided, however, that if Employee elects during the Severance Period to convert Employee's health coverage under COBRA, then Employee shall pay the Company the same premiums for health coverage that Employee paid prior to electing COBRA and the Company shall pay the balance of the COBRA premiums during the Severance Period; and All incentive compensation awards including, without limitation, stock options (qualified and non-qualified), restricted stock and other stock-based compensation, shall immediately and automatically become fully vested. In the event that Section 280G of the Internal Revenue Code, as amended from time to time, shall apply to Employee's Severance Benefits and Employee's Severance Benefits shall exceed the 2.99x limit set forth in said Section 280G (the "280G Limit"), then the Company shall provide Employee a Section 280G tax gross-up payment, subject to a maximum payment of one-sixth (1/6) of the aggregate amount of the 280G Limit. Employee's eligibility, both initially and ongoing, to receive the foregoing Severance Benefits shall be conditioned on Employee having first signed a release agreement, in the form attached as Exhibit A (the "Release"). Notwithstanding anything contained in this Agreement to the contrary, under no circumstances shall Employee have any duty or obligation to mitigate the amount of Severance Benefits due under this Agreement. TERMINATION BY EMPLOYEE. Employee may terminate employment with the Company with or without Good Reason effective at any time by giving the Company written notice at least thirty (30) days prior to the effective date of termination; provided, however, that if Employee seeks to terminate employment for Good Reason, then Employee shall give the Company: (a) written notice no more than fifteen (15) days from the date when Employee first became aware that Good Reason has taken place (or else Employee forfeits the right to terminate employment for Good Reason) and (b) the opportunity, for no less than thirty (30) days from the effective date of Employee's written notice to the Company, to cure the purported situation that gave rise to Good Reason. In the event of termination by Employee without Good Reason, Employee shall not be entitled to any compensation or benefits following the effective date of termination of employment, except as expressly provided under the terms of the Company's applicable plans and policies. In the event of termination by Employee for Good Reason and after the Company shall have failed to cure, then Employee shall be entitled to the Severance Benefits set forth in Section 3.2 above. TERMINATION BY DEATH, DISABILITY OR RETIREMENT. Employee's employment shall terminate automatically upon the earliest of Employee's death and, to the extent permitted by law, Disability and Retirement. In the event that Employee's employment is terminated by death, Disability or Retirement, then the Company shall pay all compensation and benefits to which Employee is entitled up to the date of such termination. Thereafter, all obligations of the Company shall cease. A termination by death, Disability or Retirement shall not constitute: (a) a termination by the Company without Cause for purposes of Section 3.2 above or (b) a termination by Employee for Good Reason for purposes of Section 3.3 above. Nothing in this section shall affect Employee's rights under any Company plan in which Employee is a participant. CONFIDENTIALITY. CONFIDENTIAL INFORMATION. Employee shall not at any time, during the period of employment with the Company or thereafter, except as required in the course of employment with the Company or as authorized in writing by the Board of Directors, directly or indirectly use, disclose, disseminate or reproduce any Confidential Information or use any Confidential Information to compete, directly or indirectly, with the Company. All notes, notebooks, memoranda, computer program and similar repositories of information containing or relating in any way to Confidential Information shall be the property of the Company. All such items made or compiled by Employee or made available to Employee during the Term, including all copies thereof, shall be delivered to the Company by Employee upon termination of the Term or at any other time, upon request of the Company. PROPRIETARY INFORMATION OF OTHERS. Employee shall not use in the course of employment with the Company, or disclose or otherwise make available to the Company, any information, documents or other items which Employee may have received from any prior employer or other person and which Employee is prohibited from so using, disclosing or making available by reason of any contract, court order, law or other obligation by which Employee is bound. EQUITABLE RELIEF. Employee acknowledges that: the provisions of this Section 4 of the Agreement are essential to the Company; the Company would not enter into this Agreement if it did not include such provisions; the damages sustained by the Company as a result of any breach of such provisions cannot be adequately remedied by damages; and, in addition to any other right or remedy that the Company may have under this Agreement by law or otherwise, the Company will be entitled to injunctive and other equitable relief to prevent or curtail any breach of any such provisions. DEFINITIONS. Whenever used in this Agreement with initial letters capitalized, the following terms shall have the following meanings: "BOARD" or "BOARD OF DIRECTORS" means Quantum Fuel Systems Technologies Worldwide, Inc.'s Board of Directors. "CAUSE" means (i) Employee's conviction of a felony crime involving dishonesty, breach of trust, or physical harm to any person; ; (ii) Employee willfully engaging in fraud or embezzlement; (iii) Employee's commission of a material breach of this Agreement, which breach is not cured within ninety(90) days after written notice to Employee from the Company. "CEO" means the Chief Executive Officer of Quantum. "CHANGE OF CONTROL" means a change in ownership or control of the Company or Quantum effected through a merger, consolidation or acquisition by any person or related group of persons (other than an acquisition by the Company or by a Company-sponsored employee benefit plan or by a person or persons that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the outstanding securities of the Company or Quantum . "COMPENSATION COMMITTEE" means the Compensation Committee of the Board of Directors. "CONFIDENTIAL INFORMATION" means information not generally known relating to the business of the Company or any third party that is contributed to, developed by, disclosed to, or known to Employee in the course of employment by the Company, including but not limited to customer lists, specifications, data, research, test procedures and results, know-how, services used, computer programs, information regarding past, present and prospective plans and methods of purchasing, accounting, engineering, business, marketing, merchandising, selling and servicing used by the Company. "COO" means the Chief Operating Officer of Quantum. "DISABILITY" means that Employee becomes eligible for the Company's long-term disability benefits or, in the sole discretion of the Company, Employee is unable to carry out Employee's executive responsibilities by reason of any physical or mental impairment for more than ninety (90) consecutive days or more than one hundred and twenty (120) days in any twelve-month period. "FISCAL YEAR" means the Company's fiscal year for financial accounting purposes as in effect from time to time, which is currently a fiscal year ending on April 30. "GOOD REASON" means the occurrence of any of the following events or conditions, unless consented to by Employee or cured by the Company: (a) a change in Employee's status, title, position or responsibilities which represents a material adverse change from Employee's status, title, position or responsibilities as in effect at any time during the Term; provided, however, that if after a Change in Control, Employee retains substantially the same status, title, position and responsibilities that Employee had prior to the Change in Control but Employee is serving as the Chief Financial Officer of the Company or a subsidiary or division of the Company, then Good Reason shall not have occurred; or (b) a reduction in Employee's base salary to a level below that in effect at any time during the Term. "QUANTUM" means Quantum Fuel Systems Technologies Worldwide, Inc. "RETIREMENT" means Employee's retirement in accordance with the plans and policies of the Company as in effect from time to time and applicable to Employee. "TERM" means the period during which Agreement is in effect as provided in Section 3.1. MISCELLANEOUS. COMPLIANCE WITH LAWS. In the performance of this Agreement, each party shall comply with all applicable laws, regulations, rules, orders and other requirements of governmental authorities having jurisdiction. NONWAIVER. The failure of any party to insist upon or enforce strict performance by any other of any provision of this Agreement or to exercise any right, remedy or provision of this Agreement shall not be interpreted or construed as a waiver or relinquishment to any extent of such party's right to consent or rely upon the same in that or any other instance; rather, the same shall be and remain in full force and effect. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement, and supersedes any and all prior agreements between the Company and Employee. No amendment, modification or waiver of any of the provisions of this Agreement shall be valid unless set forth in a written instrument signed by the party to be bound thereby. APPLICABLE LAW AND VENUE. This Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the State of Michigan, and venue for any action arising out of this Agreement shall be in the federal or state courts in Oakland County, Michigan. SURVIVAL. Section 4, together with all other provisions of this Agreement which may reasonably be interpreted or construed to survive any termination of the Term, shall survive termination of the Term. ATTORNEYS' FEES. In the event any suit or proceeding is instituted by any party against another arising out of this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and expenses of litigation; provided, however, that in the event of the settlement of any suit or proceeding, the parties shall bear their own attorneys' fees and expenses of litigation. SEVERABILITY. If any term, provision, covenant or condition of this Agreement shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, then the remainder of this Agreement shall remain in full force and effect. HEADINGS. The headings and captions of this Agreement are provided for convenience only, and are not intended to have any effect upon the interpretation or construction of the Agreement. NOTICES. Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient if in writing, and personally delivered to Employee or by registered or certified mail to Employee's residence (as noted in the Company's records), or if personally delivered to the Company's Corporate Secretary at the Company's principal office. EMPLOYEE: TECSTAR AUTOMOTIVE GROUP, INC.   Joseph E. Katona III By: Its:   EXHIBIT A FORM OF RELEASE CERTIFICATE ("You") and Tecstar Automotive Group, Inc. (the "Company") have agreed to enter into this Release Certificate on the following terms: Within ten (10) days after you sign this Release Certificate (which you may sign no sooner than the last day of your employment with the Company), you will become eligible to receive the Severance Benefits in accordance with the terms of your Employment Agreement with the Company. In return for the consideration described in the Employment Agreement, you and your representatives completely release the Company, its affiliated, related, parent or subsidiary corporations, and its and their present and former directors, officers and employees (the "Released Parties") from all claims of any kind, known and unknown, which you may now have or have ever had against any of them, or arising out of your relationship with any of them, including all claims arising from your employment or the termination of your employment, with the exception of Severance Payments as outlined in Section 3.2, whether based on contract, tort, statute, local ordinance, regulation or any comparable law in any jurisdiction ("Released Claims"). By way of example and not in limitation, the Released Claims shall include any claims arising under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Worker Adjustment and Retraining Notification Act, the Age Discrimination in Employment Act, and the California Fair Employment and Housing Act, and any other comparable state or local law, as well as any claims asserting wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, negligent or intentional misrepresentation, defamation and any claims for attorneys' fees. You also agree not to initiate or cause to be initiated against any of the Released Parties any lawsuit, compliance review, administrative claim, investigation or proceedings of any kind which pertain in any manner to the Released Claims. You acknowledge that the release of claims under the Age Discrimination in Employment Act ("ADEA") is subject to special waiver protection. Therefore, you acknowledge the following: (a) you have had twenty-one (21) days to consider this Release Certificate (but may sign it at any time beforehand, if you so desire); (b) you can consult an attorney in doing so; (c) you can revoke this Release Certificate within seven (7) days of signing it, by sending a certified letter to that effect to the Company's Chief Executive Officer; and that (d) notwithstanding the foregoing, the portion of this Release Certificate that pertains to the release of claims under ADEA shall not become effective or enforceable and no funds shall be exchanged until the seven (7)-day revocation period has expired, but that all other provisions of this Release Certificate shall become effective upon its execution by the parties. The parties agree that this Release Certificate and the Employment Agreement contain all of our agreements and understandings with respect to their subject matter, and may not be contradicted by evidence of any prior or contemporaneous agreement, except to the extent that the provisions of any such agreement have been expressly referred to in this Release Certificate or the Employment Agreement as having continued effect. It is agreed that this Release Certificate shall be governed by the laws of the State of Michigan. If any provision of this Release Certificate or its application to any person, place or circumstance is held by a court of competent jurisdiction to be invalid, unenforceable or void, then the remainder of this Release Certificate and such provision as applied to other person, places and circumstances shall remain in full force and effect. Notwithstanding anything contained in this Release Certificate to the contrary, the Company acknowledges and agrees that Employee is not releasing the Company from any claims for indemnification that Employee may have against the Company arising from or related to Employee's status as an officer of the Company whether such rights to indemnification arise from the Company's Articles of Incorporation, Bylaws or by statute, contract or otherwise. Please note that this Release Certificate may not be signed before the last day of your employment with the Company, and that your eligibility for severance benefits is conditioned upon meeting the terms set forth in your Employment Agreement. Date: Employee   TECSTAR AUTOMOTIVE GROUP, INC.   By: Date: Name: Title:

-------------------------------------------------------------------------------- Exhibit 10.2 AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE WORKING CAPITAL $13,000,000.00 U.S. October 6, 2006 FOR VALUE RECEIVED, the undersigned, VeriChip Corporation, a Delaware corporation with a principal place of business at 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Borrower”), hereby promises to pay to the order of Applied Digital Solutions, Inc., a Missouri corporation located at 1690 South Congress Avenue, Suite 200, Delray Beach, Florida 33445 (the “Lender”), at such address, or such other place or places as the holder hereof may designate in writing from time to time hereafter, the maximum principal sum of Thirteen Million Dollars ($13,000,000.00), or, if less, so much thereof as may be advanced or readvanced by the Lender to the Borrower pursuant to the terms of the Loan Agreement (as hereinafter defined), together with interest as provided for hereinbelow, in lawful money of the United States of America.   Interest shall be calculated and charged daily on the basis of actual days elapsed over a three hundred sixty (360) day banking year, on the unpaid principal balance outstanding from time to time at a fixed rate equal to twelve percent (12%) per annum (the “Interest Rate”). The Interest Rate will apply to the outstanding amount under the Loan Agreement and this Note effective from and after the date hereof. For avoidance of doubt, the interest rate described in the Original Note (defined below) applied to the outstanding amounts under the Original Note prior to the date of this Note.   The Borrower shall make a balloon payment of principal, interest and any fees or expenses outstanding on December 27, 2010 (the “Maturity Date”) unless a change of ownership or management occurs, as defined in Section IX. C. of the Loan Agreement as defined below, or an initial public offering of the Borrower’s common stock is consummated, in which case the Borrower shall, within two business days of such event, repay in full all principal, interest and any fees or expenses outstanding hereunder.   The Note is issued under, and is subject to, the Commercial Loan Agreement of even date between the Borrower and the Lender, as it may be amended from time to time (the “Loan Agreement”). The holder of this Note is entitled to all of the benefits and rights of the Lender under the Loan Agreement. However, neither this reference to the Loan Agreement nor any provision thereof shall impair the absolute and unconditional obligation of the undersigned to pay the principal and interest on this Note as herein provided. Any capitalized term used in this Note that is not otherwise expressly defined herein shall have the meaning ascribed thereto in the Loan Agreement.   The holder may impose upon the undersigned a delinquency charge of $35.00 or five percent (5.00%) of the amount of the principal and/or interest payment not paid on or before the thirtieth (30th) day after such installment is due, whichever is greater. The entire principal   --------------------------------------------------------------------------------   balance hereof, together with accrued interest, shall after maturity, whether by demand, acceleration or otherwise, bear interest at the contract rate of this Note plus an additional three percent (3.00%) per annum. Upon default by Borrower under the terms of this Note or any other Loan Documents, interest shall accrue at a variable rate equal to the contract rate of this Note plus three percent (3.00%).   The undersigned agrees to pay on demand all reasonable out-of-pocket costs of collection hereof, including court costs, service fees, and reasonable attorney’s fees, whether or not any foreclosure or other action is instituted by the holder in its discretion.   The word “holder”, as used in this Note, shall mean the payee or endorsee of this Note who is in possession of it, or the bearer, if this Note is at that time payable to the bearer.   The indebtedness evidenced by this Note is secured by the Loan Documents as defined in the Loan Agreement. Any default by the undersigned under the Loan Documents shall constitute a default under this Note entitling the holder to declare the entire principal amount of the indebtedness evidenced hereby, together with all accrued interest thereon, immediately due and payable.   No delay or omission on the part of the holder in exercising any right, privilege or remedy shall impair such right, privilege or remedy or be construed as a waiver thereof or of any other right, privilege or remedy. No waiver of any right, privilege or remedy or any amendment to this Note shall be effective unless made in writing and signed by the holder. Under no circumstances shall an effective waiver of any right, privilege or remedy on any one occasion constitute or be construed as a bar to the exercise of or a waiver of such right, privilege or remedy on any future occasion. The acceptance by the holder hereof of any payment after any default hereunder shall not operate to extend the time of payment of any amount then remaining unpaid hereunder or constitute a waiver of any rights of the holder hereof under this Note.   All rights and remedies of the holder, whether granted herein or otherwise, shall be cumulative and may be exercised singularly or concurrently, and the holder shall have, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code of New Hampshire. The holder shall have no duty as to the collection or protection of the Collateral or of any income thereon, or as to the preservation of any rights pertaining thereto beyond the safe custody thereof. Surrender of this Note, upon payment or otherwise, shall not affect the right of the holder to retain the Collateral as security for the payment and performance of any other liability of the undersigned to the holder.   Every maker, endorser, or guarantor of this Note, or the obligations represented by this Note, waives all exemption rights, valuation and appraisement, presentment, protest and demand, demand for payment, notice of dishonor and protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of Collateral, and/or to the addition or release of any other party or person primarily or secondarily liable.   This Note may be prepaid in whole or in part without penalty.   2 -------------------------------------------------------------------------------- This Note and the provisions hereof shall be binding upon the undersigned and the undersigned’s heirs, administrators, executors, successors, legal representatives and assigns and shall inure to the benefit of the holder, the holder’s heirs, administrators, executors, successors, legal representatives and assigns.   This Note amends and restates that certain promissory note dated December 27, 2005, in the principal amount of $8,500,000.00 from the Borrower in favor if the Lender (“Original Note”). This Note may not be amended, changed or modified in any respect except by a written document that has been executed by each party. This Note constitutes a New Hampshire sealed instrument and contract to be governed by the laws of such state and to be paid and performed therein.   IN THE PRESENCE OF:   VeriChip Corporation /s/Joseph L. Stark By: /s/ William Caragol Joseph L. Stark Print Name: William Caragol Wachovia Bank Title: CFO 3

SCHEDULE to the Master Agreement dated as of February 28, 2006 between WELLS FARGO BANK, N.A., not in its individual capacity and but solely as trustee CREDIT SUISSE INTERNATIONAL of the supplemental interest trust created pursuant to the Pooling and Servicing Agreement _______________________________________ _________________________________________ ("Party A") ("Party B") Part 1 Termination Provisions. (a) "Specified Entity" means in relation to Party A for the purpose 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 and in relation to Party B for the purpose 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 (b) "Specified Transaction" will have the meaning specified in Section 14 of this Agreement. (c) Certain Events of Default. The following Events of Default will apply to the parties as specified below, and the definition of "Event of Default" in Section 14 is deemed to be modified accordingly: Section 5(a)(i) (Failure to Pay or Deliver) will apply to Party A and Party B. Section 5(a)(ii) (Breach of Agreement) will not apply to Party A or Party B. Section 5(a)(iii) (Credit Support Default) will apply to Party A and will not apply to Party B, unless Party A has posted collateral under the Credit Support Annex, in which case it will apply to Party B. Section 5(a)(iv) (Misrepresentation) will not apply to Party A or Party B. Section 5(a)(v) (Default under Specified Transaction) will not apply to Party A or Party B. Section 5(a)(vi) (Cross Default) will not apply to Party A or Party B. Section 5(a)(vii) (Bankruptcy) will apply to Party A and Party B; provided that clause (2) thereof shall not apply to Party B. Section 5(a)(viii) (Merger without Assumption) will apply to Party A and will not apply to Party B. (d) Termination Events. The following Termination Events will apply to the parties as specified below: Section 5(b)(i) (Illegality) will apply to Party A and Party B. Section 5(b)(ii) (Tax Event) will apply to Party A and Party B. Section 5(b)(iii) (Tax Event upon Merger) will apply to Party A and Party B. Section 5(b)(iv) (Credit Event upon Merger) will not apply to Party A or Party B. (e) The "Automatic Early Termination" provision of Section 6(a) of this Agreement will not apply to Party A or Party B. (f) Payments on Early Termination. For the purpose of Section 6(e) of this Agreement: (i) Loss will apply. (ii) The Second Method will apply. (g) "Termination Currency" means United States Dollars. (h) Additional Termination Events. The following Additional Termination Events will apply, in each case with respect to Party B as the sole Affected Party (unless otherwise provided below): (i) Party A fails to comply with the Downgrade Provisions as set forth in Part 5(b). For all purposes of this Agreement, Party A shall be the sole Affected Party with respect to the occurrence of a Termination Event described in this Part 1(h)(i). (ii) The Pooling and Servicing Agreement between Credit Suisse First Boston Mortgage Securities Corp., as Depositor, DLJ Mortgage Capital, Inc., as Seller, Wells Fargo Bank, N.A., as Master Servicer, Servicer, Back-Up Servicer and Trust Administrator, Select Portfolio Servicing Inc., as a Servicer and as Special Servicer, and U.S. Bank National Association, as Trustee, dated as of February 1, 2006, as amended from time to time (the PSA or the Pooling and Servicing Agreement) or other transaction document is amended or modified without the prior written consent of Party A, where such consent is required under the terms of the PSA. (iii) The termination of the Trust pursuant to Section 11.01 of the PSA. (iv) The Group 6 Interest Remittance Amount in respect of any Distribution Date, not including any amounts distributed to the holders of the Class 6-A-1 Certificates on such Distribution Date from the Class 6-A-1 Swap Account, is less than the Swap Fee Amount in respect of such Distribution Date. Part 2 Tax Representations. (a) Payer Representations. For the purpose of Section 3(e) of this Agreement, Party A will make the following representation and Party B will make the following representation: 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 this Agreement) to be made by it to the other party under this Agreement. In making this representation, it may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this 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 this Agreement and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) and the other party does not deliver a form or document under Section 4(a)(iii) of this Agreement by reason of material prejudice to its legal or commercial position. (b) Payee Representations. For the purpose of Section 3(f) of this Agreement, Party A and Party B make the representations specified below, if any: (i) Party A makes the following representation to Party B: (A) Party A is entering into each Transaction in the ordinary course of its trade as, and is, a recognized UK bank as defined in Section 840A of the UK Income and Corporation Taxes Act of 1988. (B) Party A has been approved as a Withholding Foreign Partnership by the US Internal Revenue Service. (C) Party A's Withholding Foreign Partnership Employer Identification Number is 98-0330001. (D) Party A is a partnership that agrees to comply with any withholding obligation under Section 1446 of the Internal Revenue Code. (ii) Party B makes no representations for the purpose of Section 3(f) of this Agreement. Part 3 Agreement to Deliver Documents. For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents, as applicable: (a) Tax forms, documents or certificates to be delivered are:-- None (b) Other documents to be delivered are:-- ------------------------------------------------------------------------------------- Party Form/Document/Certificate Date by which Covered by required to be delivered Section 3(d) to deliver Representation document ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party A Certified copy of the board of directors Concurrently Yes and Party B resolution (or equivalent authorizing with the documentation) which sets forth the execution and authority of each signatory to this delivery of Agreement and each Credit Support this Agreement. Document (if any) signing on its behalf and the authority of such party to enter into Transactions contemplated and performance of its obligations hereunder. ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party A Incumbency certificate (or, if available Concurrently Yes and Party B the current authorized signature book or with the equivalent authorizing documentation) execution and specifying the names, titles, authority delivery of and specimen signatures of the persons this Agreement authorized to execute this Agreement unless which sets forth the specimen signatures previously of each signatory to this Agreement, each delivered and Confirmation and each Credit Support still in full Document (if any) signing on its behalf. force and effect. ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party A An opinion of counsel to such party (or, Concurrently No and B in the case of Party B, counsel to the with the Trustee) as to the enforceability of this execution and Agreement that is reasonably satisfactory delivery of in form and substance to the other party. the Confirmation unless previously delivered and still in full force and effect. ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party B All opinions of counsel to Party B and Upon execution No counsel to the Servicer, delivered as of of this the Closing Date Agreement ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party B Such other information in connection with Upon request No the Certificates or the PSA in the possession of Party B as Party A may reasonably request. ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Party B An executed copy of the PSA. Within 30 days Yes after the date of this Agreement. ------------------------------------------------------------------------------------- Part 4. Miscellaneous. (a) Addresses for Notices. For the purposes of Section 12(a) of this Agreement: Notwithstanding Section 12 (a) of the Agreement, all notices, including those to be given under Section 5 or Section 6 of the Agreement, may be given by facsimile transmission or electronic messaging system. (i) (1) Address for notices or communications to Party A:- Address:One Cabot Square Attention: (1) Head of Credit Risk Management; London E14 4QJ (2) Global Head of OTC Operations, Operations Department; (3) General Counsel Europe - Legal and Compliance Department Swift: Credit Suisse International CSFP GB2L (2)For the purpose of facsimile notices or communications under this Agreement:- Facsimile No.: +44 (0) 207 888 2686 Attention: General Counsel Europe - Legal and Compliance Department Telephone number for oral confirmation of receipt of facsimile in legible form: +44 (0) 207 888 4465 Designated responsible employee for the purposes of Section 12(a)(iii): Senior Legal Secretary With a copy to: Facsimile No. +44 (0) 207 888 3715 Head of Credit Risk Management With a copy to: Facsimile No. +44 (0) 207 888 9503 Global Head of OTC Operations, Operations Department. (ii) Address for notices or communications to Party B:- Address: Wells Fargo Bank, N.A., Attention: Client Manager, CSMC as trustee for the ARMT 2006-1 supplemental interest trust created pursuant to the Pooling and Servicing Agreement 9062 Old Annapolis Road Columbia, Maryland 21045 Telephone No.: (410) 884-2000 Facsimile No.: (410) 715-2380 (For all purposes.) With copies to:- Address: Credit Suisse Securities Attention: Peter Sack (USA) LLC 11 Madison Avenue New York, N.Y. 10010 Telephone No.: (212) 325-7892 Facsimile No.: (212) 742-5181 (b) Process Agent. For the purposes of Section 13(c) of this Agreement: Party A appoints as its Process Agent: Credit Suisse Securities (USA) LLC Eleven Madison Avenue New York, NY 10010 Attention: General Counsel Legal and Compliance Department Party B appoints as its Process Agent: Not applicable. (c) Offices. With respect to Party A, the provisions of Section 10(a) will apply to this Agreement. (d) Multibranch Party. For the purpose of Section 10(c) of this Agreement: Party A is not a Multibranch Party. Party B is not a Multibranch Party. (e) Calculation Agent. The Calculation Agent is Party A. (f) Credit Support Document. Credit Support Document means:- With respect to Party A: The Credit Support Annex. With respect to Party B: The Credit Support Annex. (g) Credit Support Provider. Credit Support Provider means in relation to Party A: Not applicable. Credit Support Provider means in relation to Party B: Not applicable. (h) Governing Law. This Agreement and, to the fullest extent permitted by applicable law, all matters arising out of or relating in any way to this Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine other than New York General Obligation Law Sections 5-1401 and 5-1402). (i) Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement will apply to all Transactions. (j) "Affiliate." Each of Party A and Party B shall be deemed to have no Affiliates. Part 5. Other Provisions. (a) Definitions. Any capitalized terms used but not otherwise defined in this Agreement shall have the meanings assigned to them (or incorporated by reference) in the PSA. In the event of any inconsistency between the terms of this Agreement and the terms of the PSA, this Agreement will govern. (b) Downgrade Provisions. (1) It shall be a collateralization event (Collateralization Event) if: (A) (i) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated below "A1" by Moody's Investors Service, Inc. (Moody's) or are rated "A1" by Moody's and such rating is on watch for possible downgrade (but only for so long as it is on watch for possible downgrade) and (ii) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of Party A are rated below "P-1" by Moody's or are rated "P-1" by Moody's and such rating is on watch for possible downgrade (but only for so long as it is on watch for possible downgrade), (B) no short-term rating is available from Moody's and the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated below "Aa3" by Moody's or are rated "Aa3" by Moody's and such rating is on watch for possible downgrade (but only for so long as it is on watch for possible downgrade), (C) either (i) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of Party A are rated below "A-1" by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. (S&P) or (ii) if Party A does not have a short-term rating from S&P, the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated below "A+" by S&P, or (D) either (i) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated below "A" by Fitch, Inc. (Fitch), or (ii) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of Party A are rated below "F-1" by Fitch. During any period in which a Collateralization Event is occurring, Party A shall, at its own expense and within thirty (30) calendar days of such Collateralization Event, either (i) post collateral according to the terms of the 1994 ISDA Credit Support Annex to this Schedule, including Paragraph 13 thereof (the "Credit Support Annex"), (ii) furnish a guarantee of Party A's obligations under this Agreement that is subject to the satisfaction of the S&P Ratings Condition from a guarantor that satisfies the Hedge Counterparty Ratings Requirement (as defined herein), or (iii) obtain a substitute counterparty (and provide prior written notice to each Rating Agency with respect thereto) that (a) is reasonably acceptable to Party B, (b) satisfies the Hedge Counterparty Ratings Requirement and (c) assumes the obligations of Party A under this Agreement (through an assignment and assumption agreement in form and substance reasonably satisfactory to Party B) or replaces the outstanding Transactions hereunder with transactions on identical terms, except that Party A shall be replaced as counterparty, provided that such substitute counterparty, as of the date of such assumption or replacement, must not, as a result thereof, be required to withhold or deduct on account of tax under the Agreement or the new transactions, as applicable, and such assumption or replacement must not lead to a termination event or event of default occurring in respect of the new transactions, as applicable, provided further, that satisfaction of the S&P Ratings Condition shall be required for any transfer of any Transactions under this clause (iii) unless such transfer is in connection with the assignment and assumption of this Agreement by such substitute counterparty without modification of its terms, other than the following terms: party name, dates relevant to the effective date of such transfer, tax representations (provided that the representations in Part 2(a) are not modified) and any other representations regarding the status of the substitute counterparty of the type included in Section (c) of this Part 5 and notice information (in which case, Party A shall provide written notice to S&P with respect thereto). To the extent that Party A elects or is required to post collateral pursuant to this Part 5(b)(1), Party A shall deliver to each Rating Agency within thirty (30) calendar days of the occurrence of such Collateralization Event an opinion acceptable to S&P as to the enforceability of the Credit Support Annex and which confirms that, notwithstanding the commencement of a case under the Bankruptcy Code with respect to Party A, the collateral will (a) be available to meet swap obligations notwithstanding the automatic stay and (b) if delivered pre-bankruptcy, will not be subject to recovery as preferences or constructive fraudulent conveyances, in each case subject to standard qualifications and assumptions. Hedge Counterparty Ratings Requirement shall mean (a) either (i) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of the substitute counterparty are rated at least "A-1" by S&P or (ii) if the substitute counterparty does not have a short-term rating from S&P, the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of the substitute counterparty are rated at least "A+" by S&P, (b) either (i) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of such substitute counterparty are rated at least "A1" by Moody's (and if rated "A1" by Moody's, such rating is not on watch for possible downgrade) and the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of such substitute counterparty are rated at least "P-1" by Moody's (and if rated "P-1" by Moody's, such rating is not on watch for possible downgrade and remaining on watch for possible downgrade), or (ii) if such substitute counterparty does not have a short-term debt rating from Moody's, the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of such substitute counterparty are rated at least "Aa3" by Moody's (and if rated "Aa3" by Moody's, such rating is not on watch for possible downgrade), and (c) either (i) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of such substitute counterparty are rated at least "A" by Fitch or (ii) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of such substitute counterparty are rated at least "F1" by Fitch. For the purpose of this definition, no direct or indirect recourse against one or more shareholders of the substitute counterparty (or against any Person in control of, or controlled by, or under common control with, any such shareholder) shall be deemed to constitute a guarantee, security or support of the obligations of the substitute counterparty. S&P Ratings Condition shall mean prior written confirmation from S&P that a proposed action will not cause the downgrade or withdrawal of the then current ratings of any outstanding Offered Certificates. Rating Agency shall mean each of S&P, Moody's and Fitch. (2) It shall be a ratings event (Ratings Event) if at any time after the date hereof Party A shall fail to satisfy the Hedge Counterparty Ratings Threshold. Hedge Counterparty Ratings Threshold shall mean (A) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated at least "BBB-" by S&P, (B) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated at least "A3" by Moody's (and such rating is not on watch for possible downgrade) and the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of Party A are rated at least "P-2" by Moody's (and such rating is not on watch for possible downgrade), and (C) either (i) the unsecured, unguaranteed and otherwise unsupported long-term senior debt obligations of Party A are rated at least "BBB+" by Fitch, or (ii) the unsecured, unguaranteed and otherwise unsupported short-term debt obligations of Party A are rated at least "F-2" by Fitch. (3) Following a Ratings Event, Party A shall take the following actions: (a) Party A, at its sole expense, shall (i) commence actively to seek to obtain a substitute counterparty and, in the case of a Ratings Event pursuant to subparagraph (A) of the definition of "Hedge Counterparty Ratings Threshold" or if at any time after the date hereof S&P withdraws all of Party A's ratings and no longer rates Party A, Party A shall within 10 Business Days, subject to extension upon S&P Ratings Condition, of the Ratings Event obtain a substitute counterparty (and provide written notice to each Rating Agency with respect thereto), that (A) satisfies the Hedge Counterparty Ratings Requirement and (B) assumes the obligations of Party A under this Agreement (through an assignment and assumption agreement in form and substance reasonably satisfactory to Party B) or replaces the outstanding Transactions hereunder with transactions on identical terms, except that Party A shall be replaced as counterparty, provided that such substitute counterparty, as of the date of such assumption or replacement, must not, as a result thereof, be required to withhold or deduct on account of tax under the Agreement or the new transactions, as applicable, and such assumption or replacement must not lead to a termination event or event of default occurring in respect of the new transactions, as applicable; provided further that satisfaction of the S&P Ratings Condition shall be required within such 10 Business Days or longer period, as applicable, for any transfer of any Transaction under this clause (a)(i) unless such transfer is in connection with the assignment and assumption of this Agreement without modification of its terms by such counterparty, other than the following terms: party name, dates relevant to the effective date of such transfer, tax representations (provided that the representations in Part 2(a) are not modified) and any other representations regarding the status of the substitute counterparty of the type included in Section (c) of this Part 5 and notice information (in which case, Party A shall provide written notice to S&P with respect thereto) and (ii) be required to post collateral as set forth in (b) below; (b) in the case of a Ratings Event pursuant to subparagraph (B) or (C) of the definition of "Hedge Counterparty Ratings Threshold", if Party A has not obtained a substitute counterparty as set forth in (3)(a) above within 30 days of the Ratings Event, then Party A shall continue to seek a substitute counterparty and, on or prior to the expiration of such period, post collateral according to the terms of the Credit Support Annex. Notwithstanding anything contained herein to the contrary, if Party A is required to transfer its rights and obligations under this Agreement pursuant to this Part 5(b)(3) as a result of a rating issued by S&P, Party A shall, at all times prior to such transfer, be required to post collateral in accordance with (i) the terms of the Credit Support Annex or (ii) an agreement with Party B providing for the posting of collateral, which agreement shall be subject to Rating Agency Approval and will require Party A to post the required collateral. Rating Agency Approval shall mean prior written confirmation from S&P, Moody's and Fitch that such amendment will not cause them to downgrade or withdraw its then-current ratings of any outstanding Offered Certificates. (c) Section 3(a) of this Agreement is hereby amended to include the following additional representations after paragraph 3(a)(v): (vi) Eligible Contract Participant. It is an "eligible contract participant" as defined in section 1a(12) of the U.S. Commodity Exchange Act. (vii) Individual Negotiation. This Agreement and each Transaction hereunder is subject to individual negotiation by the parties. (viii) Relationship between Party A and Party B. Subject as provided in Part 5(g), each of Party A and Party B will be deemed to represent to the other on the date on which it enters into a Transaction or an amendment thereof that (absent a written agreement between Party A and Party B that expressly imposes affirmative obligations to the contrary for that Transaction): (1) Principal. It is acting as principal and not as agent when entering into this Agreement and each Transaction. (2) Non-Reliance. It is acting for its own account and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors 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 that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that 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 that Transaction. (3) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Agreement and each Transaction hereunder. It is also capable of assuming, and assumes, all financial and other risks of this Agreement and each Transaction hereunder. (4) Status of Parties. The other party is not acting as a fiduciary or an advisor for it in respect of that Transaction. (d) Section 4 is hereby amended by adding the following new agreement: (f) Actions Affecting Representations. Party B agrees not to take any action during the term of this Agreement or any Transaction hereunder that renders or could render any of the representations and warranties in this Agreement untrue, incorrect, or incomplete, and, if any event or condition occurs that renders or could render any such representation untrue, incorrect, or incomplete, Party B will immediately give written notice thereof to Party A. (e) Transfer. Section 7 is hereby amended to read in its entirety as follows: Except as stated under Section 6(b)(ii), provided that to the extent Party A makes a transfer pursuant to Section 6(b)(ii) it will provide a prior written notice to the Rating Agencies of such transfer, neither Party A nor Party B is permitted to assign, novate or transfer (whether by way of security or otherwise) as a whole or in part any of its rights, obligations or interests under this Agreement or any Transaction without the prior written consent of the other party; provided, however, that (i) Party A may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of substantially all of its assets to, another entity, or an incorporation, reincorporation or reconstitution, and (ii) Party A may transfer this Agreement to any Person that is an office, branch or affiliate of Party A (any such Person, office, branch or affiliate, a Transferee) on at least five Business Days' prior written notice to Party B; provided that, with respect to clause (ii), (A) as of the date of such transfer the Transferee will not be required to withhold or deduct on account of a Tax from any payments under this Agreement unless the Transferee will be required to make payments of additional amounts pursuant to Section 2(d)(i)(4) of this Agreement in respect of such Tax; (B) a Termination Event or Event of Default does not occur under this Agreement as a result of such transfer; (C) such notice is accompanied by a written instrument pursuant to which the Transferee acquires and assumes the rights and obligations of Party A so transferred; and (D) Party A will be responsible for any costs or expenses incurred in connection with such transfer. Party B will execute such documentation as is reasonably deemed necessary by Party A for the effectuation of any such transfer. Notwithstanding the foregoing, no such transfer shall be made unless the transferring party obtains a written acknowledgment from each of the Rating Agencies that, notwithstanding such transfer, the then-current ratings of the Offered Certificates will not be reduced or withdrawn, provided, however, that this provision shall not apply to any transfer that is made pursuant to the provisions of Part 5(b) of this Agreement. Except as specified otherwise in the documentation evidencing a transfer, a transfer of all the obligations of Party A made in compliance with this Section 7 will constitute an acceptance and assumption of such obligations (and any related interests so transferred) by the Transferee, a novation of the transferee in place of Party A with respect to such obligations (and any related interests so transferred), and a release and discharge by Party B of Party A from, and an agreement by Party B not to make any claim for payment, liability, or otherwise against Party A with respect to, such obligations from and after the effective date of the transfer. In addition, Party A may transfer this Agreement without the prior written consent of the Trustee on behalf of Party B but with prior written notice to S&P, to an Affiliate of Party A that satisfies the Hedge Counterparty Rating Requirements or that has furnished a guarantee, subject to S&P Ratings Condition, of the obligations under this Agreement from a guarantor that satisfies the Hedge Counterparty Rating Requirements; provided that satisfaction of the S&P Ratings Condition will be required unless such transfer is in connection with the assignment and assumption of this Agreement by such an Affiliate without modification of its terms, other than the following terms: party name, dates relevant to the effective date of such transfer, tax representations (provided that the representations in Part 2(a) are not modified) and any other representations regarding the status of such an Affiliate the substitute counterparty of the type included in Section (c) of this Part 5 and notice information (in which case, Party A shall provide written notice to S&P with respect thereto). (f) Trustee Capacity. It is expressly understood and agreed by the parties hereto that (i) this Agreement is executed and delivered by Wells Fargo Bank (the Trustee) not individually or personally but solely as trustee of the supplemental interest trust created pursuant to the PSA (the "Trust"), in the exercise of the powers and authority conferred and vested in it under the PSA, (ii) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by the Trustee but is made and intended for the purpose of binding only the Trust, (iii) nothing herein contained shall be construed as creating any liability on the part of the Trustee, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto and (iv) under no circumstances shall the Trustee be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement or any other related documents as to all of which recourse shall be had solely to the assets of the Trust in accordance with the terms of the PSA. (g) Party B Representations. Party B represents that: (i) Status. The Trustee is trustee of the Trust whose appointment is valid and effective both under the laws of the State of New York and under the PSA, and the Trustee has the power to own assets in its capacity as trustee of the Trust. (ii) Powers. In its capacity as trustee of the Trust, the Trustee has power under the PSA to execute this Agreement and any other documentation relating to this Agreement that the Trustee is executing and delivering on behalf of the Trust, to deliver this Agreement and any other documentation relating to this Agreement that it is required to execute and deliver and to perform the obligations (on behalf of the Trust) under this Agreement and any obligations (on behalf of the Trust) under any Credit Support Document to which Party B is party and has taken all necessary action to authorize such execution, delivery and performance; (iii) No violation or conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to the Trustee or Party B, any provision of the PSA, any order or judgment of any court or other agency of government applicable to the Trustee, Party B or any assets of Party B, or any contractual restriction binding on or affecting the Trustee, Party B or any assets of Party B; (iv) Consents. All governmental and other consents that are required have been obtained by Party B with respect to this Agreement or any Credit Support Document to which Party B is party have been obtained and are in full force and effect and all conditions of such consents have been complied with; and (v) Obligations binding. The obligation of Party B under this Agreement and any Credit Support Document to which Party B is party constitute legal, valid and binding obligations of Party B, enforceable against Party B in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or law)) and no circumstances are known to Party B or the Trustee which would or might prevent the Trustee from having recourse to the assets of Party B for the purposes of meeting such obligations. (h) Proceedings. Party A shall not institute against or cause any other person to institute against, or join any other person in instituting against Party B, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy, dissolution or similar law, for a period of one year and one day, or if longer the applicable preference period then in effect, following indefeasible payment in full of the Certificates. Nothing shall preclude, or be deemed to stop, Party A (i) from taking any action prior to the expiration of the aforementioned one year and one day period, or if longer the applicable preference period then in effect, in (A) any case or proceeding voluntarily filed or commenced by Party B or (B) any involuntary insolvency proceeding filed or commenced by a Person other than Party A, (ii) from commencing against Party B or any of the Mortgage Loans any legal action which is not a bankruptcy, reorganization, arrangement, insolvency, moratorium, liquidation or similar proceeding or (iii) from taking any action (not otherwise mentioned in this paragraph) which will prevent an impairment of any right afforded to it under the PSA as a third party beneficiary. (i) Change of Account. Section 2(b) of this Agreement is hereby amended by the addition of the following after the word "delivery" in the first line thereof:- "to another account in the same legal and tax jurisdiction as the original account" (j) Pooling and Servicing Agreement. Party B will provide at least ten days' prior written notice to Party A of any proposed amendment or modification to the PSA and Party B will obtain the prior written consent of Party A to any such amendment or modification, where such consent is required under the terms of the PSA. (k) Set-off. Notwithstanding any provision of this Agreement or any other existing or future agreements, each of Party A and Party B irrevocably waives as to itself any and all contractual rights it may have to set off, net, recoup or otherwise withhold or suspend or condition its payment or performance of any obligation to the other party under this Agreement against any obligation of one party hereto to the other party hereto arising outside of this Agreement. The provisions for set-off set forth in Section 6(e) of this Agreement shall not apply for purposes of this Transaction. (l) Notice of Certain Events or Circumstances. Each party agrees, upon learning of the occurrence or existence of any event or condition that constitutes (or that with the giving of notice or passage of time or both would constitute) an Event of Default or Termination Event with respect to such party, promptly to give the other party notice of such event or condition (or, in lieu of giving notice of such event or condition in the case of an event or condition that with the giving of notice or passage of time or both would constitute an Event of Default or Termination Event with respect to the party, to cause such event or condition to cease to exist before becoming an Event of Default or Termination Event); provided that failure to provide notice of such event or condition pursuant to this Part 5(l) shall not constitute an Event of Default or a Termination Event. (m) Regarding Party A. Party B acknowledges and agrees that Party A has had and will have no involvement in and, accordingly Party A accepts no responsibility for: (i) the establishment, structure, or choice of assets of Party B; (ii) the selection of any person performing services for or acting on behalf of Party B; (iii) the selection of Party A as the Counterparty; (iv) the terms of the Certificates; (v) the preparation of or passing on the disclosure and other information contained in any offering circular for the Certificates, the PSA, or any other agreements or documents used by Party B or any other party in connection with the marketing and sale of the Certificates (other than information provided by Party A for purposes of the disclosure document relating to the Offered Certificates); (vi) the ongoing operations and administration of Party B, including the furnishing of any information to Party B which is not specifically required under this Agreement; or (vii) any other aspect of Party B's existence. (n) Rating Agency Approval on Amendment. In addition to the requirements of Section 9, this Agreement will not be amended unless Party B shall have received Rating Agency Approval. (o) Jurisdiction. Section 13(b) is hereby amended by: (i) deleting in the second line of subparagraph (i) thereof the word "non-": and (ii) deleting the final paragraph thereof. (o) Limited Recourse Non-petition. The liability of Party B in relation to this Agreement and any Confirmation hereunder is limited in recourse to assets in the Trust and payments of interest proceeds and principal proceeds thereon applied in accordance with the terms of the PSA. Upon application of all of the assets in the Trust (and proceeds thereon) in accordance with the PSA, Party A shall not be entitled to take any further steps against Party B to recover any sums due but still unpaid hereunder or thereunder, all claims in respect of which shall be extinguished. (p) Party A hereby agrees that, notwithstanding any provision of this agreement to the contrary, Party B's obligations to pay any amounts owing under Section 6(e) of this Agreement where Party A is either the Defaulting Party or the sole Affected Party shall be subject to the payment priority described in the PSA and Party A's right to receive payment of such amounts shall be subject to the payment priority described in the PSA. (q) 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 this Agreement or any Credit Support Document. Each party certifies (i) that no representative, agent or attorney of the other party or any Credit Support Provider 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 this Agreement and provide for any Credit Support Document, as applicable, by, among other things, the mutual waivers and certifications in this Section. (r) Consent to Recording. Each party (i) consents to the recording of the telephone conversations of trading and marketing personnel of the parties and their Affiliates in connection with this Agreement or any potential transaction and (ii) if applicable, agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates. (s) Severability. If any term, provision, covenant, or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be illegal, invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the illegal, invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties to this Agreement. (t) Escrow Payments. If (whether by reason of the time difference between the cities in which payments are to be made or otherwise) it is not possible for simultaneous payments to be made on any date on which both parties are required to make payments hereunder, either party may at its option and in its sole discretion notify the other party that payments on that date are to be made in escrow. In this case deposit of the payment due earlier on that date shall be made by 2:00 pm (local time at the place for the earlier payment) on that date with an escrow agent selected by the notifying party, accompanied by irrevocable payment instructions (i) to release the deposited payment to the intended recipient upon receipt by the escrow agent of the required deposit of the corresponding payment from the other party on the same date accompanied by irrevocable payment instructions to the same effect or (ii) if the required deposit of the corresponding payment is not made on that same date, to return the payment deposited to the party that paid it into escrow. The party that elects to have payments made in escrow shall pay all costs of the escrow arrangements. (u) Section 5(a)(iii)(1) of this Agreement is hereby deleted and replaced with the following: "(1) The occurrence of an Event of Default under any Credit Support Document if such Event of Default is continuing after any applicable grace period has elapsed;" IN WITNESS WHEREOF, the parties have executed this document by their duly authorized officers with effect from the date so specified on the first page hereof. Wells Fargo Bank, N.A., not in its individual capacity but solely as trustee of the supplemental interest trust created pursuant to CREDIT SUISSE INTERNATIONAL the Pooling and Servicing Agreement By:_________________________ By:_________________________ Name: Name: Title: Title: By:_________________________ Name: Title:

AGREEMENT   THIS AGREEMENT (this “Agreement”) is entered into on the first day of November, 2006, by and between Burnett Oil Company, a general partnership whose address is 801 Cherry Street, Unit #9, Burnett Plaza, Suite 1500, Fort Worth, Texas 76102-6881 (hereinafter referred to as “Burnett”) and Standard Drilling, Inc., a Nevada corporation whose address is 1155 Dairy Ashford St., Suite 402, Houston, Texas 77079 (hereinafter referred to as “Standard”). Standard and Burnett are sometimes collectively referred to herein as the “Parties” and individually as a “Party.” WHEREAS, Burnett is the owner of the oil and gas leases described in Exhibit A (collectively the “Leases”); and   WHEREAS, the Parties desire to set forth the terms pursuant to which Standard can earn an interest in the Leases by making a cash payment and drilling and completing a well into the Barnett Shale;   NOW, THEREFORE, in consideration of the mutual benefits and obligations hereunder, the Parties agree as follows:   1. Definitions. The following terms shall have the designated meanings:   “Assigned Interests” means an undivided 60% of 8/8ths interest which yields a net revenue interest of 48% in and to the following assets: (a)  the Leases (whose leasehold burdens cannot exceed 20%), including without limitation all overriding royalty interests and working interests therein; (b) the oil and gas wells located upon the lands covered by the Leases or pooled or unitized therewith including the Earning Well (collectively, the “Wells”); (c) all platforms, water source wells, injection wells, tubular goods, well equipment, lease equipment, production equipment, pipelines and all other personal property, fixtures and facilities appurtenant to or used in connection with the Leases or the Wells (collectively the “Facilities”); (d) all oil, gas, distillate, condensate, casinghead gas or other liquid or vaporous hydrocarbons, or other minerals (collectively, the “Hydrocarbons”), produced from or attributable to the Leases from and after the Effective Time, and all Hydrocarbons produced prior to the Effective Time and in storage as of the date of the Assignment; (e) all production sales contracts, transportation agreements, pooling agreements, unitization agreements, operating agreements, processing agreements, surface leases, office or building leases, easements, permits, licenses and rights-of-way, orders of governmental authorities, and all other contracts, agreements and instruments related to or utilized in connection with the Leases, Wells, Facilities, or the production, storage, treatment, transportation, sale or disposal of Hydrocarbons or other substances therefrom (the “Contracts”); and --------------------------------------------------------------------------------   (f) copies of all of Assignor’s files, records and data regarding the Leases, Wells and Facilities including without limitation, all abstracts of title, title opinions, title curative documents, title records, leases, assignments, contracts, correspondence, geologic, geophysical and seismic records, data and information, and production records, logs, core data, pressure data and decline curves, production curves accounting records and all related items (the “Files”).   “Assignment” means an assignment substantially in the form of Exhibit B.   “Burnett Group” shall mean, individually or in any combination, Burnett, its affiliates, and each of their respective directors, officers, members and employees.   “Defend” shall mean the obligation of the indemnitor at the indemnitees’ election (i) to defend the indemnitees at its sole expense or (ii) to reimburse the indemnitees for the indemnitees’ reasonable expenses incurred in defending themselves. Notwithstanding the indemnitee’s election of option (i) above, the indemnitee shall be entitled to participate in its defense at its sole cost. “Drilling Operations” means any and all operations related to or arising out of drilling or completing the Earning Well or any replacement well therefore. “Drilling Rig” means a drilling rig substantially meeting the specifications set forth in Exhibit C which is to be supplied by Standard and which is capable of reaching the total depth of the lateral in the Barnett Shale formation. If Standard is unable to supply such drilling rig but elects to go forward, as provided for in Section 2.2 below, with a third party drilling rig secured by either Standard or Burnett that is capable of reaching the total depth of the lateral in the Barnett Shale formation, then the term "Drilling Rig” shall mean such third party drilling rig.   “Earning Well” shall have the meaning given that term in Section 3.1. “Effective Time” shall have the meaning given that term in the Assignment. “Force Majeure” means acts of God, acts of government or any agency, subdivision or instrumentality thereof, acts of civil disorder, acts of industrial disorder, failures of facilities or vessels, shortages, any inability to obtain or acquire, at reasonable cost, necessary authorizations or equipment, and any other occurrence, condition, or situation not within the control of the Party and that could not have been prevented by the exercise of reasonable diligence. “Losses” shall mean claims, demands, causes of action, losses, liabilities, indemnity obligations, costs, damages or expenses of any kind and character (including attorney’s fees and other legal expenses and punitive, exemplary and the multiplied portion of multiplied damages).   -------------------------------------------------------------------------------- “JOA” means a joint operating agreement substantially in the form of Exhibit D governing the operation of the Leases. “Standard Group” shall mean, individually or in any combination, Standard, its affiliates, and each of their respective directors, officers and employees. “Well Costs” shall mean all costs associated with the Earning Well incurred up to the date when Standard has completed the on-lease tie-in point to a gathering pipeline that will transport gas from the Leases to a third party gathering or sales pipeline, including, but not limited to, costs of permitting, surveying, title opinions, roads, location, drilling, completion and equipping. 2. Cash Consideration.   2.1 Payment. Standard shall pay to Burnett the sum of $250,000 (the “Cash Consideration”) on or before November 1, 2006 in partial consideration for the Assigned Interests, subject to the terms hereof.   2.2 Mobilization and Forfeiture. Standard shall promptly notify Burnett when the Drilling Rig is in a condition to permit mobilization to location (the “Rig Completion Notice”). If Standard fails to provide such notice on or before November 30, 2006, it shall forfeit the Cash Consideration (subject to Section 2.3) and this Agreement shall terminate. If, prior to November 30, 2006, Standard learns that it will be unable to mobilize the Drilling Rig to location by such date, it will give Burnett immediate notice thereof and either party will be free to locate and secure another drilling rig in order to save the Leases prior to the end of their primary terms. In that event, if either Standard or Burnett locates and secures another drilling rig for the Earning Well, Standard must elect within forty eight (48) hours of receipt of an executed drilling rig contract to either go forward with the drilling of the Earning Well or, if it elects not to do so or fails to respond within the forty eight (48) hour notice period (which shall be deemed an election not to go forward), Standard shall forfeit the Cash Consideration (subject to Section 2.3 below) and this agreement shall terminate. If Standard pays the Well Costs associated with the Drilling Operations, Standard shall be deemed to have satisfied its obligation to drill and complete the Earning Well. Provided (i) Burnett has obtained all necessary consents and authorizations for Standard to drill the Earning Well and receive the Assignment, including those required under Section 3.1, (ii) the drillsite location for the Earning Well is completed as necessary to support the Drilling Operations by the Drilling Rig, and (iii) Burnett is not in breach of this Agreement, Burnett shall notify Standard, or the other agreed to drilling contractor, when it is ready for Standard to mobilize the Drilling Rig to location (the “Mobilization Notice”). If, following receipt of a Mobilization Notice in compliance with the foregoing, and if Standard has provided Burnett the Rig Completion Notice, Standard fails to commence actual drilling with the Drilling Rig on location within fourteen (14) days after the later to occur of the Rig Completion Notice or such Mobilization Notice (such 14 day period being referred to herein as the “Mobilization Period”), Standard shall forfeit the Cash Consideration (subject to Section 2.3) and this Agreement shall terminate. If Standard has given Burnett the Rig Completion Notice and Burnett fails to give Standard a Mobilization Notice in compliance with the foregoing or fails to obtain the consents, permits and authorizations in accordance with Section 3.1, in either case at least fourteen (14) days prior to Lease termination, or if this Agreement terminates prior to Burnett assigning the Assigned Interests to Standard, Burnett shall promptly reimburse Standard for all actual, out of pocket Well Costs.   --------------------------------------------------------------------------------   2.3 Return of Cash Consideration. Burnett shall promptly return the Cash Consideration to Standard if Burnett breaches this Agreement, including without limitation failing to obtain all necessary consents, permits and authorizations in accordance with Section 3.1, failing to deliver the Assignment upon completion of the Earning Well in accordance with Section 8, or breaching at any time during this Agreement its warranty of title set forth in Section 5.3 and the Assignment.   3. Earning Well.   3.1 Consents and Authorizations. Burnett shall obtain, in form and substance satisfactory to Standard, acting reasonably, the consents and authorizations described below that are necessary to permit Standard to have the right to, at its sole cost through the on-lease tie-in point to a gathering pipeline that will transport the gas from the Leases to a third party gathering or sales pipeline, drill, complete, and equip one (1) well substantially at the location and in accordance with the drilling program and the specifications set forth in Exhibit E (the “Earning Well”), to receive the Assignment, and to further assign all or part of its interest to Calibre Energy, Inc. (“Calibre”), as follows:   (a) drilling permit or any other necessary permit, any consent to build the drillsite location, clear title for drilling purposes, proof of surface damage payment, proof of drilling water payment and proof of permission from Johnson County to access county roads; and (b) all necessary consents to the Assignment (and further assignment to Calibre) including any consents by the lessors under the Leases.   3.2 Costs for the Earning Well. If any Well Costs are incurred with respect to any matter (including but not limited to facilities, equipment, improvements, roads, permits, surveys, or opinions) that is subsequently used in connection with any well or operation on the Leases other than the Earning Well, Burnett shall promptly reimburse Standard for its appropriate working interest percentage of the Well Costs attributable to such matter.   3.3 Drilling Well as Consideration/No Obligation. Nothing in this Agreement shall be construed as obligating Standard to drill or complete the Earning Well, or any well, it being acknowledged and agreed that drilling and completion of the Earning Well constitutes performance consideration from Standard (in addition to the Cash Consideration) for the Assigned Interests and Standard shall have no liability, and Burnett shall release and indemnify Standard from any such liability, for failing to drill and complete the Earning Well, or any well. If Standard elects to drill and complete the Earning Well, Standard shall consult with Burnett regarding the technical aspects of drilling and completing the Earning Well.   --------------------------------------------------------------------------------   4. Standard’s Representations and Warranties. Standard hereby represents and warrants as follows:   4.1 Standard is a corporation duly organized and validly existing under the laws of Nevada. Standard is qualified to conduct business in each jurisdiction where necessary to perform this Agreement.   4.2 Standard has full power and authority to execute and perform this Agreement and the Assignment.   4.3 Standard has the financial assets and capability to meet its financial obligations under this agreement.     5. Burnett’s Representations and Warranties. Burnett hereby represents and warrants as follows:   5.1 Burnett is a general partnership duly organized and validly existing under the laws of Texas. Burnett is qualified to conduct business in each jurisdiction where necessary to perform this Agreement.   5.2 Burnett has full power and authority to execute and perform this Agreement and to execute and deliver the Assignment.   5.3 The Leases are in full force and effect, and neither Burnett nor any other person is in breach or default thereunder (or with the giving of notice or lapse of time or both, would be in breach or default). Burnett owns the Leases free and clear of any liens, mortgages, security interests, charges, pledges, restrictions, ownership rights of third persons, or other defects or encumbrances of any kind or character except for the terms and conditions of the Leases. Burnett is (i) entitled to receive not less than 80% of all Hydrocarbons produced, saved and marketed from the Leases or any Wells thereon or lands covered thereby, all without reduction, suspension or termination of such interest throughout the duration of the life of such Leases and Wells, and (ii) obligated to bear not more than 100% of the costs and expenses relating to the maintenance, development and operation of such Leases and any Wells, without increase throughout the duration of the life of such Leases or Wells.   --------------------------------------------------------------------------------   6. Indemnification.   6.1 Standard’s Personnel. Standard shall release, Defend, indemnify, and hold harmless Burnett Group from and against any and all Losses arising out of the bodily injury or death, or property damage or loss, of any of Standard’s contractors (but in no event including Burnett), representatives, employees, agents or invitees (or the representatives, employees, agents or invitees of such contractors), arising out of, related to or in connection with Drilling Operations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF BURNETT GROUP, OR A PREEXISTING CONDITION. 6.2 Burnett’s Personnel. Burnett shall release, Defend, indemnify, and hold harmless Standard Group from and against any and all Losses arising out of the bodily injury or death, or property damage or loss, of any of Burnett’s contractors (but in no event including Standard), representatives, employees, agents or invitees (or the representatives, employees, agents or invitees of such contractors), arising out of, related to or in connection with Drilling Operations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF STANDARD GROUP, OR A PREEXISTING CONDITION. 6.3 Insurance Support/Limitation. The mutual indemnity obligations in Sections 6.1 and 6.2 above shall be supported by insurance provided by the Parties in equal amounts, of the types described in Exhibit F. Notwithstanding anything in this Agreement to the contrary, (i) in the event enforcement of Sections 6.1 and/or 6.2 above is governed by the Texas Anti-Indemnity Statute (Tex. Civ. Prac. & Rem. Code Ann. §§127.001-127.007 (1986 & Supp. 1996) as amended) or similar statute in another jurisdiction, and (ii) to the extent the indemnified losses under such Section 6.1 or 6.2, as applicable, result from the indemnitee’s negligence, then the obligations of the indemnitor under such Section 6.1 or 6.2, as applicable, shall be limited to the extent of insurance required pursuant to this Section 6.3 (or any such greater amount allowed by law). 6.4 Standard’s Property. Standard shall release, Defend, indemnify, and hold harmless Burnett Group from and against any and all Losses arising out of the damage or loss of (or patent or license infringement resulting from the use of) Standard Group’s property, including the Drilling Rig (collectively, “Standard’s Property”) arising out of, related to or in connection with Drilling Operations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF BURNETT GROUP, OR A PREEXISTING CONDITION. 6.5 Burnett’s Property. Burnett shall release, Defend, indemnify, and hold harmless Standard Group from and against any and all Losses arising out of the damage or loss of (or patent or license infringement resulting from the use of) Burnett Group’s property arising out of, related to or in connection with Drilling Operations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT OR CON-CUR-RENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY MEMBER OF STANDARD GROUP, OR A PREEXISTING CONDITION.   --------------------------------------------------------------------------------   6.6 Indirect or Consequential Damages. The Parties waive and release all claims against the other Party for indirect or consequential damages arising out of this Agreement or Drilling Operations, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO BY THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF THE OTHER PARTY, OR A PREEXISTING CONDITION. As used herein, “indirect or consequential damages” shall include, but not be limited to, loss of revenue, profit or use of capital, production delays, loss of product, reservoir loss or damage, losses resulting from failure to meet other contractual commitments or deadlines and downtime of facilities. 6.7 No Limit. Except as otherwise provided herein, the foregoing indemnity obligations shall not be limited to the amount of insurance carried by the Parties. 6.8 Ownership Indemnity. Upon execution and delivery of the Assignment, but subject to Burnett’s indemnity obligation below and the JOA, Standard agrees to indemnify, release, Defend and hold harmless Burnett Group from and against any and all Losses caused by, arising from, attributable to, or alleged to be caused by, arising from or attributable to the ownership or operation of the Assigned Interests and arising from and after the Effective Time. Upon execution and delivery of the Assignment, Burnett agrees to indemnify, release, Defend and hold harmless Standard Group from and against any and all Losses caused by, arising from, attributable to, or alleged to be caused by, arising from or attributable to the ownership or operation of the Assigned Interests and arising prior to the Effective Time. 6.9 Indemnified Groups. The provisions of this Section 6 shall extend to and be enforceable by and for the benefit of the members of Burnett Group and Standard Group. 7. Insurance. During Drilling Operations, Standard shall carry insurance in the amounts and of the types set forth in Exhibit F.   8. Assignment. Promptly upon installation of the Christmas tree for the Earning Well, Burnett shall execute and deliver the Assignment to Standard (or its designee).   9. JOA and Subsequent Drilling.   9.1 JOA. Upon execution and delivery of the Assignment, the Parties shall cause to be executed and delivered the JOA and appoint Burnett as operator thereunder.   9.2      Subsequent Drilling Operations. Standard shall have the right to submit proposals for all future drilling operations with respect to the Leases. Provided that Standard’s proposal includes financial terms no less favorable than those offered by reputable third parties using comparable equipment and crews, and provided that Burnett is satisfied with the quality and efficiency of Standard’s equipment and crews, in its sole discretion, Burnett shall retain Standard to conduct such drilling operations.   --------------------------------------------------------------------------------   10. Miscellaneous.   10.1  Confidentiality. The Parties agree that this Agreement and any financial or technical information furnished or disclosed to a Party hereunder shall not be disclosed or made available to any other Person without the prior written consent of the other Party; provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial, administrative or regulatory process, (ii) to counsel for the Parties, (iii) to auditors or accountants of the Parties, (iv) in connection with any litigation to which the Party is a party, (v) to an affiliate of the Party, and (vi) to a bona fide potential purchaser from the Party. Notwithstanding the above restrictions, neither Party shall have any obligation for any disclosure of confidential information that is, or becomes, generally known to the public without breach of the terms of this Agreement. The confidentiality obligations in this section shall survive termination of this Agreement for one (1) year, whereupon they shall likewise terminate.   10.2 Relationship of Parties. The relationship of the Parties will be that of independent contractors and will not be that of lender-borrower, partners, joint venturers, principal and agent or employer and employee. Nothing herein shall be construed to create a partnership. Accordingly, the Parties each herein disclaim and waive any fiduciary duty that either of them may be argued to have to the other. Neither Party has any authority whatsoever to, and neither Party shall: (i) make any agreement, representation or warranty in the name of or on behalf of the other Party; (ii) bind the other Party in any matter; (iii) act as the agent or representative of the other Party; or (iv) assume, create or incur any obligation or liability of any nature whatsoever, in the name of or on behalf of the other Party whether by contract or otherwise. Nothing herein shall be construed to (A) limit the right of the Parties to independently pursue other business opportunities, whether of a similar or dissimilar nature to those involved in this agreement, or (B) create any right or option of either Party to participate in such independent business opportunities of the other Party.   10.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas other than such laws that would apply the laws of another jurisdiction.   10.4 Force Majeure. The Parties shall be relieved of their respective obligations (other than their obligations to pay or repay the Cash Consideration and Burnett’s obligation under Section 3.1) under this Agreement to the extent that the performance thereof is prevented by Force Majeure. The Party claiming it is prevented from performing an obligation hereunder as a result of Force Majeure shall give notice thereof to the other Party as soon as practicable after the commencement thereof and shall exercise reasonable diligence to overcome such Force Majeure and resume performance; provided, however, that the settlement of any labor dispute to prevent or end any such Force Majeure shall be within the sole discretion of the claiming Party.   10.5 Interpretation. As used herein, “include” or “including” shall be deemed to mean including without limitation. Headers are inserted for convenience only and shall not be deemed to affect the meaning of this Agreement. This Agreement shall not be construed for or against any Party on the grounds that such Party was the drafter of this Agreement, it being acknowledged and agreed that this Agreement was mutually drafted by the Parties.   10.6 Entire Agreement. This Agreement and all Exhibits hereto embody the final, entire agreement between the Parties hereto and supersedes any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof.   10.7 Assignability. No Party shall assign, transfer or otherwise dispose of any of its rights or obligations hereunder, without the consent of the other Party; provided, however, that Standard may assign the right to acquire the Assigned Interest hereunder to any of its affiliates designated for such purpose.   10.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, but all which shall constitute but one Agreement.   --------------------------------------------------------------------------------   IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first indicated above.     BURNETT OIL COMPANY       By: Burnett Oil Co., Inc., its Managing General Partner       By:   Name:   Title:       STANDARD DRILLING, INC.     By:   Name:   Title:         -------------------------------------------------------------------------------- EXHIBIT A LEASES         --------------------------------------------------------------------------------   EXHIBIT B FORM OF ASSIGNMENT  ASSIGNMENT, BILL OF SALE AND CONVEYANCE THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE (this “Assignment”), effective as of 7:00 a.m. local time on _______________, 2006 (the “Effective Time”), is made from Burnett Oil Company, a Texas general partnership, whose address is 801 Cherry Street, Unit #9, Burnett Plaza, Suite 1500, Fort Worth, Texas 76102-6881 (hereinafter called “Assignor”) to [Standard Drilling, Inc. or its designee], a Nevada corporation, whose address is 1155 Dairy Ashford St., Suite 402, Houston, Texas 77079 (hereinafter called “Assignee”). ARTICLE I GRANTING AND HABENDUM CLAUSES For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor does hereby grant, bargain, sell, transfer, convey, set over, assign and deliver unto Assignee an undivided 60% of 8/8 interest in and to the following assets (collectively, such interests in such assets are referred to as the “Assigned Interests”): (a)  the oil and gas leases described in Attachment A (collectively the “Leases”), including, without limitation, all overriding royalty interests and working interests therein; (b) the oil and gas wells located upon the lands covered by the Leases or pooled or unitized therewith including the well described in Attachment A (collectively, the “Wells”); (c) all platforms, water source wells, injection wells, tubular goods, well equipment, lease equipment, production equipment, pipelines and all other personal property, fixtures and facilities appurtenant to or used in connection with the Leases or the Wells (collectively the “Facilities”); (d) all oil, gas, distillate, condensate, casinghead gas or other liquid or vaporous hydrocarbons, or other minerals (collectively, the “Hydrocarbons”), produced from or attributable to the Leases from and after the Effective Time, and all Hydrocarbons produced prior to the Effective Time and in storage as of the date hereof; (e) all production sales contracts, transportation agreements, pooling agreements, unitization agreements, operating agreements, processing agreements, surface leases, office or building leases, easements, permits, licenses and rights-of-way, orders of governmental authorities, and all other contracts, agreements and instruments related to or utilized in connection with the Leases, Wells, Facilities, or the production, storage, treatment, transportation, sale or disposal of Hydrocarbons or other substances therefrom (the “Contracts”); and   --------------------------------------------------------------------------------   (f) copies of all of Assignor’s files, records and data regarding the Leases, Wells and Facilities including without limitation, all abstracts of title, title opinions, title curative documents, title records, leases, assignments, contracts, correspondence, geologic, geophysical and seismic records, data and information, and production records, logs, core data, pressure data and decline curves, production curves accounting records and all related items (the “Files”); TO HAVE AND TO HOLD the Assigned Interests unto Assignee and its successors and assigns, forever. ARTICLE II WARRANTY 2.1 Warranty. Assignor hereby binds itself, its successors and assigns, subject to the terms of the Leases, to warrant and forever defend all and singular the Assigned Interests unto Assignee against every person whosoever lawfully claiming or to claim the same by, through or under Assignor but not otherwise. Assignor does further bind and obligate itself and its successors and assigns to warrant and forever defend unto Assignee, its successors and assigns, against all persons lawfully claiming or to claim the same or any part thereof by, through or under Assignor, but not otherwise, that, as a result of the conveyance of the Assigned Interests pursuant to this Assignment and pursuant to the foregoing warranty, Assignee is and will be (i) entitled to receive not less than 48% (being 60% of 80% of 8/8) of all Hydrocarbons produced, saved and marketed from the Leases or any wells thereon or lands covered thereby, all without reduction, suspension or termination of such interest throughout the duration of the life of such Leases and Wells; and (ii) obligated to bear not more than 60% of the costs and expenses relating to the maintenance, development and operation of such Leases or Wells, without increase throughout the duration of the life of such Leases or Wells. 2.2 Subrogation. Assignor hereby transfers and assigns unto Assignee, its successors and assigns, all of its right, title and interest under and by virtue of all covenants and warranties pertaining to the Assigned Interests, express or implied (including, without limitation, title warranties and manufacturers,’ suppliers’ and contractors’ warranties), that have heretofore been made by any of Assignor’s predecessors in title, or by any third party manufacturers, suppliers and contractors. This Assignment is made with full substitution and subrogation in and to all of the covenants and warranties that Assignor has or may have against predecessors in title and with full subrogation of all rights accruing under the applicable statutes of limitations and all rights and actions of warranty against all former owners of the Assigned Interests. 2.3 Disclaimers. All tangible equipment and personal property included in the Assigned Interest is sold “AS IS, WHERE IS” AND ASSIGNOR MAKES NO, AND DISCLAIMS ANY, REPRESENTATION OR WARRANTY, WHETHER EXPRESSED OR IMPLIED, AND WHETHER BY LAW, STATUTE OR OTHERWISE, AS TO FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY, CONFORMITY OF MODELS OR SAMPLES OF MATERIALS, AND PHYSICAL CONDITION. Assignor and Assignee agree that to the extent required by applicable law to be operative, the disclaimers of certain warranties contained in this paragraph are conspicuous. Nothing in this Section 2.3 shall impair the warranty of title given by Assignor in Section 2.1 hereof. ARTICLE III MISCELLANEOUS 3.1 Further Assurances. Assignor covenants and agrees to execute and deliver to Assignee all such other and additional conveyances, instruments and other documents and to do all such other acts and things as may be necessary to more fully vest in Assignee record title to all of the Assigned Interests herein granted or intended to be granted, and to put Assignee in actual possession thereof. 3.2 Assumption. Assignee expressly assumes all of Assignor's obligations relating to the Assigned Interests but only insofar as same arise and are attributable to periods of time from and after the Effective Time. 3.3 Counterparts. This Assignment may be executed in any number of counterparts, and each counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one conveyance. 3.4 Successors and Assigns. This Assignment shall bind and inure to the benefit of Assignor and Assignee and their respective successors and assigns. Executed this ___ day of _________________, 2006, but effective for all purposes as of the Effective Time.       ASSIGNOR:       Burnett Oil Company       By: Burnett Oil Co., Inc., its Managing General Partner       By:   Name:   Title:           ASSIGNEE:   [Standard Drilling, Inc. or its designee]       By:   Name:   Title:   -------------------------------------------------------------------------------- ACKNOWLEDGMENT State of Texas      §   County of _________   § This instrument was acknowledged before me on ________(date) by __________(name of officer), ________ (title of officer), on behalf of Burnett Oil Co., Inc., as Managing General Partner of Burnett Oil Company .   (SEAL)         (Signature of Officer)     (Title of Officer)   -------------------------------------------------------------------------------- ACKNOWLEDGMENT State of Texas  §   County of _________ § This instrument was acknowledged before me on ________(date) by __________(name of officer), ____________(title of officer), of [Standard Drilling, Inc. or its designee], a ________________ corporation, on behalf of said corporation.   (SEAL)         (Signature of Officer)     (Title of Officer)   -------------------------------------------------------------------------------- ATTACHMENT A TO ASSIGNMENT LEASES/WELL     --------------------------------------------------------------------------------   EXHIBIT C DRILLING RIG       --------------------------------------------------------------------------------   EXHIBIT D FORM OF JOINT OPERATING AGREEMENT [To be attached] --------------------------------------------------------------------------------   EXHIBIT E DRILLING PROGRAM AND WELL SPECIFICATIONS     --------------------------------------------------------------------------------   EXHIBIT F INSURANCE --------------------------------------------------------------------------------  

Exhibit 10.1 MACK-CALI REALTY CORPORATION RESTRICTED SHARE AWARD AGREEMENT Mitchell E. Hersh 1 --------------------------------------------------------------------------------   AGREEMENT EVIDENCING THE GRANT OF A RESTRICTED SHARE AWARD PURSUANT TO THE EMPLOYEE STOCK OPTION PLAN OF MACK-CALI REALTY CORPORATION AGREEMENT (“Agreement”) effective as of December 5, 2006 (“Grant Date”) by and between Mack-Cali Realty Corporation (the “Company”) and Mitchell E. Hersh (“Recipient”). WHEREAS, pursuant to the 2000 Employee Stock Option Plan of Mack-Cali Realty Corporation (the “Plan”), the Company hereby awards shares of the Company’s common stock, par value $.01 per share (“Common Stock”) to the Recipient subject to such terms, conditions, and restrictions (hereinafter, “Restricted Share Award”) as set forth in the Plan and this Agreement; NOW THEREFORE, the parties hereto hereby agree as follows: 1.                                      Award of Shares of Restricted Stock. Pursuant to the Plan, the Committee hereby awards to the Recipient, effective as of the Grant Date, a Restricted Share Award representing the conditional receipt of fifteen thousand (15,000) shares of Common Stock (“Restricted Shares”) at no out-of-pocket costs to the Recipient subject to the terms, conditions and restrictions set forth herein.  Capitalized terms not otherwise defined in this Agreement shall be as defined in the Plan. 2.                                      Award Restrictions. (a)           General Rules.  Notwithstanding that ownership of Restricted Shares is fully vested in the Recipient as of the Grant Date, the Restricted Shares granted hereunder may not be disposed of on or prior to, and shall not be transferable until the first day following the six month anniversary of the Grant Date (the “Holding Period”). (b)           Vesting.  All fifteen thousand (15,000) Restricted Shares granted hereunder shall be fully vested in the Recipient on the Grant Date. 2 -------------------------------------------------------------------------------- (c)           Expiration of the Holding Period.  Upon the expiration of the Holding Period, the Recipient shall own the Restricted Shares free and clear of all restrictions imposed by this Agreement and the Recipient shall be free to hold or dispose of such Restricted Shares in his discretion, subject to applicable federal and state law or regulations. (d)           Prohibition Against Assignment.  During the Holding Period, the Restricted Shares may not be transferred or encumbered by the Recipient by means of sale, assignment, mortgage, transfer, exchange, pledge, or otherwise.  The levy of any execution, attachment, or similar process upon the Restricted Shares shall be null and void. 3.             Stock Certificates. (a)           Certificates.  Restricted Shares shall be evidenced by a certificate registered in the name of the recipient or a nominee or nominees therefor.  As soon as practicable following the date hereof, the Company shall prepare a certificate for the Restricted Shares, which shall be registered in the name of the Recipient or a nominee and which shall bear such restrictive legend or legends (if any) as the Company may deem necessary or desirable under any applicable law. (b)           Effect of the Expiration of the Holding Period.  Upon the expiration of the Holding Period, the Company shall cause to be delivered to the Recipient a certificate for the Restricted Shares free and clear of restrictive legends.  In the event that the Recipient dies before delivery of the certificate for the unrestricted Restricted Shares, such certificate shall be delivered to, and registered in the name of, the Recipient’s beneficiary or estate, as the case may be. (c)           Rights of Stockholder.  Except as otherwise provided in Section 2 and this Section 3, during the Holding Period and after the certificates for the Restricted Shares have been issued, the Recipient shall be entitled to all rights of a stockholder of the Company, including the right to vote and the right to receive dividends, with respect to the Restricted Shares subject to this Agreement.  Subject 3 -------------------------------------------------------------------------------- to applicable withholding requirements, if any, dividends on the Restricted Shares shall be paid to the Recipient when earned and payable. 4.             Termination of Employment. A termination of the Recipient’s employment with the Company for any reason on or prior to the expiration of the Holding Period shall have no effect on the obligations of the Company under this Agreement.  In the event that the Recipient’s employment with the Company is terminated for any reason on or prior delivery of the certificate for the unrestricted Restricted Shares, such certificate shall be delivered to the Recipient in accordance with Section 3 as if the Recipient’s employment with the Company had not been terminated. 5.             Withholding. In connection with the delivery of any stock certificates, or the making of any payment in accordance with the provisions of this Agreement, to the extent not otherwise paid by or on behalf of the Recipient, the Company shall withhold Restricted Shares or cash amounts (for fractional Restricted Shares) equal to the taxes then required by applicable federal, state and local law to be so withheld. 6.             Adjustments for Capital Changes. In the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares, or other similar corporate change, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company, a duly authorized representative of the Company shall adjust the number of Restricted Shares granted pursuant to the Plan and this Agreement to prevent dilution or enlargement of the rights granted to the Recipient. 7.             No Right to Continued Employment. Nothing in this Agreement shall confer on the Recipient any right to continue as an employee of the Company or in any way affect the Company’s or any 4 -------------------------------------------------------------------------------- subsidiary’s right to terminate the Recipient’s employment at any time subject to the terms of the Recipient’s employment agreement. 8.             Notice. Any notice to the Company hereunder shall be in writing addressed to: Mack-Cali Realty Corporation P.O. Box 7817 Edison, New Jersey 08818-7817   Attn:   Roger W. Thomas       General Counsel         Any notice to the Recipient hereunder shall be in writing addressed to: the Recipient at his address as set forth in the Company records or such other address as the Recipient shall notify the Company of in writing. 9.             Section 409A. This Restricted Share Award Agreement is not intended to provide for an elective deferral of compensation that would be subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the Company reserves the right to unilaterally amend or modify this Agreement to ensure that the awards do not become subject to the requirements of Section 409A thereof. 10.          Entire Agreement. This Agreement contains the entire understanding of the parties and shall not be modified or amended except in writing and duly signed by each of the parties hereto.  No waiver by either party of any default under this Agreement shall be deemed a waiver of any later default hereunder. 11.          Construction. The various provisions of this Agreement are severable in their entirety.  Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions. 5 -------------------------------------------------------------------------------- 12.          Governing Law. This Agreement shall be governed by the laws of the State of New Jersey applicable to contracts made, and to be enforced, within the State of New Jersey. 13.          Successors. This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective on the date first above written. Mack-Cali Realty Corporation       By:   /s/ Barry Lefkowitz       Barry Lefkowitz       Executive Vice President       and Chief Financial Officer                   Recipient           /s/ Mitchell E. Hersh       Mitchell E. Hersh       6 --------------------------------------------------------------------------------

Exhibit 10.2 NEITHER THIS SECURITY NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE “SECURITIES ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS SECURITY NOR THE SHARES OF STOCK ISSUED UPON EXERCISE HEREOF MAY BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND EXEMPTION OR QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUESTED BY THE COMPANY, DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. ANY ATTEMPT TO TRANSFER, SELL, PLEDGE OR HYPOTHECATE THIS SECURITY OR SUCH SHARES IN VIOLATION OF THESE RESTRICTIONS SHALL BE VOID. THE TRANSFER OF THIS SECURITY AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF ARE ALSO RESTRICTED BY THIS AGREEMENT. ALLEGRO BIODIESEL CORPORATION STOCK OPTION AGREEMENT PURSUANT TO 2006 INCENTIVE COMPENSATION PLAN (As amended and restated effective September 20, 2006) Paul Galleberg (the “Optionee”) is hereby granted an option (the “Option”) to purchase shares of the Common Stock of Allegro Biodiesel Corporation, a Delaware corporation (the “Company”) pursuant to this Stock Option Agreement (this “Agreement”) and the Company’s 2006 Incentive Compensation Plan (as amended, the “Plan”), the provisions of which are incorporated herein by reference. The Option is amended and restated as set forth herein (i) to reflect the assumption by the Company of the Option previously granted by Diametrics Medical, Inc. (“Diametrics”), pursuant to the merger of Diametrics into the Company, and (ii) to restrict the period during which the Option may be exercised, in accordance with Section 409A of the Code.     1. TERMS OF GRANT. “Date of Option Grant” means September 20, 2006. “Option Shares” means 348,480 shares of Common Stock; $0.01 per share, of the Company. “Exercise Price” means $0.7587 per share of Common Stock “Option Expiration Date” means December 31, 2008, or such later date by which the Option may be exercised pursuant to Section 7.2.     2. DEFINITIONS AND CONSTRUCTION. 2.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. 2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise. This Option is intended to comply with Section 409A of the Code and shall be interpreted and construed accordingly.     3. TAX CONSEQUENCES. The Option is not intended to constitute an “incentive stock option” as that term is used in Code Section 422. --------------------------------------------------------------------------------   4. EXERCISE OF THE OPTION. 4.1 Vesting and Right to Exercise. Except as otherwise provided herein, and prior to the termination of the Option (as provided in Section 6), the Option shall be vested: (i) on the date that is three months after its date of grant, for 25% of the shares of Common Stock subject to such Option on its date of grant, (ii) on the date that is six months after its date of grant, for an additional 25% of the shares of Common Stock subject to such Option on its date of grant, (iii) on the date that is nine months after its date of grant, for an additional 25% of the shares of Common Stock subject to such Option on its date of grant and (iv) on the date that is twelve months after its date of grant, for an additional 25% of the shares of Common Stock subject to such Option on its date of grant. Except as otherwise provided herein, the Option shall be exercisable, to the extent the Option is vested, not earlier than January 1, 2008 and not later than the Option Expiration Date; provided that if a Change in Control occurs prior to January 1, 2008, and such Change in Control is also a “change in control event” within the meaning of Section 409A of the Code, the Option shall either be (i) converted into a right to receive a cash payment pursuant to Section 5.8(a)(2) of the Plan or (ii) be exercisable during the period beginning on the date of such Change in Control and ending on the later to occur of (A) the last day of the calendar year in which such Change in Control occurs or (B) the date that is 2 1/2 months after the date of such Change in Control. 4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company in the form of Exhibit A and Exhibit B hereto. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Executive Officer of the Company, or other authorized representative of the Company, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of Option Shares being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price. 4.3 Payment of Exercise Price. (a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of Option Shares for which the Option is being exercised shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company of whole Option Shares owned by the Optionee having a Fair Market Value not less than the aggregate Exercise Price (iii) by retention by the Company of that number of Options Shares (the “Retained Shares”) having an aggregate Fair Market Value on the date of exercise equal to the aggregate exercise price for all Option Shares for which the Option is being exercised, so that the Optionee receives the number of Option Shares for which the Option is exercised less the Retained Shares or (iv) by any combination of the foregoing. If the Retained Shares include a fractional share, the Retained Shares will be rounded up to the nearest whole share. (b) Limitations on Forms of Consideration. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company of Option Shares to the extent such tender, or attestation to the ownership, of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock. The Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. 4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any Option Shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon -------------------------------------------------------------------------------- exercise of the Option. The Optionee is cautioned that the Option is not exercisable unless the tax withholding obligations of the Company are satisfied. Accordingly, the Optionee may not be able to exercise the Option when desired even though the Option is vested, and the Company shall have no obligation to issue a certificate for such shares. 4.5 Certificate Registration. The certificate for the Option Shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, the Optionee’s heirs. 4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and the issuance of Option Shares upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of Option Shares upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise of the Option.     5. NONTRANSFERABILITY OF THE OPTION AND OPTION SHARES. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by the Optionee’s legal representative or by any person empowered to do so under the deceased Optionee’s will or under the then applicable laws of descent and distribution.     6. TERMINATION OF THE OPTION. Except as provided in Section 7.2, the Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the later to occur of (i) the last day of the calendar year in which a Change in Control occurs or (ii) 2 1/2 months after the date of such Change in Control or (c) the termination of the Optionee’s Service for Cause as described in Section 7.     7. EFFECT OF TERMINATION OF SERVICE. 7.1 Option Exercisability. If the Optionee’s employment with or service to the Company (“Service”) terminates for any reason other than for Cause, the Option shall continue to be exercisable pursuant to Section 4.1. If the Optionee’s Service is terminated for Cause, the Option shall terminate and cease to be exercisable immediately upon such termination of Service. 7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, then to the extent permitted without penalty under Section 409A of the Code, the Option shall remain exercisable until thirty (30) days after the date the Optionee is notified by the Company that the Option is exercisable. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee’s own tax advisor as to the tax consequences of any such delayed exercise. --------------------------------------------------------------------------------   8. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued. Nothing in this Agreement shall confer upon the Optionee any right to continue in Optionee’s Service or interfere in any way with any right of the Company to terminate the Optionee’s Service at any time.     9. LEGENDS. The Company may at any time place legends referencing the this Agreement and any applicable federal, state or foreign securities law restrictions on all certificates representing Option Shares subject to the provisions of this Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing Option Shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section 9. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: 9.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.” 9.2 “THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, MORTGAGE, HYPOTHECATION, ENCUMBRANCE, GIFT OR OTHER DISPOSITION OF SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY A STOCK OPTION AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.”     10. REPRESENTATIONS AND WARRANTIES OF THE OPTIONEE. 10.1 Optionee hereby confirms, that this Option is and the Option Shares will be acquired for investment for the Optionee’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Optionee has no present intention of selling, granting any participation in, or otherwise distributing such Option Shares. Optionee further represents that he does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to any Person, with respect to this Option or any of the Option Shares. 10.2 Optionee has had an opportunity to ask questions of and receive answers from the Company regarding business, management and financial affairs of the Company and the terms and conditions of the offering of this Option and the Option Shares. 10.3 Optionee understands that this Option and the Option Shares have not been registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent -------------------------------------------------------------------------------- and the accuracy of Optionee’s representations as expressed herein. Optionee understands that this Option is and the Option Shares are “restricted securities” under applicable federal and state securities laws and that, pursuant to these laws, the Optionee must hold this Option is and the Option Shares indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Optionee acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Option and the Option Shares, and on requirements relating to the Company that are outside of the Optionee’s control, and which the Company is under no obligation and may not be able to satisfy. 10.4 Optionee is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.     11. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise of the Option may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Agreement, and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred.     12. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.     13. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation. No amendment or addition to this Agreement shall be effective unless in writing.     14. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address set forth below or at such other address as such party may designate in writing from time to time to the other party.     15. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Company with respect to the subject matter contained herein and therein and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. --------------------------------------------------------------------------------   16. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, or if the Company is reincorporated in another state by merger or otherwise, the laws of such other state, and construed in accordance therewith without giving effect to principles of conflicts of law. [Signature Page Follows] -------------------------------------------------------------------------------- By their signatures below, the parties hereto agree that the Option is governed by the terms and conditions of the Plan as in effect on the Date of Option Grant, which is attached hereto. The Optionee acknowledges receipt of a copy of the Plan, represents that he or she is familiar with the provisions contained therein, and hereby accepts the Option subject to all of the terms and conditions thereof.   PAUL GALLEBERG     ALLEGRO BIODIESEL CORPORATION By:   /s Paul Galleberg     By:   /s/ W. Bruce Comer, III       Name:   W. Bruce Comer, III       Title:   Director Address: 2721 Via Elevado Palos Verdes Estates, CA 90274       Address: 6033 West Century Blvd., Suite 850 Los Angeles, CA 90045 Attachment: 2006 Incentive Compensation Plan -------------------------------------------------------------------------------- EXHIBIT A OPTION EXERCISE NOTICE Allegro Biodiesel Corporation 6033 West Century Blvd., Suite 850 Los Angeles, CA 90045 Attn: Secretary Ladies and Gentlemen: This constitutes notice that, as of the date this notice and payment of the exercise price is received by the Secretary of Allegro Biodiesel Corporation (the “Company”), the Optionee is electing to exercise the stock option granted under Company’s 2006 Incentive Compensation Plan (the “Plan”) and identified below, and to purchase the number of shares for the price set forth below:   Grant Date of stock option:    ________________________ Number of shares as to which option is exercised:    _______________ Stock certificate to be issued in name of:    ______________________ Total exercise price:    $____________ Cash payment delivered with this election:    $____________ Principal amount of promissory note delivered with this election:    $____________ Value of _____ shares of common stock delivered with this election:1    $____________   -------------------------------------------------------------------------------- 1 This alternative applies only if shares meet the public trading requirements. Shares must be valued in accordance with the terms of the option being exercised, must have been owned for the minimum period required in the option, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from the certificate.   -------------------------------------------------------------------------------- By this exercise, the Participant agrees (i) to provide such additional documents as the Company may require pursuant to the terms of the Plan, and (ii) to provide for the payment to the Company (in the manner determined by the Company) of amounts required to satisfy the Company’s withholding obligation, if any, relating to this option exercise. The Participant also acknowledges having received, read and understood the Plan, and agrees to abide by and be bound by its terms and conditions.   Submitted by: PAUL GALLEBERG     Accepted by: ALLEGRO BIODIESEL CORPORATION        By:      Signature     Its:               Print Name   Address:   2721 Via Elevado Palos Verdes Estates, CA 90274     Date Received: _____________________________________ -------------------------------------------------------------------------------- EXHIBIT B INVESTMENT REPRESENTATION STATEMENT [This form is to be completed at the time option is exercised, unless stock is publicly traded at that time.] Effective as of ___________________ [insert date of option exercise] (the “Effective Date”), the undersigned (“Optionee”) has elected to purchase __________ shares of the Common Stock, par value $0.01 per share (the “Shares”), of Allegro Biodiesel Corporation, a Delaware corporation (the “Company”) under and pursuant to the Company’s 2006 Incentive Compensation Plan (the “Plan”) and the Stock Option Agreement dated ______________ [insert grant date of option] (the “Option Terms”). The Optionee hereby makes the following certifications, representations, warranties and agreements with respect to the purchase of the Shares: The Optionee acknowledges that he or she is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. The Optionee represents and warrants to the Company that he or she is acquiring these Shares for investment for the Optionee’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). The Optionee further acknowledges that the Shares have not been registered under the Securities Act, are deemed to constitute “restricted securities” under Rule 701 and Rule 144 promulgated under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act and qualified under any applicable state securities laws or an exemption from such registration and qualification is available. The Optionee further acknowledges that the Company is under no obligation to register the Shares. The Optionee further acknowledges that he or she is familiar with the provisions of Rule 701 and Rule 144, which Rules, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. The Optionee understands that if the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Optionee will not be able to resell the Shares under Rule 701 (i) until at least ninety (90) days after the Company became subject to such reporting requirements (or any longer stand-off period, as discussed below, may require) and (ii) unless such resale satisfies those provisions of Rule 144 that are specified in Rule 701(g)(3). Even if the Company is not subject to such reporting requirements, the Shares may be resold in certain limited circumstances subject to satisfaction of all of the applicable provisions of Rule 144. The Optionee further acknowledges that in the event all of the applicable requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required in order to resell the Shares. The Optionee understands that no assurances can be given that any such registration will be made or any such exemption will be available in such event. The Optionee further acknowledges and understands that all certificates representing any of the Shares shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting any other restrictions pursuant to the Company’s Articles of Incorporation, Bylaws, the Option Terms, the Plan and/or applicable securities laws. The Optionee further agrees that, if so requested by the Company or any representative of the underwriters (the “Managing Underwriter”) in connection with any registration of the offering of any securities of the Company under the Securities Act, the Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period, or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (the “Market Standoff Period”), following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to -------------------------------------------------------------------------------- become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. The Optionee further acknowledge and agrees that the Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the representations, warranties, agreements or other provisions contained in this Notice of Exercise or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.       PAUL GALLEBERG

Exhibit 10.3   FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT dated as of June 15, 2006 among DYNTEK, INC., DYNTEK SERVICES, INC. and THE PURCHASERS NAMED HEREIN   --------------------------------------------------------------------------------   FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT THIS FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (this “First Amendment”) dated as of June 15, 2006, is among DYNTEK, INC., a Delaware corporation (the “Company”), DYNTEK SERVICES, INC., a Delaware corporation (the “Subsidiary” and, together with the Company, the “Debtors”), and the undersigned purchasers hereto (each individually a “Purchaser” and collectively the “Purchasers”). R E C I T A L S A.            WHEREAS, the Company and the Purchasers are parties to that certain Note Purchase Agreement dated as of March 8, 2006 (the “Purchase Agreement”), pursuant to which the Company issued and sold (x) to the Purchasers an initial aggregate principal amount of $6,700,000 of its senior secured promissory notes (the “Senior Notes”) and (y) to Trust A-4 - Lloyd I. Miller (“Trust A-4”) an initial aggregate principal amount of $3,000,000 of a junior secured convertible promissory note (the “Original Junior Note”). B.            WHEREAS, as a condition to the Purchasers’ obligations to enter into the Purchase Agreement and to extend credit to the Company thereunder, the Debtors executed and delivered certain Security and Pledge Agreements (the “Security Agreements” and, collectively referred to herein with the Purchase Agreement as the “Note Documents”), each dated as of March 8, 2006, by and between the Debtors and the Purchasers (in respect of the Senior Notes) and by and between the Debtors and Trust A-4 (in respect of the Original Junior Note) (the “Junior Security Agreement”), as security for the payment and performance of all obligations of the Debtors to the Purchasers and to guarantee all of the obligations of the Debtors under the Purchase Agreement. C.            WHEREAS, the Company wishes to issue and sell to Trust A-4 an additional junior secured convertible promissory note in the initial principal amount of $1,000,000 (the “Additional Junior Note”) pursuant to the same terms and conditions as provided for the Original Junior Note in the Purchase Agreement. D.            WHEREAS, the Company and the Purchasers have agreed that to satisfy the purchase and sale of the Additional Junior Note, Trust A-4 shall deliver to the Company an agreed upon amount by wire transfer of immediately available funds along with the Original Junior Note and the Company (upon receipt of same) shall issue in exchange thereof a new junior secured convertible promissory note in the initial principal amount of $1,000,000. E.             WHEREAS, the Company and Lloyd I. Miller, III (“Miller”) have agreed that upon a subsequent request of Miller or an affiliate of Miller, the Company shall issue additional junior secured convertible promissory notes up to an aggregate initial principal amount of $3,000,000 pursuant to the same terms and conditions as provided for the Original Junior Note in the Purchase Agreement. F.             WHEREAS, in order to satisfy the foregoing, both the Debtors and the Purchasers have agreed to amend certain provisions of the Purchase Agreement and the Debtors have also agreed to ratify and affirm all of their respective obligations under the Note Documents. --------------------------------------------------------------------------------   NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1.               Defined Terms. Each capitalized term used herein but not otherwise defined herein has the meaning given such term in the Purchase Agreement. Unless otherwise indicated, all references to Sections in this First Amendment refer to Sections of the Purchase Agreement. Section 2.               Amendments to Purchase Agreement. 2.1           Amendments to Introductory Recital   (a)           The definition of “Agreement” is hereby amended in its entirety to read as follows: “Agreement” means this Note Purchase Agreement, dated as of March 8, 2006, between the Company and the Purchasers, as amended by the First Amendment, and as the same may be amended, modified, supplemented or restated from time to time in accordance herewith. (b)           The definition of “First Amendment” is hereby inserted to read as follows: “First Amendment” means the First Amendment to Note Purchase Agreement, dated as of June 15, 2006 by and among the Debtors and the Purchasers. 2.2           Further Amendments to Purchase Agreement   (a)           Section 1.02 is hereby amended in its entirety to read as follows: “The Company has authorized the issuance and sale to Miller or an affiliate of Miller’s, the Company’s Junior Secured Convertible Promissory Notes, due March 1, 2011 (the “Junior Note Maturity Date”), in the original aggregate principal amount of up to $7,000,000. The Company shall issue to Trust A-4, dated as of March 8, 2006, a Junior Secured Convertible Promissory Note, in the original principal amount of $3,000,000 (the “Original Junior Note”), due on the Junior Note Maturity Date. The Original Junior Note will be substantially in the form set forth in Exhibit F hereto. The Company shall issue to Trust A-4, a subsequent Junior Secured Convertible Promissory Note, dated as of the date of this First Amendment, a Junior Secured Convertible Promissory Note, in the original principal amount of $1,000,000 (the “Additional Junior Note”), due on the Junior Note Maturity Date. The Additional Junior Note will be substantially in the form set forth in Exhibit G hereto. The Original Junior Note and the Additional Junior Note shall each be referred to herein as a “Junior Note” and, collectively with the Senior Notes, referred to as the “Notes,” which term will also include any notes delivered in exchange or replacement therefor. All references to a Junior Note in the Note Documents shall be deemed to be --------------------------------------------------------------------------------   references to both the Original Junior Note and the Additional Junior Note. (b)           The second sentence of Section 1.03 is hereby amended in its entirety to read as follows: “The consideration to be paid for the Notes will consist of $10,700,000 cash.” (c)           The column in Schedule I which states the Principal Amount of Junior Notes to be Purchased is hereby amended to state “$4,000,000” instead of “$3,000,000.” Section 3.               Conditions Precedent. This First Amendment shall not become effective until the date on which each of the following conditions are satisfied (the “Effective Date”): (a)           no Event of Defaults nor a breach of any representations and warranties by the Debtors shall have occurred and be continuing as of the Effective Date under the Note Documents (including after giving effect to the terms of this First Amendment); (b)           the representations and warranties in this First Amendment shall be true and correct in all material respects; (c)           the parties shall have received this First Amendment duly and validly delivered and executed on behalf of the Debtors and the Purchasers; (d)           Purchasers will have received an opinion of the Company’s counsel, dated the Effective Date, with respect to legal matters customary for transactions of this type, in a form reasonably acceptable to Purchasers and counsel for Purchasers; (e)           the Company’s representations and warranties contained herein will be true, complete and correct on and as of the Effective Date, and the President and Chief Financial Officer of the Company will have certified to such effect to Purchasers in writing; (f)            the Company will have performed and complied in all material respects with all covenants and agreements contained herein required to be performed or complied with by it prior to or at the Effective Date and the President and Chief Financial Officer of the Company will have certified to the Purchasers in writing to such effect and to the further effect that all of the conditions set forth in this Section 3 have been satisfied; (g)           all corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto will be satisfactory in form and substance to Purchasers and their counsel, and Purchasers and their counsel will have received all such counterpart originals or certified or other copies of such documents as they reasonably may request; (h)           Purchasers and its counsel will have received copies of the following documents (i) a certificate of the Secretary of State of Delaware dated as of a recent date as to the due incorporation and good standing of the Company, the payment of all excise --------------------------------------------------------------------------------   taxes by the Company and listing all documents of the Company on file with said Secretary, (ii) a certificate of the Secretary of the Company dated the date hereof certifying:  (A) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this First Amendment, the issuance, sale and delivery of the Additional Junior Note, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this First Amendment; and (B) to the incumbency and specimen signature of each officer of the Company executing any of this First Amendment, the Additional Junior Note and any certificate or instrument furnished pursuant hereto, and a certification by another officer of the Company as to the incumbency and signature of the officer signing the certificate referred to in this clause; and (iii) such additional supporting documents and other information with respect to the operations and affairs of the Company as the Purchasers or their counsel reasonably may request. All such documents will be satisfactory in form and substance to the Purchasers and their counsel; and (i)            the Company shall have issued and delivered the Additional Junior Note, dated the date hereof in the original principal amount of $1,000,000 to the address and attention as designated by Miller. Upon satisfaction of the foregoing conditions and receipt of the Additional Junior Note by Miller, Trust A-4 shall deliver to the Company $1,000,000 less the Purchaser’s reasonable estimated expenses to be paid by the Company pursuant to Section 7.01 of the Purchase Agreement. Section 4.               Further Additional Issuance of Junior Notes. The Company and the Purchasers hereby agree, that upon the request of Miller or an affiliate of Miller, the Company shall issue and sell to Miller or an affiliate of Miller additional junior secured convertible promissory notes up to an aggregate original principal amount of $3,000,000 pursuant to the same terms and conditions as provided for the Junior Note in the Purchase Agreement and the parties shall thereupon further amend the Purchase Agreement to reflect the issuance of said additional junior secured convertible promissory note. Section 5.               Miscellaneous. 5.1           Confirmation. The provisions of the Note Documents, as amended by this First Amendment, shall remain in full force and effect following the effectiveness of this First Amendment.   5.2           Ratification and Affirmation; Representations and Warranties. The Debtors each hereby (a) acknowledge the terms of this First Amendment; (b) ratifies and affirms its obligations under, and acknowledges, renews and extends its continued liability under, each Note Document to which it is a party and agrees that each Note Document to which it is a party remains in full force and effect, except as expressly amended hereby, notwithstanding the amendments contained herein and (c) represents and warrants to the Purchasers that as of the date hereof, after giving effect to the terms of this First Amendment:  (i) all of the representations and warranties contained in each Note Document to which it is a party are true and correct, unless such representations and warranties are stated to relate to a specific earlier date, in which --------------------------------------------------------------------------------   case, such representations and warranties shall continue to be true and correct as of such earlier date and (ii) no Event of Default under the Purchase Agreement nor Default under the Security Agreements has occurred and is continuing. Without limiting the generality of the foregoing, each Debtor hereby acknowledges and agrees that the Security Interest (as defined in the Junior Security Agreement) continues to secure the payment and performance of the Obligations (as defined in the Junior Security Agreement), including, without limitation, the Additional Junior Note. The Company further represents and warrants to the Purchasers that from and after the date of the Purchase Agreement until the date of this First Amendment, no changes have been made to the Certificate of Incorporation of the Company nor the Bylaws of the Company.   5.3           Further Assurances. The parties agree to (i) execute and deliver, or cause to be executed and delivered, all such other and further agreements, documents and instruments and (ii) take or cause to be taken all such other and further actions as any Purchaser may reasonably request to effectuate the intent and purposes, and carry out the terms, of this First Amendment.   5.4           Counterparts. This First Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of this First Amendment by facsimile transmission or electronic mail shall be effective as delivery of a manually executed counterpart hereof.   5.5           ENTIRE AGREEMENT. THIS FIRST AMENDMENT, THE PURCHASE AGREEMENT AND THE OTHER NOTE DOCUMENTS EXECUTED IN CONNECTION HEREWITH AND THEREWITH REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.   5.6           GOVERNING LAW. THIS FIRST AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.   [SIGNATURES BEGIN NEXT PAGE] --------------------------------------------------------------------------------   IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first written above.   DEBTORS:       DYNTEK, INC.       By: /s/ Casper Zublin, Jr.   Name: Casper Zublin, Jr.   Title: Chief Executive Officer         DYNTEK SERVICES, INC.       By: /s/ Casper Zublin, Jr.   Name: Casper Zublin, Jr.   Title: Chief Executive Officer   PURCHASERS:       SACC PARTNERS, L.P         By: /s/ Bryant Riley   Name: Bryant Riley     Title: Managing Partner             LLOYD I. MILLER, III           By: /s/ Lloyd I. Miller, III   Name: Lloyd I. Miller, III             TRUST A-4-LLOYD I. MILLER             By: PNC Bank, National Association,       as Trustee             By: /s/ Lloyd I. Miller, III     Name: Lloyd I. Miller, III     Title: Investment Advisor to Trustee       --------------------------------------------------------------------------------

Exhibit 10.7   REXNORD CORPORATION SPECIAL SIGNING BONUS PLAN DATED:  JULY 21, 2006 This document sets forth the terms of the Special Signing Bonus Plan (the “Plan”) of Rexnord Corporation (and any successor to such corporation, the “Company”). 1.             Operation of the Plan 1.1          Participation.  Only the Persons (as defined in Exhibit A hereto) who are employees, consultants or directors of, or who are otherwise providing services to, the Company or one of its Subsidiaries (as such term is defined in Exhibit A hereto) and are listed in Exhibit B hereto (each, a “Participant”) are eligible to receive a bonus (a “Bonus”) under the Plan.   1.2          Bonus Amount.  The amount of each Participant’s Bonus under the Plan shall be communicated to the Participant in a “Plan Participation Letter,” which may contain terms and conditions on the payment of a Bonus under the Plan in addition to those set forth herein.   1.3          Award Payment and Timing.  A Participant’s Bonus will be paid by the Company to the Participant in cash upon or as soon as administratively practicable following the earliest to occur of (i) the payment date specified in the Participant’s Plan Participation Letter, (ii) a Change in Control (as defined in Exhibit A hereto) or (iii) the Participant’s Separation From Service (as defined in Exhibit A hereto), whenever it may occur (the earliest of such dates to occur is referred to herein as the “Payment Date”); provided, however, that in no event shall the Bonus be paid later than the 30th day following the Payment Date. 2.             Other Rules 2.1          Administration.  The Board of Directors of the Company (the “Board”) shall administer the Plan.  The Board shall have the authority to construe and interpret the Plan and any agreement, Plan Participation Letter or other document relating to the Plan.  All actions taken and all interpretations and determinations made by the Board in respect of the Plan shall be made in the Board’s sole discretion, shall be conclusive and binding on all persons and shall be given the maximum deference permitted by law. 2.2          No Assignment.  The rights, if any, of a Participant or any other person to any Bonus payment or other benefits under the Plan may not be assigned, transferred, pledged, or encumbered except by will or the laws of descent or distribution.  The Company may, without the consent of Participants, assign its obligations under the Plan to any of its Subsidiaries or other Affiliates (as defined in Exhibit A hereto) or to any successor to all or substantially all of the its assets or otherwise in connection with a Change in Control. 2.3          Withholding.  All payments made under the Plan will be subject to required income, employment and other tax withholdings and any other authorized deductions. 2.4          Amendment; Section 409A.  The Company reserves the right to amend and/or terminate the Plan at any time and in any manner, with or without notice; provided, however, that the written consent of a Participant will be required to the extent such amendment or termination adversely affects the Participant’s rights under the Plan.  No   1 --------------------------------------------------------------------------------   amendment shall be binding upon the Company unless approved by the Company and set forth in writing.  Without limiting the foregoing, the Plan is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the Company reserves the right to make any amendments to the Plan consistent with Participants’ rights hereunder to the extent it deems necessary or advisable to so comply. 2.5          No Fiduciary Relationship.  Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed as creating a trust or any kind of fiduciary relationship between the Company or any of its Subsidiaries or other Affiliates, on one hand, and any Participant or any other person, on the other hand. 2.6          No Right to Continued Employment.  Nothing contained in the Plan or any related document constitutes an employment or service commitment by the Company or any of its Subsidiaries or other Affiliates, affects an employee’s status as an employee at will, confers upon any Participant any right to remain employed by or in service to the Company or any of its Subsidiaries or other Affiliates, interferes in any way with the right of the Company or any of its Subsidiaries or other Affiliates to terminate a Participant’s employment or service or to change the Participant’s compensation or other terms of employment or service at any time (except as otherwise provided in an employment or consulting agreement between the Company and a Participant).  The Plan provides for a one-time payment for each Participant, and it is not anticipated that any Participant will be eligible for any future bonus under the Plan. 2.7          Governing Law.  The Plan, and any and all documents evidencing the Bonuses (including, without limitation, any Plan Participation Letter) and all other related documents, shall be governed by and construed in accordance with the domestic laws of the state of New York without regard to conflicts of laws principles thereof that would cause the application of the laws of any jurisdiction other than the state of New York. 2.8          Arbitration; Waiver of Trial.  Any dispute or controversy arising under, out of, or in connection with or in relation to the Plan or a Plan Participation Letter shall be finally determined and settled by arbitration in New York, New York in accordance with the Commercial Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction.  Within 20 days of the conclusion of the arbitration hearing, the arbitrator shall prepare written findings of fact and conclusions of law.  It is mutually agreed that the written decision of the arbitrator shall be valid, binding, final and non-appealable; provided, however, that the arbitrator shall not be empowered to award punitive damages against any party to such arbitration.  To the extent permitted by law, the arbitrator’s fees and expenses will be borne equally by each party.  In the event that an action is brought to enforce the provisions of the Plan or a Plan Participation Letter pursuant to this Section 2.8, each party to such action shall pay its own attorney’s fees and expenses regardless of whether in the opinion of the court or arbitrator deciding such action there is a prevailing party.  THE COMPANY AND THE PARTICIPANTS EXPRESSLY WAIVE ALL RIGHT TO A TRIAL, INCLUDING, WITHOUT LIMITATION, TRIAL BY JURY, IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE PLAN OR A PLAN PARTICIPATION LETTER. 2.9          Notices.  All notices, requests, consents and other communications hereunder to the Company or any Participant shall be deemed to be sufficient if contained in a written instrument and shall be deemed to have been duly given when delivered in person, by telecopy, by nationally-recognized overnight courier, or by first class registered or certified   2 --------------------------------------------------------------------------------   mail, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by the addressee to the addressor: (i)            if to the Company, to: Rexnord Corporation 4701 Greenfield Avenue Milwaukee, WI 53214 Attention:  Patty Whaley with copies to: Rexnord Corporation c/o Apollo Management, L.P. 9 West 57th Street, 43rd Floor New York, NY  10016 Fax:  (212) 515-3288 Attention:  Steven Martinez and Rexnord Corporation c/o Apollo Management, L.P. 10250 Constellation Blvd., Suite 2900 Los Angeles, CA  90067 Fax:  (310) 843-1933 Attention:  Larry Berg and O’Melveny & Myers LLP Times Square Tower 7 Times Square New York, NY  10036 Fax:  (212) 326-2061 Attention:  John M. Scott, Esq. (ii)           if to a Participant, to the Participant’s home address on file with the Company. 2.10        Severability.  If it is determined that any provision of the Plan or a Plan Participation Letter, or any action pursuant thereto, is illegal or unenforceable for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan and/or Plan Participation Letter, the Plan and Plan Participation Letter shall be construed and enforced as if the illegal or invalid provisions had not been included, and the illegal or invalid action shall be null and void. 2.11        Other Company Compensation or Benefit Programs.  A Bonus received by a Participant under the Plan shall not be deemed a part of the Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any of its Subsidiaries or other Affiliates, except where the Company expressly otherwise provides or authorizes in writing.    3 --------------------------------------------------------------------------------   Bonuses under the Plan may be made in addition to or in combination with grants, awards or commitments under any other plans or arrangements of the Company or any of its Subsidiaries or other Affiliates. 2.12        Section Headings.  Section headings are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. 2.13        Effective Date.  The Plan is adopted by the Company effective as of July 21, 2006.   4 --------------------------------------------------------------------------------   I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Rexnord Corporation on July 21, 2006. Executed on this 21st day of July, 2006   REXNORD CORPORATION                     By: /s/ Thomas J. Jansen         Name: Thomas J. Jansen         Its: Executive Vice President and Chief Financial Officer     5 --------------------------------------------------------------------------------   EXHIBIT A REXNORD CORPORATION SPECIAL SIGNING BONUS PLAN DEFINITIONS For purposes of the Plan, the following terms shall have the following meanings: A.1                             “Affiliate” means, with respect to any Person (as defined below), any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such Person, through one or more intermediaries or otherwise.  For purposes of this definition, “control” means, when used with respect to any Person, the power to direct the management and policies of such Person, directly or indirectly, through the ownership of voting securities, by contract or otherwise. A.2          “Change in Control” means: (a)                                  Approval by stockholders of the Company (or, if no stockholder approval is required, by the Board of Directors of the Company alone) of the complete dissolution or liquidation of the Company, other than in the context of a Business Combination (as defined below) that does not constitute a Change in Control under paragraph (c) below; (b)                                 The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this paragraph (b), the following acquisitions shall not constitute a Change in Control; (A) any acquisition directly from the Company or any of its Subsidiaries, (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 Affiliates or a successor, (D) any acquisition by any entity pursuant to a Business Combination, (E) any acquisition by a Person who is the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Common Stock and/or the Outstanding Company Voting Securities on the Effective Date (or an Affiliate, heir or descendant of such Person) or (F) any acquisition by Apollo Management VI, L.P., a Delaware limited partnership, or one of its Affiliated investment funds; or (c)                                  Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company (a “Subsidiary”), a sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting   6 --------------------------------------------------------------------------------                                                   power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets directly or through one or more subsidiaries (a “Parent”)), and (2) no Person (excluding any individual or entity described in clauses (C), (E) or (F) of paragraph (b) above) beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, more than 50% of the combined voting power of the then-outstanding voting securities of such entity, except to the extent that the ownership in excess of 50% existed prior to the Business Combination; provided, however, that an underwritten public offering of the securities of the Company or any of its Subsidiaries shall in no event constitute a Change in Control for purposes of the Plan, and provided, further, that no event or transaction shall constitute a Change in Control for purposes of the Plan unless such event or transaction is also a “change in control event” for purposes of Section 409A of the Code and the published authorities promulgated thereunder. A.3                             “Separation From Service” means the death, retirement or other termination of a Participant’s employment or service with the Company and its Subsidiaries (as such term is defined in the definition of Change in Control); provided, however, that in no event shall a termination of a Participant’s employment or service with the Company or any of its Subsidiaries constitute a Separation From Service unless such termination of employment or service is also a “separation from service” within the meaning of Section 409A of the Code and the published authorities promulgated thereunder.   7 --------------------------------------------------------------------------------  

Exhibit 10.1 FMC CORPORATION INCENTIVE COMPENSATION AND STOCK PLAN (Amended and Restated as of February 23, 2006) SECTION 1. HISTORY AND PURPOSE 1.1. History. In 1995 the Company’s stockholders approved the adoption of the FMC 1995 Stock Option Plan and the FMC 1995 Management Incentive Plan with 3,000,000 shares of Common Stock available for issuance under the two plans combined. Effective as of February 16, 2001, the Board merged the FMC 1995 Management Incentive Plan with and into the FMC 1995 Stock Option Plan, and the FMC 1995 Stock Option Plan was restated as provided herein, and renamed the FMC Corporation Incentive Compensation and Stock Plan. Also effective as of February 16, 2001, the Board approved an addition to the authorization of shares available for issuance under the Plan of 800,000 shares of Common Stock, making the total shares available for issuance under the Plan 3,800,000 as of that date. In 2000, the Committee adopted the FMC Corporation Stock Appreciation Rights and Phantom Stock Plan to provide equity-based cash compensation to foreign employees in an effort to reduce the foreign income taxes that would otherwise be payable by such foreign employees if they received traditional grants under the Plan. The FMC Corporation Stock Appreciation Rights and Phantom Stock Plan was merged with and into the Plan effective as of February 16, 2001. In June 2001, the Company distributed substantially all of the net assets relative to its machinery business into a separate company. FMC Technologies, Inc. (“Technologies”). Seventeen percent of FMC’s ownership in Technologies was sold to the public in June 2001, and the remainder was distributed to FMC shareholders on December 31, 2001 (the “Spin-off”). As a result of the Spin-off, each unit of FMC Common Stock was adjusted by a factor of 1.9064045. Therefore, effective as of December 31, 2001, the total number of shares available for issuance under the Plan was adjusted to 7,244,377, in accordance with Section 4.1 of the Plan. Similarly, the Option Price per share of Common Stock under Stock Options outstanding under the Plan as of December 31, 2001 was adjusted by a factor of .5245476. Further amendments were approved on February 23, 2006. The Plan was restated as of February 23, 2006, as provided herein, to reflect the foregoing changes. 1.2. Purpose. The purpose of the Plan is to give the Company a competitive advantage in attracting, retaining and motivating officers, employees, directors and consultants of the Company and its Affiliates. SECTION 2. DEFINITIONS 2.1. General. For purposes of the Plan, the following terms are defined as set forth below:     (a) “Affiliate” means a corporation or other entity controlled by, controlling or under common control with the Company, including, without limitation any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent (50%) voting or profits interest is owned, directly or indirectly, by the Company or any successor to the Company. --------------------------------------------------------------------------------   (b) “Award” means a Management Incentive Award, Stock Option, Stock Appreciation Right, Performance Unit, Restricted Stock or other award authorized under the Plan.     (c) “Award Cycle” means a period of consecutive fiscal years or portions thereof designated by the Committee over which Awards are to be earned.     (d) “Board” means the Board of Directors of the Company.     (e) “Business Unit” means a unit of the business of the Company or its Affiliates as determined by the Committee and the CEO.     (f) “Capital Employed” means operating working capital plus net property, plant and equipment.     (g) “Cause” means (1) “Cause” as defined in any Individual Agreement to which the participant is a party, or (2) if there is no such Individual Agreement, or, if it does not define “Cause”: (A) the participant having been convicted of, or pleading guilty or nolo contendere to, a felony under federal or state law; (B) the Willful and continued failure on the part of the participant to substantially perform his or her employment duties in any material respect (other than such failure resulting from Disability), after a written demand for substantial performance is delivered to the participant that specifically identifies the manner in which the Company believes the participant has failed to perform his or her duties, and after the participant has failed to resume substantial performance of his or her duties within thirty (30) days of such demand; or (C) Willful and deliberate conduct on the part of the participant that is materially injurious to the Company or an Affiliate; or (D) prior to a Change in Control, such other events as will be determined by the Committee. The Committee will, unless otherwise provided in an Individual Agreement with the participant, determine whether “Cause” exists.     (h) “CEO” means the Company’s chief executive officer.     (i) “Change in Control” and “Change in Control Price” have the meanings set forth in Sections 14.2 and 14.3, respectively.     (j) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.     (k) “Committee” means the Compensation and Organization Committee of the Board, or such other committee as the Board may from time to time designate.   -2- --------------------------------------------------------------------------------   (l) “Common Stock” means (1) the common stock of the Company, par value $.10 per share, subject to adjustment as provided in Section 4.1 Shares Available for Issuance; or (2) if there is a merger or consolidation and the Company is not the surviving corporation, the capital stock of the surviving corporation given in exchange for such common stock of the Company.     (m) “Company” means FMC Corporation, a Delaware corporation.     (n) “Covered Employee” means a participant who has received a Management Incentive Award, Restricted Stock or Performance Units, who has been designated as such by the Committee and who is or may be a “covered employee” within the meaning of Section 162(m)(3) of the Code in the year in which the Management Incentive Award, Restricted Stock or Performance Units are expected to be taxable to such participant.     (o) “Disability” means, unless otherwise provided by the Committee, (1) “Disability” as defined in any individual agreement to which the participant is a party, or (2) if there is no such individual agreement, or, if such agreement does not define “Disability,” then “Disability” shall be determined in accordance with the Company’s long-term disability plan.     (p) “Dividend Equivalent Rights” means the right to receive cash, Stock Options, Stock Appreciation Rights or Performance Units, as determined by the Committee, in an amount equal to any dividends that would have been paid on a Stock Option, Stock Appreciation Right or a Performance Unit, as applicable, with Dividend Equivalent Rights if such Stock Option, Stock Appreciation Right or Performance Unit, as applicable, was a share of Common Stock held by the participant on the dividend payment date. Unless the Committee determines that Dividend Equivalent Rights will be paid in cash as of the dividend payment date, such Dividend Equivalent Rights, once credited, will be converted into an equivalent number of Stock Options, Stock Appreciation Rights or Performance Units, as applicable; provided, however, that the number of shares subject to any Award will always be a whole number. Unless otherwise determined by the Committee as of the dividend payment date, if a dividend is paid in cash, the number of Stock Options, Stock Appreciation Rights or Performance Units into which a Dividend Equivalent Right will be converted will be calculated as of the dividend payment date, in accordance with the following formula: (A x B)/C in which “A” equals the number of Stock Options, Stock Appreciation Rights or Performance Units with Dividend Equivalent Rights held by the participant on the dividend payment date, “B” equals the cash dividend per share and “C” equals the Fair Market Value per share of Common Stock on the dividend payment date. Unless otherwise determined by the Committee as of the dividend payment date, if a dividend is paid in property other than cash, the number of Stock Options,   -3- -------------------------------------------------------------------------------- Stock Appreciation Rights or Performance Units, as applicable into which a Dividend Equivalent Right will be converted will be calculated, as of the dividend payment date, in accordance with the formula set forth above, except that “B” will equal the fair market value per share of the property which the participant would have received if the Stock Option, Stock Appreciation Right or Performance Unit, as applicable, with Dividend Equivalent Rights held by the participant on the dividend payment date was a share of Common Stock.     (q) “Effective Date” means February 16, 2001, the date the Plan was adopted by the Board. The Board’s adoption of the increase of 800,000 shares (later adjusted to be an additional 1,525,123 shares as a result of the Spin-off) of Common Stock reserved for issuance under the Plan is also effective as of February 16, 2001.     (r) “Eligible Individuals” means officers, employees, directors and consultants of the Company or any of its Affiliates, and prospective employees, directors and consultants who have accepted offers of employment, membership on a board or consultancy from the Company or its Affiliates, who are or will be responsible for or contribute to the management, growth or profitability of the business of the Company or its Affiliates, as determined by the Committee.     (s) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.     (t) “Expiration Date” means the date on which an Award becomes unexercisable and/or not payable by reason of lapse of time or otherwise as provided in Section 6.2 Expiration Date.     (u) “Fair Market Value” means, except as otherwise provided by the Committee, as of any given date, the closing price for the shares on the New York Stock Exchange for the specified date (as of 4:00 p.m. Eastern Standard Time or Eastern Daylight Savings Time, whichever is then in effect), or, if the shares were not traded on the New York Stock Exchange on such date, then on the next preceding date on which the shares were traded, all as reported by such source as the Committee may select.     (v) “Grant Date” means the date designated by the Committee as the date of grant of an Award.     (w) “Incentive Stock Option” means any Stock Option designated as, and qualified as, an “incentive stock option” within the meaning of Section 422 of the Code.     (x) “Individual Agreement” means a severance, employment, consulting or similar agreement between a participant and the Company or one of its Affiliates.     (y) “Management Incentive Award” means an Award of cash, Common Stock, Restricted Stock or a combination of cash, Common Stock and Restricted Stock, as determined by the Committee.   -4- --------------------------------------------------------------------------------   (z) “Net Contribution” means for a Business Unit, its operating profit after-tax, less the product of (1) a percentage as determined by the Committee; and (2) the Business Unit’s Capital Employed.     (aa) “Nonqualified Stock Option” means any Stock Option that is not an Incentive Stock Option.     (bb) “Notice” means the written evidence of an Award granted under the Plan in such form as the Committee will from time to time determine.     (cc) “Performance Goals” means the performance goals established by the Committee in connection with the grant of Management Incentive Awards, Restricted Stock or Performance Units as set forth in the Notice. In the case of Qualified Performance-Based Awards, Performance Goals will be set by the Committee within the time period prescribed by Section 162(m) of the Code and related regulations, and will be based on Net Contribution, or such other performance criteria selected by the Committee, including, without limitation, the Fair Market Value of the Common Stock, the Company’s or a Business Unit’s market share, sales, earnings, costs, productivity, return on equity or return on Capital Employed.     (dd) “Performance Units” means an Award granted under Section 12 Performance Units.     (ee) “Plan” means the FMC Corporation Incentive Compensation and Stock Plan, as set forth herein and as hereinafter amended from time to time.     (ff) “Qualified Performance-Based Award” means a Management Incentive Award, an Award of Restricted Stock or an Award of Performance Units designated as such by the Committee, based upon a determination that (1) the recipient is or may be a Covered Employee; and (2) the Committee wishes such Award to qualify for the Section 162(m) Exemption.     (gg) “Restricted Stock” means an Award granted under Section 11 Restricted Stock.     (hh) “Section 162(m) Exemption” means 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) of the Code.     (ii) “Stock Appreciation Right” means an Award granted under Section 10 Stock Appreciation Rights.     (jj) “Stock Option” means an Award granted under Section 9 Stock Options.     (kk) “Termination of Employment” means the termination of the participant’s employment with, or performance of services for, the Company and any of its Affiliates. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its Affiliates will not be considered Terminations of Employment.   -5- --------------------------------------------------------------------------------   (ll) “Vesting Date” means the date on which an Award becomes vested, and, if applicable, fully exercisable and/or payable by or to the participant as provided in Section 6.3 Vesting.     (mm) “Willful” means any action or omission by the participant that was not in good faith and without a reasonable belief that the action or omission was in the best interests of the Company or its Affiliates. Any act or omission based upon authority given pursuant to a duly adopted resolution of the Board, or, upon the instructions of the CEO or any other senior officer of the Company, or, based upon the advice of counsel for the Company will be conclusively presumed to be taken or omitted by the participant in good faith and in the best interests of the Company and/or its Affiliates. 2.2. Other Definitions. In addition, certain other terms used herein have definitions given to them in the first place in which they are used. SECTION 3. ADMINISTRATION 3.1. Committee Administration. The Committee is the administrator of the Plan. Among other things, the Committee has the authority, subject to the terms of the Plan:     (a) To select the Eligible Individuals to whom Awards are granted;     (b) To determine whether and to what extent Awards are granted;     (c) To determine the amount of each Award;     (d) To determine the terms and conditions of any Award, including, but not limited to, the option price, any vesting condition, restriction or limitation regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Committee will determine;     (e) To modify, amend or adjust the terms and conditions of any Award, at any time or from time to time;     (f) To determine to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award will be deferred; and     (g) To determine under what circumstances an Award may be settled in cash or Common Stock or a combination of cash and Common Stock. The Committee has the authority to adopt, alter and repeal administrative rules, guidelines and practices governing the Plan, to interpret the terms and provisions of the Plan, any Award, any Notice and any other agreement relating to any Award and to take any action it deems appropriate for the administration of the Plan.   -6- -------------------------------------------------------------------------------- 3.2. Committee Action. The Committee may act only by a majority of its members then in office unless it allocates or delegates its authority to a Committee member or other person to act on its behalf. Except to the extent prohibited by applicable law or applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any other person or persons. Any such allocation or delegation may be revoked by the Committee at any time. Any determination made by the Committee or its delegate with respect to any Award will be made in the sole discretion of the Committee or such delegate. All decisions of the Committee or its delegate are final, conclusive and binding on all parties. 3.3. Board Authority. Any authority granted to the Committee may also be exercised by the full Board. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action will control. SECTION 4. SHARES 4.1. Shares Available For Issuance. The maximum number of shares of Common Stock that may be delivered to participants and their beneficiaries under the Plan will be 7,244,337. Shares subject to an Award under the Plan may be authorized and unissued shares or may be treasury shares. The maximum number of shares of Common Stock that may be subject to Management Incentive Awards, Restricted Stock and Performance Units is 1,755,062 shares of Common Stock. [Note that this number includes 455,062 shares subject to Management Incentive Awards, Restricted Stock and Performance Units awarded prior to February 23, 2006, as well as 1,300,000 shares that are available for future grant as Management Incentive Awards, Restricted Stock and Performance Units awarded on or after February 23, 2006.] No Award will be counted against the shares available for delivery under the Plan if the Award is payable to the participant only in the form of cash, or if the Award is paid to the participant in cash. To the extent any Award is forfeited, any Stock Option (or Stock Appreciation Right) terminates, expires or lapses without being exercised or any Stock Appreciation Right is exercised for cash, the shares of Common Stock subject to such Award will again become available for delivery in connection with new Awards under the Plan. To the extent any shares of Common Stock subject to an Award are tendered back prior to April 20, 2011 (or, if later, the 10th anniversary of the latest re-approval of this clause by the Company’s stockholders) or not delivered because such shares are (in either case) used to satisfy an applicable tax-withholding obligation, such shares will again become available for delivery in connection with new Awards under the Plan. In the event of any corporate event or transaction, (including, but not limited to, a change in the number of shares of Common Stock outstanding), such as a stock split, merger, consolidation, separation, including a spin-off or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of   -7- -------------------------------------------------------------------------------- such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee may make such substitution or adjustments in the aggregate number, kind, and price of shares reserved for issuance under the Plan, and the maximum limitation upon any Awards to be granted to any participant, in the number, kind and price of shares subject to outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate; provided, however, that the number of shares subject to any Award will always be a whole number. Such adjusted price will be used to determine the amount payable in cash or shares, as applicable, by the Company upon the exercise of any Award. [Note that as a result of the Spin-off, for any Stock Options granted on or before December 31, 2001, the Option Prices for such Stock Options have been adjusted by a factor of .5245476 pursuant to this Section 4.1.] 4.2. Individual Limits. No participant may be granted Stock Options and Stock Appreciation Rights covering in excess of 500,000 shares of Common Stock in any calendar year, provided, however that his prohibition shall not apply to the extent Common Stock subject to a Stock Option granted prior to December 31, 2001, when adjusted as a result of the Spin-off, exceeded 500,000 shares for an individual participant in a calendar year. The maximum aggregate amount with respect to each Management Incentive Award, Award of Performance Units or Award of Restricted Stock that may be granted, or, that may vest, as applicable, in any calendar year for any individual participant is 500,000 shares of Common Stock, or the dollar equivalent of 500,000 shares of Common Stock, provided, however that this prohibition shall not apply to awards granted prior to December 31, 2001, to the extent that when adjusted as a result of the Spin-off, the limits in this sentence are exceeded. SECTION 5. ELIGIBILITY Awards may be granted under the Plan to Eligible Individuals. Incentive Stock Options may be granted only to employees of the Company and its subsidiaries or parent corporation (within the meaning of Section 424(f) of the Code). SECTION 6. TERMS AND CONDITIONS OF AWARDS 6.1. General. Awards will be in the form and upon the terms and conditions as determined by the Committee, subject to the terms of the Plan. The Committee is authorized to grant Awards independent of, or in addition to other Awards granted under the Plan. The terms and conditions of each Award may vary from other Awards. Awards will be evidenced by Notices, the terms and conditions of which will be consistent with the terms of the Plan and will apply only to such Award. 6.2. Expiration Date. Unless otherwise provided in the Notice, the Expiration Date of an Award will be the earlier of the date that is ten (10) years after the Grant Date or the date of the participant’s Termination of Employment. 6.3. Vesting. Each Award vests and becomes fully payable, exercisable and/or released of any restriction on the Vesting Date. The Vesting Date of each Award, as determined by the Committee, will be set forth in the Notice.   -8- -------------------------------------------------------------------------------- SECTION 7. QUALIFIED PERFORMANCE-BASED AWARDS The Committee may designate a Management Incentive Award, or an Award of Restricted Stock or an Award of Performance Units as a Qualified Performance-Based Award, in which case, the Award is contingent upon the attainment of Performance Goals. SECTION 8. MANAGEMENT INCENTIVE AWARDS 8.1. Management Incentive Awards. The Committee is authorized to grant Management Incentive Awards, subject to the terms of the Plan. Notices for Management Incentive Awards will indicate the Award Cycle, any applicable Performance Goals, any applicable designation of the Award as a Qualified Performance-Based Award and the form of payment of the Award. 8.2. Settlement. As soon as practicable after the later of the Vesting Date and the date any applicable Performance Goals are satisfied, Management Incentive Awards will be paid to the participant in cash, Common Stock, Restricted Stock or a combination of cash, Common Stock and Restricted Stock, as determined by the Committee. The number of shares of Common Stock payable under the stock portion of a Management Incentive Award will equal the amount of such portion of the award divided by the Fair Market Value of the Common Stock on the date of payment. SECTION 9. STOCK OPTIONS 9.1. Stock Options. The Committee is authorized to grant Stock Options, including both Incentive Stock Options and Nonqualified Stock Options, subject to the terms of the Plan. Notices will indicate whether the Stock Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option, the option price, the term and the number of shares to which it pertains. 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 on or subsequent to its Grant Date, it will constitute a Nonqualified Stock Option. No Incentive Stock Option will be granted hereunder on or after the 10th anniversary of the date of stockholder approval of the Plan (or, if the stockholders approve an amendment that increases the number of shares subject to the Plan, the 10th anniversary of the date of such approval); provided, however, that Incentive Stock Options granted prior to such 10th anniversary may extend beyond that date. 9.2. Option Price. The option price per share of Common Stock purchasable under a Stock Option will be determined by the Committee and will not be less than the Fair Market Value of the Common Stock subject to the Stock Option on the Grant Date. 9.3. Incentive Stock Options. The terms of the Plan addressing Incentive Stock Options and each Incentive Stock Option will be interpreted in a manner consistent with Section 422 of the Code and all valid regulations issued thereunder. 9.4. Exercise. Stock Options will be exercisable at such time or times and subject to the terms and conditions set forth in the Notice. A participant can exercise a Stock Option, in whole or in part, at any time on or after the Vesting Date and before the Expiration Date by giving written notice of exercise to the Company specifying the number of shares of Common   -9- -------------------------------------------------------------------------------- Stock subject to the Stock Option to be purchased. Such notice will be accompanied by payment in full to the Company of the option price by certified or bank check or such other cash equivalent instrument as the Company may accept. If approved by the Committee, payment in full or in part may also be made in the form of Common Stock (by delivery of such shares or by attestation) already owned by the optionee of the same class as the Common Stock subject to the Stock Option, based on the Fair Market Value of the Common Stock on the date the Stock Option is exercised. Notwithstanding the foregoing, the right to make payment in the form of already owned shares of Common Stock applies only to shares that have been held by the optionee for at least six (6) months at the time of exercise or that were purchased on the open market. If approved by the Committee, payment in full or in part may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or broker loan proceeds necessary to pay the option price, and, if requested, by the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms, but any loans by a broker in connection with an exercise shall be arranged between the broker and the employee, and not by the Company. In addition, if approved by the Committee, a Stock Option may be exercised by a “net cashless exercise” procedure whereby all or any portion of the option price and/or any required tax withholding may be satisfied by a reduction in the number of shares issued upon exercise. In that case, the number of shares of Common Stock issued upon exercise will be equal to: (a) the product of (i) the number of shares as to which the Stock Option is then being exercised on a net cashless basis, and (ii) the excess of (A) the Fair Market Value on the date of exercise, over (B) the option price and/or any required tax withholding associated with the net cashless exercise (expressed on a per share basis), divided by (b) the Fair Market Value on the date of exercise. A number of shares of Common Stock equal to the difference between the number of shares as to which the Stock Option is then being exercised and the number of shares actually issued upon such exercise will be deemed to have been retained by the Company in satisfaction of the option price and/or any required tax withholding. 9.5. Settlement. As soon as practicable after the exercise of a Stock Option, the Company will deliver to or on behalf of the optionee certificates of Common Stock for the number of shares purchased. No shares of Common Stock will be issued until full payment therefor has been made. Except as otherwise provided in Section 9.8 Deferral of Stock Options Shares below, an optionee will have all of the rights of a stockholder of the Company holding Common Stock, including, but not limited to, 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 18 General Provisions. The Committee may give optionees Dividend Equivalent Rights. 9.6. Nontransferability. No Stock Option will be transferable by the optionee other than by will or by the laws of descent and distribution. All Stock Options will be exercisable, subject to the terms of the Plan, only by the optionee, the guardian or legal representative of the optionee, or any person to whom such Stock Option is transferred pursuant to this paragraph, it   -10- -------------------------------------------------------------------------------- being understood that the term “holder” and “optionee” include such guardian, legal representative and other transferee. No Stock Option will be subject to execution, attachment or other similar process. Notwithstanding anything herein to the contrary, the Committee may permit a participant at any time prior to his or her death to assign all or any portion without consideration therefor of a Nonqualified Stock Option to:     (a) The participant’s spouse or lineal descendants;     (b) The trustee of a trust for the primary benefit of the participant and his or her spouse or lineal descendants, or any combination thereof;     (c) A partnership of which the participant, his or her spouse and/or lineal descendants are the only partners;     (d) Custodianships under the Uniform Transfers to Minors Act or any other similar statute; or     (e) Upon the termination of a trust by the custodian or trustee thereof, or the dissolution or other termination of the family partnership or the termination of a custodianship under the Uniform Transfers to Minor Act or any other similar statute, to the person or persons who, in accordance with the terms of such trust, partnership or custodianship are entitled to receive the Nonqualified Stock Option held in trust, partnership or custody. In such event, the spouse, lineal descendant, trustee, partnership or custodianship will be entitled to all of the participant’s rights with respect to the assigned portion of the Nonqualified Stock Option, and such portion will continue to be subject to all of the terms, conditions and restrictions applicable to the Nonqualified Stock Option. 9.7. Cashing Out. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the portion of the shares of Common Stock for which a Stock Option is being exercised by paying the optionee an amount, in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock over the option price times the number of shares of Common Stock for which the Stock Option is being exercised on the effective date of such cash-out. In addition, notwithstanding any other provision of the Plan, the Committee, either on the Grant Date or thereafter, may give a participant the right to voluntarily cash-out the participant’s outstanding Stock Options, whether or not then vested, during the sixty (60)-day period following a Change in Control. A participant who has such a cash-out right and elects to cash-out Stock Options may do so during the sixty (60)-day period following a Change in Control by giving notice to the Company to elect to surrender all or part of the Stock Option to the Company and to receive cash, within thirty (30) days of such election, in an amount equal to the amount by which the Change in Control Price per share of Common Stock on the date of such election exceeds the exercise price per share of Common Stock under the Stock Option multiplied by the number of shares of Common Stock granted under the Stock Option as to which this cash-out right is exercised. Notwithstanding the foregoing, if any cash-out right would make a Change in Control transaction ineligible for pooling-of-interests accounting, the Committee may eliminate or modify such cash-out right.   -11- -------------------------------------------------------------------------------- 9.8. Deferral of Stock Option Shares. The Committee may from time to time establish procedures pursuant to which an optionee may elect to defer, until a time or times later than the exercise of a Stock Option, receipt of all or a portion of the shares of Common Stock subject to such Stock Option and/or to receive cash at such later time or times in lieu of such deferred shares, all on such terms and conditions as the Committee will determine. If any such deferrals are permitted, an optionee who elects such deferral will not have any rights as a stockholder with respect to such deferred shares unless and until shares are actually delivered to the optionee with respect thereto, except to the extent otherwise determined by the Committee. SECTION 10. STOCK APPRECIATION RIGHTS 10.1. Stock Appreciation Rights. The Committee is authorized to grant Stock Appreciation Rights, subject to the terms of the Plan. Stock Appreciation Rights granted with a Nonqualified Stock Option may be granted either on or after the Grant Date. Stock Appreciation Rights granted with an Incentive Stock Option may be granted only on the Grant Date of such Stock Option. Notices of Stock Appreciation Rights granted with Stock Options may be incorporated into the Notice of the Stock Option. Notices of Stock Appreciation Rights will indicate whether the Stock Appreciation Right is independent of any Award or granted with a Stock Option, the price, the term, the method of exercise and the form of payment. The Committee may also grant Dividend Equivalent Rights in association with any Stock Appreciation Right. 10.2. Exercise. A participant can exercise Stock Appreciation Rights, in whole or in part, at any time after the Vesting Date and before the Expiration Date, or, with respect to Stock Appreciation Rights granted in connection with any Stock Option, at such time or times and to the extent that the Stock Options to which they relate are exercisable, by giving written notice of exercise to the Company specifying the number of Stock Appreciation Rights to be exercised. A Stock Appreciation Right granted with a Stock Option may be exercised by an optionee by surrendering any applicable portion of the related Stock Option in accordance with procedures established by the Committee. To the extent provided by the Committee, Stock Options which have been so surrendered will no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. 10.3. Settlement. As soon as practicable after the exercise of a Stock Appreciation Right, an optionee will be entitled to receive an amount in cash, shares of Common Stock or a combination of cash and shares of Common Stock, as determined by the Committee, in value equal to the excess of the Fair Market Value on the date of exercise of one share of Common Stock over the Stock Appreciation Right price per share multiplied by the number of shares in respect of which the Stock Appreciation Right is being exercised. Upon the exercise of a Stock Appreciation Right granted with any Stock Option, the Stock Option or part thereof to which such Stock Appreciation Right is related will be deemed to have been exercised for the purpose of the limitation set forth in Section 4 Shares on the number of shares of Common Stock to be issued under the Plan, but only to the extent of the number of shares delivered upon the exercise of the Stock Appreciation Right.   -12- -------------------------------------------------------------------------------- 10.4. Nontransferability. Stock Appreciation Rights will be transferable only to the extent they are granted with any Stock Option, and only to permitted transferees of such underlying Stock Option in accordance with the Nontransferability provisions of Section 9. SECTION 11. RESTRICTED STOCK 11.1. Restricted Stock. The Committee is authorized to grant Restricted Stock, subject to the terms of the Plan. Notices for Restricted Stock may be in the form of a Notice and book-entry registration or issuance of one or more stock certificates. 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, but not limited to, forfeiture of the FMC Corporation Incentive Compensation and Stock Plan and a Restricted Stock Notice. Copies of such Plan and Notice are on file at the offices of FMC Corporation.” The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon will have lapsed and that, as a condition of any Award of Restricted Stock, the participant will have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award. The Notice or certificates will indicate any applicable Performance Goals, any applicable designation of the Restricted Stock as a Qualified Performance-Based Award and the form of payment. 11.2. Participant Rights. Subject to the terms of the Plan and the Notice or certificate of Restricted Stock, the participant will not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock until the later of the Vesting Date and the date any applicable Performance Goals are satisfied. Notwithstanding the foregoing, if approved by the Committee, a participant may pledge Restricted Stock as security for a loan to obtain funds to pay the option price for Stock Options. Except as provided in the Plan and the Notice or certificate of the Restricted Stock, the participant will have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company holding Common Stock, including, but not limited to, the right to vote the shares and to receive dividends with respect to the shares; provided that, in the discretion of the Committee, cash or property payable as a dividend on Restricted Stock may be subjected to the same vesting conditions as the Restricted Stock giving rise to the payment or may be converted into a number of additional shares of Restricted Stock (again, having the same vesting conditions as the Restricted Stock giving rise to the payment) determined by dividing the amount of the cash or the fair market value of the property otherwise distributable (as determined by the Committee) by the Fair Market Value on the dividend payment date.   -13- -------------------------------------------------------------------------------- 11.3. Settlement. As soon as practicable after the later of the Vesting Date and the date any applicable Performance Goals are satisfied and prior to the Expiration Date, unlegended certificates for such shares of Common Stock will be delivered to the participant upon surrender of any legended certificates, if applicable. SECTION 12. PERFORMANCE UNITS 12.1. Performance Units. The Committee is authorized to grant Performance Units, which include, among other Awards and without limitation, restricted stock units and common stock units, subject to the terms of the Plan. Notices of Performance Units will indicate any applicable Performance Goals, any applicable designation of the Award as a Qualified Performance-Based Award and the form of payment. 12.2. Settlement. As soon as practicable after the later of the Vesting Date and the date any applicable Performance Goals are satisfied, Performance Units will be paid in the manner as provided in the Notice. Payment of Performance Units will be made in an amount of cash equal to the Fair Market Value of one share of Common Stock multiplied by the number of Performance Units earned or, if applicable, in a number of shares of Common Stock equal to the number of Performance Units earned, each as determined by the Committee. The Committee may at or after the Grant Date give the participant a right to defer receipt of cash or shares in settlement of Performance Units for a specified period or until a specified event. Subject to any exceptions adopted by the Committee, an election by a participant to defer must be made before the commencement of the Award Cycle for the Performance Units. SECTION 13. OTHER AWARDS The Committee is authorized to make, either alone or in conjunction with other Awards, Awards of cash or Common Stock and Awards that are valued in whole or in part by reference to, or are otherwise based upon, Common Stock, including, without limitation, convertible debentures. SECTION 14. CHANGE IN CONTROL 14.1. Impact of Change in Control. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control, as of the date such Change in Control is determined to have occurred, any outstanding:     (a) Stock Options and Stock Appreciation Rights become fully exercisable and vested to the full extent of the original grant;     (b) Restricted Stock becomes free of all restrictions and deferral limitations and becomes fully vested and transferable to the full extent of all or a portion of the maximum amount of the original grant as provided in the Notice, or, if not provided in the Notice, as determined by the Committee;     (c) Performance Units become vested to the extent provided in the Notice, or if not provided in the Notice, as determined by the Committee. In addition, to the extent settlement of such Performance Units has been deferred, if the Change in Control   -14- -------------------------------------------------------------------------------- constitutes a “change in the ownership of the Company,” a “change in effective control of the Company,” or a “change in the ownership of a substantial portion of the assets of the Company” (in each case as defined in Section 409A of the Code), such settlement occurs in cash or Common Stock (as determined by the Committee) as promptly as is practicable following the Change in Control; and     (d) Management Incentive Awards become fully vested to the full extent of all or a portion of the maximum amount of the original grant as provided in the Notice, or, if not provided in the Notice, as determined by the Committee, and such Management Incentive Awards will be settled in cash or Common Stock, as determined by the Committee, as promptly as is practicable following the Change in Control. The Committee may also make additional substitutions, adjustments and/or settlements of outstanding Awards as it deems appropriate and consistent with the Plan’s purposes. 14.2. Definition of Change in Control. For purposes of the Plan, a “Change in Control” will mean the happening of any of the following events:     (a) An acquisition by any 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 twenty percent (20%) or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) 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”); excluding, however, the following: (A) any acquisition directly from the Company, 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 Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (D) any acquisition pursuant to a transaction which complies with Subsections (1), (2) and (3) of Subsection (c) of this Section 14.2;     (b) A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (such Board will 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 14.2, that any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election by the Company’s stockholders, 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) will 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   -15- -------------------------------------------------------------------------------- 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 will not be so considered as a member of the Incumbent Board;     (c) Consummation of a reorganization, merger or consolidation, sale or other disposition of all or substantially all of the assets of the Company, or acquisition by the Company of the assets or stock of another entity (“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 Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than sixty percent (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 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 the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, twenty percent (20%) or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction, and (3) 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; or     (d) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 14.3. Change in Control Price. For purposes of the Plan, “Change in Control Price” means the higher of (a) the highest reported sales price, regular way, of a share of Common Stock in any transaction reported on the New York Stock Exchange or other national exchange on which such shares are listed during the sixty (60)-day period prior to and including the date of a Change in Control; or (b) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Common 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 Common 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 noncash consideration, the value of such securities or other noncash consideration will be determined by the Committee.   -16- -------------------------------------------------------------------------------- SECTION 15. FORFEITURE OF AWARDS Notwithstanding anything in the Plan to the contrary, the Committee may, in the event of serious misconduct by a participant (including, without limitation, any misconduct prejudicial to or in conflict with the Company or its Affiliates, or any Termination of Employment for Cause), or any activity of a participant in competition with the business of the Company or any Affiliate, (a) cancel any outstanding Award granted to such participant, in whole or in part, whether or not vested or deferred, and/or (b) if such conduct or activity occurs within one year following the exercise or payment of an Award, require such participant to repay to the Company any gain realized or payment received upon the exercise or payment of such Award (with such gain or payment valued as of the date of exercise or payment). Such cancellation or repayment obligation will be effective as of the date specified by the Committee. Any repayment obligation may be satisfied in Common Stock or cash or a combination thereof (based upon the Fair Market Value of Common Stock on the day of payment), and the Committee may provide for an offset to any future payments owed by the Company or any Affiliate to the participant if necessary to satisfy the repayment obligation. The determination of whether a participant has engaged in a serious breach of conduct or any activity in competition with the business of the Company or any Affiliate will be made by the Committee in good faith. This Section 15 will have no application following a Change in Control. SECTION 16. AMENDMENT AND TERMINATION The Committee may amend, alter, or discontinue the Plan or any Award, prospectively or retroactively, but no amendment, alteration or discontinuation may impair the rights of a recipient of any Award without the recipient’s consent, except such an amendment made to comply with applicable law, stock exchange rules or accounting rules. No amendment will be made without the approval of the Company’s stockholders to the extent such approval is required by applicable law or stock exchange rules, or to the extent such amendment increases the number of shares available for delivery under the Plan. Without the approval of the Company’s stockholders, the Committee will not reduce the option price of a Stock Option after the Grant Date or cancel an outstanding Stock Option and grant a new Stock Option with a lower exercise price in substitution therefor (other than, in either case, in accordance with the adjustment provisions in the last paragraph of Section 4.1). SECTION 17. 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 Common 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.   -17- -------------------------------------------------------------------------------- SECTION 18. GENERAL PLAN PROVISIONS 18.1. General Provisions. The Plan will be administered in accordance with the following provisions and any other rule, guideline and practice determined by the Committee:     (a) Each person purchasing or receiving shares pursuant to an Award may be required to represent to and agree with the Company in writing that he or she is acquiring the shares without a view to the distribution of the shares.     (b) The certificates for shares issued under an Award may include any legend which the Committee deems appropriate to reflect any restrictions on transfer.     (c) Notwithstanding any other provision of the Plan, any Award, any Notice or any other agreements made pursuant thereto, the Company is not required to issue or deliver any shares of Common Stock prior to fulfillment of all of the following conditions:     (i) 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 Common Stock;     (ii) 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 deems necessary or advisable; and     (iii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Committee deems necessary or advisable.     (d) The Company will not issue fractions of shares. Whenever, under the terms of the Plan, the aggregate number of shares required to be issued to a participant at a particular time includes a fractional share, one additional whole share will be issued to the participant in lieu of and in satisfaction for that fractional share.     (e) In the case of a grant of an Award to any Eligible Individual of an Affiliate of the Company, the Company may, if the Committee so directs, issue or transfer the shares of Common Stock, if any, covered by the Award to the Affiliate, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Affiliate will transfer the shares of Common Stock to the Eligible Individual in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. All shares of Common Stock underlying Awards that are forfeited or canceled revert to the Company. 18.2. Employment. The Plan will not constitute a contract of employment, and 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 an Affiliate to terminate at any time the employment of any employee or the membership of any director on a board of directors or any consulting arrangement with any Eligible Individual.   -18- -------------------------------------------------------------------------------- 18.3. Tax Withholding Obligations. 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 Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement; provided, that not more than the legally required minimum withholding may be settled with Common Stock. 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 making irrevocable elections, for the settlement of withholding obligations with Common Stock. 18.4. Beneficiaries. 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. 18.5. Governing Law. 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, without reference to principles of conflict of laws. Notwithstanding anything herein to the contrary, in the event an Award is granted to Eligible Individual who is employed or providing services outside the United States and who is not compensated from a payroll maintained in the United States, the Committee may modify the provisions of the Plan and/or any such Award as they pertain to such individual to comply with and account for the tax and accounting rules of the applicable foreign law so as to maintain the benefit intended to be provided to such participant under the Award. 18.6. Nontransferability. Except as otherwise provided in Section 9 Stock Options and Section 10 Stock Appreciation Rights, or by the Committee, Awards under the Plan are not transferable except by will or by laws of descent and distribution. 18.7. Severability. Wherever possible, each provision of the Plan and of each Award and of each Notice will be interpreted in such a manner as to be effective and valid under applicable law. If any provision of the Plan, any Award or any Notice is found to be prohibited by or invalid under applicable law, then (a) such provision will be deemed amended to and to have contained from the outset such language as will be necessary to accomplish the objectives of the provision as originally written to the fullest extent permitted by law; and (b) all other provisions of the Plan and any Award will remain in full force and effect. 18.8. Strict Construction. No rule of strict construction will be applied against the Company, the Committee or any other person in the interpretation of the terms of the Plan, any Award, any Notice, any other agreement or any rule or procedure established by the Committee.   -19- -------------------------------------------------------------------------------- 18.9. Stockholder Rights. Except as otherwise provided herein, no participant will have dividend, voting or other stockholder rights by reason of a grant of an Award or a settlement of an Award in cash.   -20-

                                                                                                                                           Exhibit 10.aw                                                     Date:______________ Form Of Incentive Stock Option Agreement               Under Home Federal Bancorp   ____ Stock Option Plan   Name:   You are hereby granted the option to purchase a total of __________ shares of the Common Stock, without par value (“Common Stock”), of Home Federal Bancorp (the “Corporation”) over the next ten years pursuant to the Corporation’s _____ Stock Option Plan (the “Plan”), on the following terms and conditions:   1.  The purchase price of the shares of Common Stock subject to this option is $______ per share. You must pay this purchase price in cash at the time this option is exercised; provided, however, that with the approval of the Corporation’s Stock Option Committee (the “Committee”), you may exercise your option by tendering to the Corporation whole shares of the Corporation’s Common Stock owned by you, or any combination of whole shares of the Corporation’s Common Stock owned by you and cash, having a fair market value equal to the mean between the highest and lowest quoted selling prices for the shares on the date of exercise of the option (or if there were no sales on such date the weighted average of the means between the highest and lowest quoted selling prices on the nearest date before and the nearest date after the date of exercise of the option), as reported in The Wall Street Journal or a similar publication selected by the Committee. To exercise this option, you must send written notice to the Corporation’s Secretary at the address noted in Section 12 hereof. Such notice shall state the number of shares in respect of which the option is being exercised, shall identify the option exercised as an incentive stock option, and shall be signed by the person or persons so exercising the option. Such notice shall be accompanied by payment of the full cash option price for such shares or, if the Committee has authorized the use of the stock swap feature provided for above, such notice shall be followed as soon as practicable by the delivery of the option price for such shares. Certificates evidencing shares of Common Stock will not be delivered to you until payment has been made. Under certain circumstances, the Plan permits you to deliver a notice to your broker to deliver the cash to the Corporation upon the receipt of such cash from the sale of the Corporation’s Common Stock. Contact the Secretary of the Corporation for further information about this procedure if you are interested in it.   2.  The term of this option (the “Option Term”) shall be for a period of ten years from the date of this letter, subject to earlier termination as provided in paragraphs 3 and 4 hereof. Except as otherwise provided below, the option may be exercised at any time, or from time to time, in whole or in part, until the Option Term expires, but in no case may fewer than 100 such shares be purchased at any one time, except to purchase a residue of fewer than 100 shares.   3.  If you cease to be an employee of the Corporation or any of its subsidiaries for any reason other than retirement, permanent and total disability, or death, this option shall forthwith terminate. If your employment by the Corporation or any of its subsidiaries is terminated by reason of retirement (which means such termination of employment as shall entitle you to early or normal retirement benefits under any then existing pension plan of the Corporation or one of its subsidiaries), you may exercise this option in whole or in part within three years after such retirement, but not later than the date upon which this option would otherwise expire; provided that if you remain a director or director emeritus of the Corporation, the option may be exercised until the later of three years after such retirement or six months after your service as a director and/or director emeritus terminates, but not later than the date the option would otherwise expire. If you cease to be an employee of the Corporation or any of its subsidiaries because of your permanent and total disability, you may exercise this option in whole or in part at any time within one year after such termination of employment by reason of such disability, but no later than the date upon which this option would otherwise expire.   4.  If you die while employed by the Corporation or any of its subsidiaries, within three years after the termination of your employment because of retirement (or if later, six months following your termination of service as a director or director emeritus of the Corporation if you were serving as such at the time of your retirement), or within one year after the termination of your employment because of permanent and total disability, this option may be exercised in whole or in part by your executor, administrator, or estate beneficiaries at any time within one (1) year after the date of your death but not later than the date upon which this option would otherwise expire.   5.  This option is non-transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. It may be exercised only by you, or, if you die, by your executor, administrator, or beneficiaries of your estate who are entitled to your option.   6.  All rights to exercise this option will expire, in any event, ten years from the date of this letter.   7.  Certificates evidencing shares issued upon exercise of this option may bear a legend setting forth among other things such restrictions on the disposition or transfer of the shares of the Corporation as the Corporation may deem consistent with applicable federal and state laws.   8.  Nothing in this option shall restrict the right of the Corporation or its subsidiaries to terminate your employment at any time with or without cause.   9.  This option is subject to all the terms, provisions and conditions of the Plan, which is incorporated herein by reference, and to such regulations as may from time to time be adopted by the Corporation’s Stock Option Committee. A copy of the Plan has been furnished to you and an additional copy may be obtained from the Corporation. In the event of any conflict between the provisions of the Plan and the provisions of this letter, the terms, conditions and provisions of the Plan shall control, and this letter shall be deemed to be modified accordingly.   10.  This Stock Option Agreement is intended to grant an option which meets all of the requirements of incentive stock options as defined in Section 422A of the Internal Revenue Code. Subject to and upon the terms, conditions and provisions of the Plan, each and every provision of this Agreement shall be administered, construed and interpreted so that the option granted herein shall so qualify as an incentive stock option. Each provision of this Stock Option Agreement which would prevent this option from qualifying as an incentive stock option, if any, shall be void.   11.  You agree to advise the Corporation immediately upon any sale or transfer of any shares of Common Stock received upon exercise of this option to the extent such sale or transfer takes place prior to the later of (a) two years from the date of grant, or (b) one year from the date of exercise of this option.   12.  All notices by you to the Corporation and your exercise of the option herein granted, shall be addressed to Home Federal Bancorp, 222 West Second Street, P.O. Box 648, Seymour, Indiana 47274-0648, Attention: Secretary, or such other address as the Corporation may, from time to time, specify.   13.  This option may not be exercised until the Corporation has been advised by counsel that all applicable legal requirements have been met.   Very truly yours,   HOME FEDERAL BANCORP     By:         John K. Keach, Jr.                                         President and Chief Executive Officer       Accepted on the date above written:                                                                 Name  

-------------------------------------------------------------------------------- Exhibit 10.43 THIRD AMENDMENT TO THE PNM RESOURCES, INC. NON-UNION SEVERANCE PAY PLAN   Effective January 1, 2002, Public Service Company of New Mexico (“PNM”) adopted the Public Service Company of New Mexico Benefits My Way Plan (the “BMW Plan”). Effective November 27, 2002, sponsorship of the BMW Plan was transferred from PNM to PNM Resources, Inc. (“PNM Resources”) and the Plan as renamed the “PNM Resources, Inc. Benefits My Way Plan.” The BMW Plan consisted of a number of component programs including Program 12, Non-Union Severance Pay Program (the “Non-Union Severance Program”). Effective as of January 1, 2004, PNM Resources amended and restated the BMW Plan to divide it into a number of separate plans that replace several of the component programs in effect on December 31, 2003. As part of the amendment and restatement, the PNM Resources, Inc. Non-Union Severance Pay Plan (the “Plan”) was created as a successor plan to the Non-Union Severance Program, effective as of January 1, 2004. The Plan has since been amended on two previous occasions. By this instrument, PNM Resources now desires to amend the Plan in order to exclude employees who are potentially eligible to receive benefits from the First Choice Power, L.P. Customer Operations Outsourcing Severance Plan from participating in this Plan. 1. This Third Amendment shall be effective as of October 1, 2005, unless otherwise noted herein. 2. This Third Amendment amends only the provisions of the Plan as noted below, and those provisions not expressly amended shall be considered in full force and effect. Notwithstanding the foregoing, this Third Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions and intent of this Third Amendment.       --------------------------------------------------------------------------------   3. Section 3.5 (Certain Employees Ineligible For Benefits of the Plan) is hereby amended by adding a new subsection (f) to provide as follows: (f) Employees who are listed on Attachment A to the First Choice Power, L.P. Customer Operations Outsourcing Severance Plan as it may be modified or supplemented from time to time by the President of First Choice Power, L.P. pursuant to said Attachment A.   IN WITNESS WHEREOF, PNM Resources has caused this Third Amendment to be executed as of this 7th day of December, 2005.   PNM RESOURCES, INC.   By:  /s/ Alice A. Cobb Its: Senior Vice President and Chief Administrative Officer     2

Exhibit 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of the 22nd day of February, 2006 by and between Kindred Healthcare, Inc., a Delaware corporation (the “Company”) and Edward L. Kuntz (“Kuntz”). W I T N E S S E T H: WHEREAS, Kuntz is serving as Executive Chairman of the Board and the Company desires to continue the services of Kuntz in that capacity; and WHEREAS, the Executive Compensation Committee (the “Executive Compensation Committee”) of the Board of Directors (the “Board”) has determined that it is in the best interests of the Company and its subsidiaries to enter into this Agreement. NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, and intending to be legally bound hereby, the Company and Kuntz agree as follows: 1. Employment as Executive Chairman of the Board. A. Term. The Company or one of its subsidiaries hereby agrees to employ Kuntz and Kuntz hereby agrees to be employed as Executive Chairman of the Board of Directors (“Executive Chairman”) effective on the date hereof on the terms and conditions herein set forth. The term of this Agreement (the “Term”) shall be for a one-year period commencing on the date hereof (the “Effective Date”). The Term shall be automatically extended by one additional day for each day beyond the Effective Date that Kuntz remains employed by the Company until such time as the Board of Directors elects to cease such extension by giving written notice of such election to Kuntz. In such an event, the Agreement shall terminate on the first anniversary of the date of such election notice, unless a later date is specified. B. Duties. As Executive Chairman, Kuntz shall perform the following duties: (i) coordinate all Board matters and committee activities and act as the principal liaison between the Board and senior management; (ii) continue his responsibility for public lobbying and relationships with various healthcare related organizations; (iii) advise the chief executive officer and senior management on strategic initiatives including financing, acquisition and development activities; (iv) advise the chief executive officer and senior management concerning all compliance and regulatory matters including the Corporate Integrity Agreement; and (v) such other similar matters as reasonably requested by the Board. C. Extent of Services. Kuntz, subject to the direction and control of the Board, shall have the power and authority commensurate with his status as Executive Chairman and necessary to perform his duties hereunder. During the Chairman Term, -------------------------------------------------------------------------------- Kuntz shall devote approximately two days a week or 60 hours a month to the business of the Company. With notice to the Board, Kuntz may engage in any other business activities, whether or not such business activities are pursued for gain, profit or other pecuniary advantage provided such activities do not conflict with the Company’s objectives and operations. D. Compensation. As compensation for services rendered as Executive Chairman, Kuntz shall receive during the Chairman Term: (i) A salary (“Chairman Salary”) of not less than $636,525 per year payable in equal installments in accordance with the Company’s normal payroll procedures. Kuntz may receive increases in his Chairman Salary from time to time, as approved by the Executive Compensation Committee. (ii) Kuntz may be eligible to receive additional compensation as the Executive Compensation Committee may approve from time to time but is not intended that Kuntz will continue to participate in the Company’s standard bonus or long-term incentive plans. E. Benefits. During the Term: (i) Kuntz shall be entitled to participate in any and all welfare benefit (including, without limitation, medical, dental, disability and group life insurance coverages) and fringe benefit plans from time to time in effect for executives of the Company and its affiliates. (ii) Kuntz may incur reasonable expenses for promoting the Company’s business, including expenses for entertainment, travel and similar items. The Company shall reimburse Kuntz for all such reasonable expenses in accordance with the Company’s reimbursement policies and procedures. (iii) Kuntz will continue to vest in his existing stock options, restricted stock and accrued long-term incentive benefits. (iv) The Company shall provide Kuntz with an office suite in Houston, Texas and an administrative assistant substantially comparable to his existing office suite and administrative assistant being furnished as of the date of this Agreement. 2. Termination of Employment. A. Death or Disability. Kuntz’s employment shall terminate automatically upon Kuntz’s death during the Term. If the Board determines in good faith that the Disability of Kuntz has occurred during the Term (pursuant to the definition of Disability set forth below) it may give to Kuntz written notice of its intention to terminate Kuntz’s employment. In such event, Kuntz’s employment with the Company shall -------------------------------------------------------------------------------- terminate effective on the 30th day after receipt of such notice by Kuntz (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Kuntz shall not have returned to performance of Kuntz’s duties. For purposes of this Agreement, “Disability” shall mean Kuntz’s absence from his duties hereunder for a period of 90 days. B. Cause. The Company may terminate Kuntz’s employment during the Term for Cause. For purposes of this Agreement, “Cause” shall mean the Kuntz’s (i) conviction of or plea of nolo contendere to a crime involving moral turpitude; or (ii) willful and material breach by Kuntz of his duties and responsibilities, which is committed in bad faith or without reasonable belief that such breaching conduct is in the best interests of the Company and its affiliates, but with respect to (ii) only if the Board adopts a resolution by a vote of at least 75% of its members so finding after giving the Kuntz and his attorney an opportunity to be heard by the Board. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Kuntz in good faith and in the best interests of the Company. C. Good Reason. Kuntz’s employment may be terminated by Kuntz for Good Reason. “Good Reason” shall exist upon the occurrence, without Kuntz’s express written consent, of any of the following events: (i) The Company shall (A) materially reduce the compensation of Kuntz or (B) materially reduce his benefits and perquisites; (ii) The Company shall require Kuntz to relocate Kuntz’s principal business office more than 30 miles from its location on the date of this Agreement; (iii) If Kuntz ceases to be Chairman of the Board, for any reason, including failing to be elected at any annual or special meeting of the shareholders of the Company; or (iv) the failure of the Company to obtain the assumption of this Agreement as contemplated by Section 5(c). For purposes of this Agreement, “Good Reason” shall not exist until after Kuntz has given the Company notice of the applicable event within 10 days of such event and which is not remedied within 10 days after receipt of written notice from Kuntz specifically delineating such claimed event and setting forth Kuntz’s intention to terminate employment if not remedied; provided, that if the specified event cannot reasonably be remedied within such 10-day period and the Company commences reasonable steps within such 10-day period to remedy such event and diligently continues such steps thereafter until a remedy is effected, such event -------------------------------------------------------------------------------- shall not constitute “Good Reason” provided that such event is remedied within 30 days after receipt of such written notice. D. Notice of Termination. Any termination by the Company for Cause, or by Kuntz for Good Reason, shall be communicated by Notice of Termination given in accordance with this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Kuntz’s employment under the provision so indicated and (iii) specifies the intended termination date (which date, in the case of a termination for Good Reason, shall be not more than 10 days after the giving of such notice). The failure by Kuntz or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Kuntz or the Company, respectively, hereunder or preclude Kuntz or the Company, respectively, from asserting such fact or circumstance in enforcing Kuntz’s or the Company’s rights hereunder. E. Date of Termination. “Date of Termination” means (i) if Kuntz’s employment is terminated by the Company for Cause, or by Kuntz for Good Reason, the later of the date specified in the Notice of Termination or the date that is one day after the last day of any applicable cure period, (ii) if Kuntz’s employment is terminated by the Company other than for Cause or Disability, or Kuntz resigns without Good Reason, the Date of Termination shall be the date on which the Company or Kuntz notified Kuntz or the Company, respectively, of such termination and (iii) if Kuntz’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of Kuntz or the Disability Effective Date, as the case may be. 3. Obligations of the Company Upon Termination. Following any termination of Kuntz’s employment hereunder, the Company shall pay Kuntz his accrued wages through the Date of Termination and any amounts owed to Kuntz pursuant to the terms and conditions of the benefit plans and programs of the Company at the time such payments are due. In addition, subject to Kuntz’s execution of a general release of claims in form satisfactory to the Company, Kuntz shall be entitled to the following additional payments: A. Death or Disability. Kuntz shall not be entitled to any additional benefits by reason of his death or Disability during the Term. B. Good Reason; Other than for Cause. If, during the Term, the Company shall terminate Kuntz’s employment other than for Cause (but not for Disability), or the Kuntz shall terminate his employment for Good Reason: (i) Within 14 days of Kuntz’s Date of Termination, the Company shall pay to Kuntz an amount equal to three times the Chairman Salary as the Date of Termination. -------------------------------------------------------------------------------- (ii) For a period of three years following the Date of Termination, the Kuntz shall be treated as if he had continued to be an executive for all purposes under the Company’s health insurance plan and dental insurance plan; or if Kuntz is prohibited from participating in such plans, the Company shall otherwise provide such benefits. Following this continuation period, Kuntz shall be entitled to receive continuation coverage under Part 6 of Title I or ERISA (“COBRA Benefits”) treating the end of this period as a termination of Kuntz’s employment if allowed by law. (iii) For a period of three years following the Date of Termination, the Company shall maintain in force, at its expense, Kuntz’s life insurance in effect under the Company’s voluntary life insurance benefit plan as of the Date of Termination. (iv) For a period of three years following Kuntz’s Date of Termination, the Company shall provide short-term and long-term disability insurance benefits to Kuntz equivalent to the coverage that Kuntz would have had had he remained employed under the disability insurance plans applicable to Kuntz on the Date of Termination. Should Kuntz become disabled during such period, Kuntz shall be entitled to receive such benefits, and for such duration, as the applicable plan provides. (v) To the extent not already vested pursuant to the terms of such plan, Kuntz’s interests under the Company’s retirement savings plan shall be automatically fully (i.e., 100%) vested, without regard to otherwise applicable percentages for the vesting of employer matching contributions based upon Kuntz’s years of service with the Company. (vi) The Company shall adopt such amendments to its benefit plans, if any, as are necessary to effectuate the provisions of this Agreement. (vii) Kuntz shall be credited with an additional three years of vesting for purposes of all outstanding stock option and restricted stock awards and Kuntz will have an additional three years in which to exercise such stock options. (viii) Following the Date of Termination, Kuntz shall receive the computer which Kuntz is utilizing as of the Date of Termination. In addition, Kuntz shall be entitled to the furniture in Kuntz’s office suite as of the Date of Termination. In addition, for a period of three years following Kuntz’s Date of Termination, the Company shall provide Kuntz with an office suite and administrative assistant, each substantially -------------------------------------------------------------------------------- comparable to the office suite and administrative assistant that were furnished to Kuntz as of the date of Kuntz’s Date of Termination. C. Cause; Other than for Good Reason. If Kuntz’s employment shall be terminated for Cause or Kuntz terminates employment without Good Reason (and other than due to Kuntz’s death) during the Term, this Agreement shall terminate without further additional obligations to Kuntz under this Agreement. D. Death after Termination. In the event of the death of Kuntz during the period Kuntz is receiving payments pursuant to this Agreement, Kuntz’s designated beneficiary shall be entitled to receive the balance of the payments; or in the event of no designated beneficiary, the remaining payments shall be made to Kuntz’s estate. 4. Disputes. Any dispute or controversy arising under, out of, or in connection with this Agreement shall, at the election and upon written demand of either party, be finally determined and settled by binding arbitration in the City of Louisville, Kentucky, in accordance with the Labor Arbitration rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. The Company shall pay all costs of the arbitration and all reasonable attorneys’ and accountants’ fees of Kuntz in connection therewith, including any litigation to enforce any arbitration award. 5. Successors. A. This Agreement is personal to Kuntz and without the prior written consent of the Company shall not be assignable by Kuntz otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Kuntz’s legal representatives. B. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. C. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, or any business of the Company for which Kuntz’s services are principally performed, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 6. Other Severance Benefits. Kuntz hereby agrees that in consideration for the payments to be received under this Agreement, Kuntz waives any and all rights to any payments or benefits under any plans, programs, contracts or arrangements of the Company or their respective affiliates that provide for severance -------------------------------------------------------------------------------- payments or benefits upon a termination of employment, other than the Change in Control Severance Agreement between the Company and Kuntz dated as of February 22, 2006 (the “Severance Agreement”); provided that any payments payable to Kuntz hereunder shall be offset by any payments payable under the Severance Agreement. 7. Withholding. All payments to be made to Kuntz hereunder will be subject to all applicable required withholding of taxes. 8. Non-solicitation. During the Term and for a period of one year thereafter (collectively, the “Non-solicitation Period”), Kuntz shall not directly or indirectly, individually or on behalf of any person other than the Company, aid or endeavor to solicit or induce any of the Company’s or its affiliates’ employees to leave their employment with the Company or such affiliates in order to accept employment with Kuntz or any other person, corporation, limited liability company, partnership, sole proprietorship or other entity. If the restrictions set forth in this section would otherwise be determined to be invalid or unenforceable by a court of competent jurisdiction, the parties intend and agree that such court shall exercise its discretion in reforming the provisions of this Agreement to the end that Kuntz will be subject to a non-solicitation covenant which is reasonable under the circumstances and enforceable by the Company. It is agreed that no adequate remedy at law exists for the parties for violation of this section and that this section may be enforced by any equitable remedy, including specific performance and injunction, without limiting the right of the Company to proceed at law to obtain such relief as may be available to it. The running of the Non-solicitation Period shall be tolled for any period of time during which Kuntz is in violation of any covenant contained herein, for any reason whatsoever. 9. No Mitigation. Kuntz shall have no duty to mitigate his damages by seeking other employment and, should Kuntz actually receive compensation from any such other employment, the payments required hereunder shall not be reduced or offset by any such compensation. Further, the Company’s obligations to make any payments hereunder shall not be subject to or affected by any setoff, counterclaims or defenses which the Company may have against Kuntz or others. 10. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered or sent by telephone facsimile transmission, personal or overnight couriers, or registered mail with confirmation or receipt, addressed as follows: If to Kuntz: Edward L. Kuntz 8807 Stable Crest Blvd. Houston, Texas 77024 Facsimile: 713-840-6383 If to Company: Kindred Healthcare, Inc. 680 South Fourth Street Louisville, KY 40202 Attn: General Counsel Facsimile: 502-596-4075 -------------------------------------------------------------------------------- 11. Assignment to Subsidiary. The Company may assign its obligations under this Agreement to one or more of its subsidiaries but such assignment will not relieve the Company of its obligations and liabilities hereunder. 12. Waiver of Breach and Severability. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by either party. In the event any provision of this Agreement is found to be invalid or unenforceable, it may be severed from the Agreement and the remaining provisions of the Agreement shall continue to be binding and effective. 13. Entire Agreement; Amendment. This instrument contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements (including the Employment Agreement dated March 24, 2003 between the Company and Kuntz), promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter hereof. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Kuntz and such officer of the Company specifically designated by the Board. 14. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware. 15. Headings. The headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.   KINDRED HEALTHCARE, INC. By:   /s/ Paul J. Diaz   Paul J. Diaz, President and Chief Executive Officer   /s/ Edward L. Kuntz   EDWARD L. KUNTZ

SECOND AMENDED AND RESTATED MORTGAGE LOAN PURCHASE AGREEMENT This is a Second Amended and Restated Master Mortgage Loan Purchase Agreement (the "Agreement"), dated as of May 1, 2006, by and between Bank of America, National Association, having an office at 214 North Tryon Street, Charlotte, North Carolina 28255 (the "Purchaser") and Wells Fargo Bank, N.A., having an office at 1 Home Campus, Des Moines, Iowa 50328-0001 (the "Seller"). WITNESSETH ---------- WHEREAS, the Seller agrees to sell, and the Purchaser agrees to purchase, from time to time certain residential first lien adjustable rate and/or fixed rate mortgage loans (the "Mortgage Loans") on a servicing retained basis as described herein: WHEREAS, the Mortgage Loans shall be delivered as pools of whole loans (each a "Loan Package") on various dates as provided herein (each a "Closing Date"); and WHEREAS, the parties intend hereby to set forth the terms and conditions upon which the proposed Transactions will be effected. NOW THEREFORE, in consideration of the promises and the mutual agreements set forth herein, the parties hereto agree as follows: SECTION 1. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Second Amended and Restated Master Seller's Warranties and Servicing Agreement, dated as of the date herewith (the "Master Seller's Warranties and Servicing Agreement"). SECTION 2. Agreement to Purchase. The Seller agrees to sell, and the Purchaser agrees to purchase from time to time, Mortgage Loans in Loan Packages having aggregate principal balances on the related Cut-off Date in amounts as set forth in the respective Commitment Letters, or in such other amounts as agreed by the Purchaser and the Seller as evidenced by the actual aggregate principal balance of the Mortgage Loans in the related Loan Package accepted by the Purchaser on the related Closing Date. The Mortgage Loans will be delivered pursuant to the Master Seller's Warranties and Servicing Agreement, between the Purchaser and the Seller. SECTION 3. Mortgage Loan Schedule. The Seller will provide the Purchaser with certain information constituting a listing of the Mortgage Loans to be purchased under this Agreement for each Transaction (the "Mortgage Loan Schedule"). Each Mortgage Loan Schedule shall conform to the definition of "Mortgage Loan Schedule" under the Master Seller's Warranties and Servicing Agreement. SECTION 4. Purchase Price. The purchase price for each Loan Package (the "Purchase Price") shall be the percentage of par as stated in the related Commitment Letter, multiplied by the aggregate scheduled principal balance, as of the related Cut-off Date, of the Mortgage Loans in the related Loan Package, after application of scheduled payments of principal for such related Loan Package due on or before such Cut-off Date whether or not collected. The Purchase Price for a Loan Package may be adjusted as stated in the related Commitment Letter. In addition to the Purchase Price, the Purchaser shall pay to the Seller, at closing, accrued interest on the aggregate scheduled principal amount of the related Mortgage Loans at the weighted average Mortgage Loan Remittance Rate for each Loan Package from the related Cut-off Date through the day prior to the related Closing Date, inclusive. With respect to each Loan Package, the Purchaser shall be entitled to (1) all scheduled principal due after the related Cut-off Date, (2) all other recoveries of principal collected after the related Cut-off Date (provided, however, that all scheduled payments of principal due on or before the related Cut-off Date and collected by the Seller after the related Cut-off Date shall belong to the Seller), (3) all payments of interest on the Mortgage Loans at the Mortgage Loan Remittance Rate (minus that portion of any such payment which is allocable to the period prior to the related Cut-off Date) and (4) all Prepayment Penalties. The principal balance of each Mortgage Loan as of the related Cut-off Date is determined after application of payments of principal due on or before the related Cut-off Date whether or not collected. Therefore, payments of scheduled principal and interest prepaid for a Due Date beyond the related Cut-off Date shall not be applied to the principal balance as of the related Cut-off Date. Such prepaid amounts (minus interest at the Servicing Fee Rate) shall be the property of the Purchaser. The Seller shall deposit any such prepaid amounts into the Custodial Account, which account is established for the benefit of the Purchaser for subsequent remittance by the Seller to the Purchaser. SECTION 5. Examination of Mortgage Files. Prior to the related Closing Date, the Seller shall (a) deliver to the Purchaser in escrow, for examination, the Custodial Mortgage File for each Mortgage Loan, including a copy of the Assignment of Mortgage, pertaining to each Mortgage Loan, or (b) make the Custodial Mortgage Files and the Retained Mortgage Files available to the Purchaser for examination at the Seller's offices or such other location as shall otherwise be agreed upon by the Purchaser and the Seller. Such examination may be made by the Purchaser or by any prospective purchaser of the Mortgage Loans from the Purchaser, at any time before or after such Closing Date upon prior reasonable notice to the Seller. The fact that the Purchaser or any prospective purchaser of the Mortgage Loans has conducted or has failed to conduct any partial or complete examination of the Custodial Mortgage Files and the Retained Mortgage Files shall not affect the Purchaser's (or any of its successor's) rights to demand repurchase, substitution or other relief or remedy as provided under the Master Seller's Warranties and Servicing Agreement. The Purchaser shall cause the Custodian to act as bailee for the sole and exclusive benefit of the Seller pursuant to the Custodial Agreement and act only in accordance with Seller's instructions. Upon the Seller's receipt of the Purchase Price, the Seller shall provide notification to the Custodian to release ownership of the Mortgage Loan Documents specified above to the Purchaser. Such notification shall be in a form of a written notice by facsimile or other electronic media, with a copy sent to the Purchaser. Subsequent to such release, such Mortgage Loan Documents shall be retained by the Custodian for the benefit of the Purchaser. All Mortgage Loan Documents related to Mortgage Loans not purchased by the Purchaser on the 2 Closing Date, shall be maintained by the Custodian for the benefit of the Seller and shall be returned to the Seller within two (2) Business Days after the Closing Date. SECTION 6. Representations, Warranties and Agreements of Seller. The Seller agrees and acknowledges that it shall, as a condition to the consummation of the transactions contemplated hereby, make the representations and warranties specified in Section 3.01 and 3.02 of the Master Seller's Warranties and Servicing Agreement, as of each Closing Date. The meaning of the term "Agreement" as used in Sections 3.01 and 3.02 of the Seller's Warranties and Servicing Agreement shall include this Agreement. The Seller, without conceding that the Mortgage Loans are securities, hereby makes the following additional representations, warranties and agreements which shall be deemed to have been made as of the related Closing Date: a) neither the Seller nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of any Mortgage Loans, any interest in any Mortgage Loans or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of any Mortgage Loans, any interest in any Mortgage Loans or any other similar security from, or otherwise approached or negotiated with respect to any Mortgage Loans, any interest in any Mortgage Loans or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action which would constitute a distribution of the Mortgage Loans under the Securities Act or which would render the disposition of any Mortgage Loans a violation of Section 5 of the Securities Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Mortgage Loans; and b) the Seller has not dealt with any broker or agent or anyone else who might be entitled to a fee or commission in connection with this transaction other than the Purchaser. SECTION 7. Representation, Warranties and Agreement of Purchaser. The Purchaser, without conceding that the Mortgage Loans are securities, hereby makes the following representations, warranties and agreements, which shall have been deemed to have been made as of the related Closing Date. a) the Purchaser understands that the Mortgage Loans have not been registered under the Securities Act or the securities laws of any state; b) except as contemplated under the Seller's Warranties and Servicing Agreement, the Purchaser is acquiring the Mortgage Loans for its own account only and not for any other person; c) the Purchaser considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Mortgage Loans; 3 d) the Purchaser has been furnished with all information regarding the Mortgage Loans which it has requested from the Seller; and e) neither the Purchaser nor anyone acting on its behalf offered, transferred, pledged, sold or otherwise disposed of any Mortgage Loan, any interest in any Mortgage Loan or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of any Mortgage Loan, any interest in any Mortgage Loan or any other similar security from, or otherwise approached or negotiated with respect to any Mortgage Loan, any interest in any Mortgage Loan or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action which would constitute a distribution of the Mortgage Loans under the Securities Act or which would render the disposition of any Mortgage Loan a violation of Section 5 of the Securities Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Mortgage Loans. SECTION 8. Closing. The closing for the purchase and sale of each Loan Package, shall take place on the related Closing Date. At the Purchaser's option, the Closing shall be either: by telephone, confirmed by letter or wire as the parties shall agree; or conducted in person, at such place as the parties shall agree. The closing shall be subject to each of the following conditions: a) all of the representations and warranties of the Seller under this Agreement and under the Master Seller's Warranties and Servicing Agreement shall be true and correct as of such Closing Date and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement or an Event of Default under the Master Seller's Warranties and Servicing Agreement; b) the Purchaser shall have received, or the Purchaser's attorneys shall have received in escrow, all Closing Documents as specified in Section 9 of this Agreement, in such forms as are agreed upon and acceptable to the Purchaser, duly executed by all signatories other than the Purchaser as required pursuant to the respective terms thereof; c) the Seller shall have delivered and released to the Custodian under the Master Seller's Warranties and Servicing Agreement all documents required pursuant to the Master Seller's Warranties and Servicing Agreement; and d) all other terms and conditions of this Agreement and the Master Seller's Warranties and Servicing Agreement shall have been complied with. 4 Subject to the foregoing conditions, the Purchaser shall pay to the Seller on such Closing Date the related Purchase Price, plus accrued interest pursuant to Section 4 of this Agreement, by wire transfer of immediately available funds to the account designated by the Seller. SECTION 9. Closing Documents. With respect to the initial closing date, the Closing Documents shall consist of fully executed originals of the following documents: 1. the Master Seller's Warranties and Servicing Agreement, in two counterparts; 2. this Agreement in two counterparts; 3. the Custody Agreement, in three counterparts, in the form attached as an exhibit to the Master Seller's Warranties and Servicing Agreement; 4. the Mortgage Loan Schedule for the related Loan Package, one copy of each to be attached to each counterpart of the related Assignment and Conveyance Agreement, to each counterpart of the Custody Agreement, as the Mortgage Loan Schedules thereto; 5. a trust receipt and/or an initial certification, as required under the Custody Agreement; and 6. an Assignment and Conveyance Agreement for the related Mortgage Loans. On each subsequent Closing Date, the following documents: 1. the Mortgage Loan Schedule for the related Loan Package; 2. an Assignment and Conveyance Agreement of Mortgage Loans for the related Loan Package; and 3. a trust receipt and/or an initial certification, as required under the Custody Agreement. SECTION 10. Costs. The Purchaser shall pay any commissions due its salesmen, the legal fees and expenses of its attorneys and the costs and expenses associated with the Custodian. The Seller shall be responsible for reasonable costs and expenses associated with any preparation and recording of the initial Assignments of Mortgage. All other costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including fees for title policy endorsements and continuations and the Seller's attorney fees, shall be paid by the Seller. SECTION 11. Servicing. The Mortgage Loans shall be serviced by the Seller in accordance with the terms of the Master Seller's Warranties and Servicing Agreement. The Seller shall be entitled to servicing fees calculated as provided therein, at the Servicing Fee Rate. SECTION 12. Financial Statements. The Seller understands that in connection with the Purchaser's marketing of the Mortgage Loans, the Purchaser shall make available to prospective purchasers a Consolidated Statement of Operations of the Seller for the most recently completed two fiscal years respecting which such a statement is available, as well as a Consolidated 5 Statement of Condition at the end of the last two fiscal years covered by such Consolidated Statement of Operations. The Purchaser shall also make available any comparable interim statements to the extent any such statements have been prepared by the Seller in a format intended or otherwise suitable for the public at large. The Seller, if it has not already done so, agrees to furnish promptly to the Purchaser copies of the statements specified above. The Seller shall also make available information on its servicing performance with respect to loans in its own portfolio and loans serviced for others (if any), including loss and delinquency ratios. The Seller also agrees to allow access to a knowledgeable (as shall be determined by the Seller) financial or accounting officer for the purpose of answering questions asked by the Purchaser or any prospective purchaser regarding recent developments affecting the Seller or the financial statements of the Seller. SECTION 13. Mandatory Delivery. The sale and delivery on each Closing Date of the related Mortgage Loans described on the respective Mortgage Loan Schedules is mandatory, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on such Closing Date and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser (including damages to prospective purchasers of the Mortgage Loans) in the event of the Seller's failure to deliver the Mortgage Loans on or before such Closing Date. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. SECTION 14. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if mailed, by registered or certified mail, return receipt requested, or, if by other means, when received by the other party at the address shown on the first page hereof, or such other address as may hereafter be furnished to the other party by like notice. Any such demand, notice of communication hereunder shall be deemed to have been received on the date delivered to or received at the premises of the addressee (as evidenced, in the case of registered or certified mail, by the date noted on the return receipt). SECTION 15. Severability Clause. Any part, provision, representation or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law which prohibits or renders void or unenforceable any provision hereof. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate, in good-faith, to develop a structure the economic effect of which is as close as possible to the economic effect of this Agreement without regard to such invalidity. 6 SECTION 16. Counterparts. This Agreement may be executed simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. SECTION 17. Place of Delivery and Governing Law. This Agreement shall be deemed in effect when a fully executed counterpart thereof is received by the Purchaser in North Carolina and shall be deemed to have been made in North Carolina. The Agreement shall be construed in accordance with the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with the laws of the State of New York, except to the extent preempted by Federal Law. In the event a claim or controversy arises concerning the interpretation or enforcement of the terms of this Agreement, the Purchaser and the Seller agree that such claim or controversy may be settled by final, binding arbitration if the Purchaser and the Seller, as applicable, consent to such arbitration at the time such claim or controversy arises which consent may be withheld by the Purchaser or the Seller in their sole discretion. Each of the Seller and the Purchaser hereby knowingly, voluntarily and intentionally waives any and all rights it may have to a trial by jury in respect of any litigation based on, or arising out of, under, or in connection with this Agreement, or any other documents and instruments executed in connection herewith, or any course of conduct, course of dealing, statements (whether oral or written), or actions of the Seller or the Purchaser. This provision is a material inducement for the Purchaser to enter into this Agreement. SECTION 18. Further Agreements. The Purchaser and the Seller each agree to execute and deliver to the other such additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Agreement. Without limiting the generality of the foregoing, the Seller shall reasonably cooperate with the Purchaser in connection with the initial resales of the Mortgage Loans by the Purchaser. In that connection, the Seller shall provide to the Purchaser: (i) any and all information and appropriate verification of information, whether through letters of its auditors and counsel or otherwise, as the Purchaser shall reasonably request, and (ii) such additional representations, warranties, covenants, opinions of counsel, letters from auditors and certificates of public officials or officers of the Seller as are reasonably believed necessary by the Purchaser in connection with such resales. The requirement of the Seller pursuant to (ii) above shall terminate on the Closing Date, except as provided pursuant to Article IX of the Master Seller's Warranties and Servicing Agreement. Prior to incurring any out-of-pocket expenses pursuant to this paragraph, the Seller shall notify the Purchaser in writing of the estimated amount of such expense. The Purchaser shall reimburse the Seller for any such expense following its receipt of appropriate details thereof. SECTION 19. Intention of the Parties. It is the intention of the parties that the Purchaser is purchasing, and the Seller is selling, an undivided 100% ownership interest in the Mortgage Loans and not a debt instrument of the Seller or another security. Accordingly, the parties hereto each intend to treat the transaction for Federal income tax purposes as a sale by the Seller, and a purchase by the Purchaser, of the Mortgage Loans. The Purchaser shall have the right to review the Mortgage Loans and the related Custodial Mortgage Files to determine the characteristics of 7 the Mortgage Loans which shall affect the Federal income tax consequences of owning the Mortgage Loans and the Seller shall cooperate with all reasonable requests made by the Purchaser in the course of such review. SECTION 20. Successors and Assigns; Assignment of Purchase Agreement. This Agreement shall bind and inure to the benefit and be enforceable by the Seller and the Purchaser and the respective successors and assigns of the Seller and the Purchaser. This Agreement shall not be assigned, pledged or hypothecated by the Seller to a third party without the consent of the Purchaser. SECTION 21. Waivers; Other Agreements. No term or provision of this Agreement may be waived or modified unless such waiver or modification is in writing and signed by the party against whom such waiver or modification is sought to be enforced. SECTION 22. Exhibits. The exhibits to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. SECTION 23. General Interpretive Principles. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; c) references herein to "Articles", "Sections", "Subsections", "Paragraphs", and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; e) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and f) the term "include" or "including" shall mean without limitation by reason of enumeration. SECTION 24. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by any party at the closing, and (c) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in 8 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 a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. [Signatures Follow] 9 IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first above written. BANK OF AMERICA, NATIONAL ASSOCIATION (Purchaser) By: /s/ Bruce W. Good ------------------------------------ Name: Bruce W. Good Title: Vice President WELLS FARGO BANK, N.A. (Seller) By: /s/ Bradley A. Davis ------------------------------------ Name: Bradley A. Davis Title: Vice President [Signature Page to Second Amended and Restated Mortgage Loan Purchase Agreement]

-------------------------------------------------------------------------------- [charitylogo.jpg]    Head Office: Montreal Office: 1511 West 40th Avenue 2139 Tupper, #1 Vancouver, B.C. V6M 1V7 Montreal, Quebec H3H 1PA [email protected] [email protected] AGENCY AND PROMOTION AGREEMENT (the “Agreement”) CHARITY INFORMATION Charity Name:   War Child Canada   (“the Charity”)               Charity Registration Number:   872374426RR0001                   Street Address:   401 Richmond Street West                   City / Province:   Suite 204, Toronto, Ontario                   Postal Code:   M5V 3A8                   Telephone:   416 971 7474                   Facsimile:   416 971 7946                   Website URL:   www.warchild.ca       CONTACT INFORMATION:           Contact Name:   Ingrid Gardiner                   Title / Position:   Director of Fund Development                   Telephone:   416 971 7474 ext. 31                   Email:   [email protected]                   Postal Code:   M5V 3A8       WHEREAS: A. Charity Tunes Inc. (“Charity Tunes”), whose office is at 1511 West 40th Avenue, Vancouver, British Columbia V6M 1V7, operates a website under the URL www.charitytunes.com ("the Website") and offers web-based fundraising services. When we refer to the Website in this agreement, we are referring to all of the charity tunes related websites, including www.charitytunes.ca and other URL's containing the name charitytunes with various extensions that exist now or that will exist in the future.     B. The Charity seeks to raise money and awareness of its cause through participation in promotional programs with Charity Tunes -------------------------------------------------------------------------------- The parties agree that the following terms and conditions shall govern their relationship: Participation in the Website 1. Charity Tunes agrees that it will: 1.1 Collect for the Charity an amount equal to a minimum of 10% of the purchase price (which does not include taxes or delivery fees that are added to the purchase price) (the "Purchase Price") of a song or other digital content or products sold on its Website ("Products"), or more than 10% if so agreed by the Artist and Charity Tunes (the “Donation(s)”), for which anyone making a purchase from the Website (the “Customer”) selects the Charity as the recipient of the donation. 1.2 Include the Charity in its database of charities connected to the Website and make available on the Website information on the Charity as approved by the Charity, including the name, location, URL, logo and a summary description of the Charity. 1.3 Notify the Charity if any artist or other licensor of Products (the "Artist") has elected to donate a portion of the Artist’s proceeds from the Purchase Price to the Charity and Charity Tunes shall account for such proceeds in calculating monies owed by Charity Tunes to the Charity. 1.4 Ensure that all content and information sold or otherwise made available on the Website is not be in violation of any law or regulation or in breach any intellectual property rights of a third party. 1.5 Pursuant to sales of the Products on the Website, make all required payments to the Artist and any royalty organizations entitled to payment. 1.6 Program its technology to disallow donations to be made to the Charity for any of the Products that the Charity deems obscene (and for which the Charity has provided Charity Tunes written notice). Special Links 1.7 Provide the Charity with special "tagged" link formats ("Special Link(s)") and graphical artwork to be used in linking to the Website. The Special Links will permit tracking, reporting, and donation calculations. The Special Links will include, without limitation, one or more of the following types of links to Charity Tunes Website:   (a) Portal Page Links   (b) Category Links   (c) Search Results Link   (d) Banner Links   (e) General Link To Charity Tunes Home Page. 1.8 Collect for the Charity an amount equal to 10% of the Purchase Price of Products that have been purchased through Special Links from the Charity's website. [charitylogo.jpg]  Agency and Promotion Agreement - Page 2 -------------------------------------------------------------------------------- Accounting and Reporting 1.9 Provide the Charity with a secure, password protected user name to a secure, personalized webpage through which Charity Tunes will make available the following information:   (a) number of hits that the Charity's profile on the Website has received;           (b) details on traffic on the Website that comes from links on the Charity's website;           (c) details of the monies that has been collected by Charity Tunes on behalf of the Charity, including:           i. percentages of Product sales where the Charity has been selected by the purchaser;         ii. percentages of Product sales that result from a link from the Charity's website;         iii. additional donations received by Charity Tunes for the Charity;         iv. proceeds from any special promotions in which the Charity participates;         v. proceeds from sales of more than 10% where a portion of the Artists' proceeds have been donated by the Artist to the Charity; and         vi. the dates of each donation;   (d) details of any fees charged by Charity Tunes;         (e) names and addresses of the person donating to the Charity, ONLY where the person has selected to make an additional donation to the Charity and requested a tax receipt, OR where the purchaser has expressly agreed to allowing Charity Tunes to share his or her information with the Charity;         (f) a description of the top 5 Products for which purchases have resulted in donations for the Charity; and         (g) a statement detailing the amount of all donations Charity Tunes has collected on behalf of Charity Tunes, less any fees payable to Charity Tunes by the Charity and a description of the amount owing by Charity Tunes to the Charity (the "Reporting Information"). 1.10 In the event that more than $100.00 is owed to the Charity by Charity Tunes for a calendar quarter, within thirty days of the end of the calendar quarter, Charity Tunes shall make a payment to the Charity for the full amount collected. 1.11 In the event that not more than $100.00 is owed to the Charity by Charity Tunes for a calendar quarter, such amount will carry over until the next calendar quarter until the amount collected exceeds $100.00. [charitylogo.jpg]  Agency and Promotion Agreement - Page 3 -------------------------------------------------------------------------------- 1.12 In the event that not more than $100.00 is owed to the Charity by Charity Tunes by the end of a calendar year, within thirty days of the end of the calendar year, Charity Tunes will make a payment to the Charity for the amount owed. 1.13 Allow the Charity to conduct, at any time, an audit by a Public Company Accounting Oversight Board approved auditor, or another auditor approved in writing by Charity Tunes prior to commencement of the audit (the "Approved Auditor") at the Charity's expense, to ensure the accuracy of the Reporting Information, and, if the Approved Auditor reports that Charity Tunes has underreported amounts owed to the Charity with an error of 10% or more during any fiscal year, Charity Tunes shall reimburse the Charity for all of the Approved Auditor's fees incurred by the Charity for the audit of Charity Tunes. Charity Tunes shall also pay any amounts that the Approved Auditor deems payable by Charity Tunes to the Charity. Additional Promotion 1.14 Where Charity Tunes deems it appropriate, it shall create free promotional items to promote the Charity and any promotions that Charity Tunes and the Charity enter into. Such promotional items may include free greeting cards. 2. The Charity agrees that it shall: 2.1 Ensure that the content and information supplied by it to Charity Tunes for display on the Website will not be in violation of any law or regulation or be defamatory, obscene or breach any intellectual property rights of a third party or breach any right or duty owed to a third party. 2.2 Provide Charity Tunes with accurate and complete contact and payment information, and immediately notify Charity Tunes if any of the contact or payment information changes. 2.3 Ensure that each of Special Links on any area of the website are set up so that web traffic and performance may be tracked and reported; this may include the set-up of redirect links. 2.4 In the event that any Approved Auditor retained by the Charity to audit Charity Tunes determines that Charity Tunes has overpaid the Charity by any amount, the Charity shall pay Charity Tunes the amount determined payable. 3. Special Promotions     3.1The parties agree that they shall work together on at least one major promotional campaign a year designed to increase visits and sales at the Charity Tunes website and to raise money and awareness for the Charity (the "Special Promotion"). For each of the Special Promotions, each party shall:       (a) include, at its own cost, a description of the Special Promotion on their respective web sites; [charitylogo.jpg]  Agency and Promotion Agreement - Page 4 --------------------------------------------------------------------------------   (b) include, at its own cost, a description of the Special Promotion in at least one written communication with its supporters and customers that have opted in or otherwise agreed to receive information on special offers and promotions;         (c) make available an executive or other employee or consultant for interviews with the press for a period of at least two weeks;         (d) work together with the other party to create materials, including press releases and press packages, to distribute to the press to describe the Special Promotion;         (e) work together to create promotional ads and copy to put on both the Charity Tunes Website and the Charity's website to promote the Special Promotion;         (f) where an artist, record label or other content owner has agreed to participate in a Special Promotion, each party agrees to honor any agreement it makes with such content owner relating to the Special Promotion; 3.2 It shall be the responsibility of Charity Tunes to cover the expenses for the creation of press materials relating to each Special Promotion and to distribute them to the press. Charity Tunes may cover the expenses by involving a corporate sponsor, who is also acceptable to the Charity of the Special Promotion. In the event that a corporate sponsor is involved in any Special Promotion, , Charity Tunes shall provide details to the Charity of all expenses relating to the Special Promotion and all monies received from the Corporate Sponsorship. 4. Customers Purchasing 4.1 Order Processing and Reporting. Charity Tunes will process all product orders placed by customers who follow Special Links to Charity Tunes Website (the "Customers"). Charity Tunes reserves the right to reject orders that do not comply with any requirements that Charity Tunes has and may periodically establish. Charity Tunes will be responsible for all aspects of order processing and fulfillment. Among other things, Charity Tunes will prepare order forms, process payments and handle customer service. Charity Tunes will track sales made to Customers who purchase products using Special Links from your Website to Charity Tunes Website and will make available to you reports summarizing sales activity. Charity Tunes will use commercially reasonable efforts to present accurate information in the reports. 4.2 Customers. Customers who buy products through the Affiliate Program will be deemed to be customers of Charity Tunes. Accordingly, all of Charity Tunes’ rules, policies, and operating procedures concerning customer orders, customer service and product sales will apply to those Customers. Charity Tunes may change Charity Tunes policies and operating procedures at any time. Product prices and availability may vary from time to time, and such price changes may affect donations which you receive. 5. Identification as a Charity Tunes Partner 5.1 Charity Tunes will make available to the Charity a small graphic image that identifies the Charity as a Charity Tunes Promotional Partner. The Charity shall display this logo somewhere on its website or web space. [charitylogo.jpg]  Agency and Promotion Agreement - Page 5 -------------------------------------------------------------------------------- 6. Tax Receipts and Additional Donations. 6.1 The Charity agrees to allow Charity Tunes to collect additional money donations on behalf of the Charity that are not part of the Purchase Price. Charity Tunes may collect these amounts through:   (a) buttons or links during the check out process on the Website that allow customers to add donations to their purchase;         (b) links or buttons on the page of the Website providing information on the Charity that allow customers to make donations; or         (c) other links or buttons throughout the Website that are approved by the Charity that allow customers to make donations ("Additional Donations"). 6.2 As a service fee for accepting and collecting donations, Charity Tunes shall charge 6% of the gross amount of the Additional Donations. Out of this amount, Charity Tunes shall pay all merchant processing and credit card fees. 6.3 The Charity shall provide to Charity Tunes a list of information it requires in order to issue tax receipts to donors to the Charity. Charity Tunes agrees to collect such information and provide it to the Charity, where Charity Tunes has received money on behalf of the Charity for which a tax receipt may be issued. Issuing tax receipts shall be sole responsibility of the Charity. 7. Limited Licenses. 7.1 Charity License to Charity Tunes. The Charity grants Charity Tunes a limited nonexclusive, nontransferable, revocable right to use the Charity's logo, trademarks, graphic images and text provided to Charity Tunes by the Charity for use on the Website or in conjunction with Special Promotions. In addition, the Charity grants to Charity Tunes a limited, nontransferable, nonexclusive, worldwide right to reproduce and use all graphic images and other materials provided to Charity Tunes, solely for the purpose of creating Special Links connecting the Charity’s Website or web space to Charity Tunes’ Website and promoting the sale of products on Charity Tunes’ Website. Charity Tunes may not modify the Charity's logo, trademarks, graphic images or text unless such modification is approved in writing by the Charity. The Charity may revoke the license at any time by giving Charity Tunes written notice. The Charity reserves all of its rights in the logo, graphic images, text, any other images, the Charity's trade names and trademarks, and all other intellectual property rights. 7.2 Charity Tunes License to the Charity. Charity Tunes grants the Charity a limited nonexclusive, nontransferable, revocable right to use the logo, graphic images and text provided to the Charity by Charity Tunes, for use on the Charity's website or web space, for the purposes of promoting or describing any Special Promotions or otherwise promoting sales of Charity Tunes' Products, or for identifying the Charity's website or web space as a Promotional Partner of Charity Tunes. In addition, Charity Tunes grants the Charity a limited, nontransferable, nonexclusive, worldwide right to reproduce and use all graphic images and other materials provided to the Charity for the purpose of [charitylogo.jpg]  Agency and Promotion Agreement - Page 6 -------------------------------------------------------------------------------- creating Special Links connecting the Charity's website or web space to the Charity Tunes’ Website and promoting the sale of Products on the Charity Tunes’ Website. The Charity may not modify the graphic images or text, or any other of Charity Tunes images, in any way, without written approval from Charity Tunes. Charity Tunes may revoke the license at any time by giving the Charity written notice. Charity Tunes reserves all of its rights in the graphic images, text, any other images, Charity Tunes trade names and trademarks, and all other intellectual property rights. 8. Term and Termination. 8.1 Term. Subject to the other provisions of this section (8), the term of this Agreement shall be for one year from the date of this agreement. At the end of the term it shall automatically renew for one further year unless cancelled in writing by either party 30 days prior to the end of the term. 8.2 In the event that Charity Tunes is in breach of any term of this Agreement, and Charity Tunes has failed to cure the breach within 14 days of receiving written notification of breach from the Charity, the Charity shall have the right to terminate this Agreement immediately by sending written notice to Charity Tunes. 8.3 In the event that the Charity is in breach of any term of this Agreement, and the Charity has failed to cure the breach within 14 days of receiving written notification of breach from Charity Tunes, Charity Tunes shall have the write to terminate this Agreement immediately by sending written notice to the Charity. 8.4 Either party may terminate this Agreement upon 30 days notice in writing to the other party. 8.5 Upon termination of this Agreement, the following shall occur: Charity Tunes shall within 14 days pay any outstanding amounts owed to the Charity; Charity Tunes shall remove the Charity from its Charity database; Charity Tunes shall immediately notify any and all Artists that have agreed to donate a portion of their sales from Products to the Charity that Charity Tunes no longer has an agreement with the Charity to collect donations on its behalf; and Charity Tunes shall immediately cease collecting money on behalf of the Charity. [charitylogo.jpg]  Agency and Promotion Agreement - Page 7 -------------------------------------------------------------------------------- 9. Mutual Indemnification 9.1 Each party will, during the term and after the termination of this Agreement, indemnify and hold harmless the other from any loss, damage, claim, cost, expense or liability whatsoever that the other may incur, suffer or be required to pay pursuant to any claim, demand, action, suit, litigation, charge, complaint, prosecution or other proceeding that may be made or asserted against or affect the party indemnified by reason of an alleged breach by the other of the intellectual property rights of a third party, or by reason of a wrongful or negligent act or omission on the part of the indemnifying party, its employees, servants, agents, subcontractors or volunteers in the performance of obligations under this Agreement. Both parties hereby agree to the terms and conditions contained in this Agreement. Signed this 29th day of   September  ,2006     Charity Name:   War Child Canada         Per:   /s/ Eric Hoskins         Name of Authorized Signatory:   Eric Hoskins         Title:   President         Signed this 6th day of October ,2006   CHARITY TUNES INC.   Per: /s/ Robin Ram   Name of Authorized Signatory: Robin Ram   Title: Chief Operating Officer   [charitylogo.jpg]  Agency and Promotion Agreement - Page 8 --------------------------------------------------------------------------------

EXHIBIT 10.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this “Amendment Agreement”) is made and entered into as of the 16th day of June, 2006, by and between Willbros USA, Inc., a Delaware corporation (the “Corporation”), and Robert R. Harl (the “Executive”). RECITALS WHEREAS, on January 20, 2006, the Executive and the Corporation entered into an Employment Agreement (the “Employment Agreement”) (terms used herein and not defined herein shall have the meanings ascribed to them in the Employment Agreement); and WHEREAS, the Executive and the Corporation have determined that an amendment to the Employment Agreement is appropriate; NOW THEREFORE, in consideration of the mutual covenants and representations contained herein, and the mutual benefits derived herefrom, the parties agree as follows:     1. Surrender of Restricted Stock Shares. Contemporaneously with the execution and delivery of the Employment Agreement the Executive was awarded 100,000 restricted stock shares subject to all of the terms and provisions of the WGI 1996 Stock Plan, the Executive’s execution and delivery of a Restricted Stock Award Agreement substantially in the form of Exhibit A to the Employment Agreement, and the terms and provisions of the Employment Agreement. The Executive and the Corporation agree that the Employment Agreement and such Restricted Stock Award Agreement are hereby amended to reflect that (i) the award of restricted stock shares to the Executive under Paragraph 1 of such Restricted Stock Award Agreement was to purchase up to 50,000 rather than 100,000 shares of common stock, (ii) the restrictions on such restricted stock shares, which are described in Section 4(b) of such Restricted Stock Award Agreement, shall lapse pursuant to Section 5(a) of such Restricted Stock Award Agreement as to 10,000 restricted stock shares on each of December 31, 2006, December 31, 2007, December 31, 2008, December 31, 2009, and December 31, 2010, and (iii) in all other respects the terms and provisions of the Employment Agreement and such Restricted Stock Award Agreement remain in force.     2. 2006 Change In Control Make Whole Payment. Under the Employment Agreement, if, as a result of a Change in Control the Employment Agreement is terminated during 2006, the vesting of all restricted stock shares awarded to the -------------------------------------------------------------------------------- Executive on January 20, 2006 is accelerated to the date of the termination of the Employment Agreement. In consideration of the surrender by the Executive of 50,000 of the restricted stock shares awarded on January 20, 2006, the Corporation agrees that if, as a result of a Change in Control the Employment Agreement is terminated during 2006, then within fifteen days following such termination, the Corporation will pay to the Executive as compensation an amount equal to the “fair market value” multiplied times 50,000. For purposes of this Amendment Agreement “fair market value” means the average of the high and low per share sale prices for a share of the common stock, par value $.05 per share, of the Corporation as of the day of the termination of the Employment Agreement on the composite tape for securities listed on the New York Stock Exchange, Inc., except that such average price shall be rounded up (if necessary) to the nearest cent.     3. Award of Restricted Stock Shares. The Corporation will award to the Executive on January 1, 2007, 50,000 additional restricted stock shares (in addition to the 50,000 shares of restricted stock to be awarded to the Executive pursuant to the terms of the Employment Agreement before its amendment pursuant to this Amendment Agreement) subject to (i) all of the terms and provisions of the WGI 1996 Stock Plan, (ii) the Executive’s execution and delivery of a Restricted Stock Award Agreement substantially in the form of Exhibit A attached hereto, and (iii) Section 4.3 of the Employment Agreement. The restrictions on such restricted stock shares, which are described in Section 4(b) of Exhibit A and will be described in the Restricted Stock Award Agreement to be executed by the Executive and the Corporation on January 1, 2007, shall lapse as described in Section 5(a) of such Exhibit A and pursuant to Section 5(a) of such Restricted Stock Award Agreement as to 10,000 restricted stock shares on the day such Restricted Stock Award Agreement is executed and delivered by the Executive, and as to an additional 10,000 restricted stock shares on each of January 20, 2007, December 31, 2007, December 31, 2008, December 31, 2009, and December 31, 2010.     4. Entire Agreement. This Amendment Agreement constitutes the entire understanding of the Executive and the Corporation with respect to the subject matter hereof and supersedes any and all prior understandings on the subjects contained herein, written or oral, and all amendments.     5. Modification. Except as provided in the following two sentences, this Amendment Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.     6. Severability. In the event that any provision or portion of this Amendment Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Amendment Agreement shall be unaffected thereby and shall remain in full force and effect.   2 --------------------------------------------------------------------------------   7. Governing Law. The provisions of this Amendment Agreement shall be construed and enforced in accordance with the laws of the State of Texas, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the parties have executed and delivered this Amendment Agreement on the date first above written.   WILLBROS USA, INC. By:   /s/ Dennis G. Berryhill Name:   Dennis G. Berryhill Its:   Vice President and Secretary EXECUTIVE /s/ Robert R. Harl Robert R. Harl   3

Exhibit 10.3 FIRST AMENDMENT TO ENERGY PARTNERS, LTD. CHANGE OF CONTROL SEVERANCE PLAN The Energy Partners, Ltd. Change of Control Severance Plan (the “Plan”) is hereby amended, effective as of September 13, 2006, as follows: 1. Subsection (h)(iii) of Section 2 of the Plan is amended to read in its entirety as follows: “(iii) any requirement that the Participant relocate to an office which is more than 35 miles in driving distance from the office at which the Participant is employed immediately prior to the Change of Control.” 2. Subsection (a) of Section 5 of the Plan is amended by adding the following proviso before the semicolon at the end thereof: “provided, however, that in determining a Participant’s average annual bonus, if the Participant’s bonus for any of the calendar years that would otherwise be included within the period used in determining the average was reduced to reflect service for less than a full calendar year, that calendar year (and the bonus amount for that calendar year) shall be disregarded” 3. Subsection (b) of Section 5 of the Plan is renumbered as subsection (c) and is amended by deleting the words “medical and life insurance benefits” in the first sentence and substituting the words “medical, dental and life insurance benefits.” 4. A new subsection (b) is added to Section 5 of the Plan to read in its entirety as follows: “(b) if the Participant has not yet received a bonus under the Company’s annual bonus plan for the calendar year preceding the calendar year of termination of the Participant’s employment, the Participant shall receive a bonus for that calendar year under the Company’s annual bonus plan in an amount equal to the Participant’s target bonus opportunity for that calendar year, payable in a single cash lump sum within 30 days following such termination of employment; and” 5. Section 5 of the Plan is amended by adding the following sentence at the end thereof: “Anything in this Plan to the contrary notwithstanding, in the case of a Participant who is a “specified employee” within the meaning of Section 409A of the Code, payments under this Plan shall be delayed if and to the extent required by Section 409A of the Code.” 6. Section 5 of the Plan is amended by adding the following sentence at the end thereof: “Anything in this Plan to the contrary notwithstanding, a Participant’s Designated Multiple may not be changed on or after the occurrence of a Change of Control.” -------------------------------------------------------------------------------- 7. A new Section 17 is added to the Plan to read in its entirety as follows: “17. Compliance with Code Section 409A. It is intended that any amounts payable under this Plan that constitute deferred compensation subject to Section 409A of the Code shall comply with the provisions of Section 409A of the Code. Anything in this Plan to the contrary notwithstanding, if the Committee determines that any amounts payable under this Plan that are subject to Section 409A of the Code would not satisfy the requirements of said Section 409A, the Committee shall modify this Plan and the terms of any such payments so as to satisfy such requirements in a manner that preserves to the maximum extent possible the economic value of such payments to the Participant.”

  EXHIBIT 10.3.1 AMENDMENT NO. 1 TO 1993 STOCK OPTION AND INCENTIVE PLAN           The Trinity Industries, Inc. 1993 Stock Option and Incentive Plan, as amended from time to time (the “Plan”), is hereby amended by this Amendment No. 1, effective as of June 9, 1994, as set forth below.           Any term which is not defined below shall have the meaning set forth for such term in the Plan.           1. Section 9(c) of the Plan is hereby amended and restated as follows:      (c) If the Optionee ceases to be an officer, director, or employee of the Company or any Affiliate by reason of the Optionee’s retirement, all rights of the Optionee to exercise an option shall terminate, lapse, and be forfeited (i) in the case of an Incentive Stock Option, three (3) months after the date of the Optionee’s retirement and (ii) in the case of a Non-Qualified Stock Option, thirty-six (36)months after the date of the Optionee’s retirement; provided however, if the Optionee shall die during the applicable period provided under clause (i) or (ii), the personal representatives, heirs, legatees, or distributees of the Optionee, as appropriate, shall have the right up to twelve (12) months from the date of death to exercise any such option to the extent that the option was exercisable prior to death and had not been so exercised.           IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by a duly authorized officer of the Company as of the day and year first above written,               TRINITY INDUSTRIES, INC.               By:   /s/ W. Ray Wallace            

  Exhibit 10.5 November 8, 2006 Brian Stewart 4354 Mariota Ave. Toluca Lake, CA  91602 Re: Amendment to Employment Agreement Dear Mr. Stewart: This will confirm our agreement to amend your employment agreement with Crown Media Holdings, Inc., dated July 24, 2006 (the “Agreement”), as follows: 1.  Your title and job responsibilities, described in Paragraph 1(a) of the Agreement, are changed to that of Executive Vice President, Finance, and Chief Financial Officer of Crown Media Holdings, Inc. 2.  Paragraph 3(a) of the Agreement is amended to provide for payment to you of an annual salary of $350,000 during the remainder of the Term, subject to adjustment, in the sole discretion of Crown Media Holdings, Inc. on November 8, 2007. Except as amended herein, all other terms of the Agreement will remain in full force and effect.     Very truly yours,     Crown Media Holdings, Inc.             By: /s/ Charles L. Stanford             Executive Vice President, General Counsel       Title Accepted and Agreed to               /s/ Brian Stewart       Brian Stewart         --------------------------------------------------------------------------------

Exhibit 10.5 TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "TRADEMARK SECURITY AGREEMENT") is made this 3rd day of February, 2006, among Grantors listed on the signature pages hereof (collectively, jointly and severally, "GRANTORS" and each individually "Grantor"), and Christiana Corporate Services, Inc., a Delaware corporation, in its capacity as Agent for the Holders (together with its successors and assigns in such capacity, "AGENT"). W I T N E S S E T H: WHEREAS, pursuant to the Securities Purchase Agreement (the "PURCHASE AGREEMENT") dated as of October 31, 2005, among SendTec Acquisition Corp. ("STAC") and the other parties thereto, and the Senior Secured Convertible Debentures (the "DEBENTURES") issued by STAC pursuant to the Purchase Agreement, the Holders have severally agreed to extend the loans evidenced by the Debentures to STAC; WHEREAS, pursuant to the Guaranty, Grantors have agreed to jointly and severally guarantee the obligations owed by STAC under the Debentures; WHEREAS, the Holders are willing to accept the Guaranty, but only upon the condition, among others, that Grantors shall have executed and delivered to Agent, for the benefit of Holders, that certain Guarantor Security Agreement dated as of February 3rd, 2006 (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "SECURITY AGREEMENT"); and WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Agent, for the benefit of Holders, this Trademark Security Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement. 2. GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL. Each Grantor hereby grants to Agent, for the benefit of the Holders, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the "TRADEMARK COLLATERAL"): (a) all of its Trademarks and rights in and to Trademark Intellectual Property Licenses to which it is a party including those referred to on Schedule I hereto; (b) all extensions, modifications and renewals of the foregoing; (c) all goodwill of the business connected with the use of, and symbolized by, each Trademark; and (d) all products and proceeds of the foregoing, including, without limitation, any claim by such Grantor against third parties for past, present or future (i) infringement or dilution of any Trademark, or (ii) injury to the goodwill associated with any Trademark. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Trademark Security Agreement are granted in conjunction with the security interests granted to Agent, for the benefit of the Holders, pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms that the rights and remedies of Agent with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. 4. AUTHORIZATION TO SUPPLEMENT. Grantors hereby authorize Agent unilaterally to modify this Agreement by amending SCHEDULE I to include any trademarks, registrations, or applications therefor (including, without limitation, extensions or renewals) which become part of the Trademark Collateral under the Security Agreement. Notwithstanding the foregoing, no failure to so modify this Trademark Security Agreement or amend SCHEDULE I shall in any way affect, invalidate or detract from Agent's continuing security interest in all Collateral, whether or not listed on SCHEDULE I. 5. COUNTERPARTS. This Trademark Security Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. Any signatures delivered by a party by facsimile transmission or by e-mail transmission shall be deemed an original signature hereto. [signature pages follow] IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. GRANTORS: RELATIONSERVE MEDIA, INC., a Delaware corporation, as a Grantor By: /s/ ----------------------------------- Name:_________________________________ Title:________________________________ RELATIONSERVE ACCESS, INC., a Delaware corporation, as a Grantor By: /s/ ----------------------------------- Name:_________________________________ Title:________________________________ FRIENDSAND, INC., a Delaware corporation, as a Grantor By: /s/ ----------------------------------- Name:_________________________________ Title:________________________________ SIGNATURE PAGE OF TRADEMARK SECURITY AGREEMENT AGENT: CHRISTIANA CORPORATE SERVICES, INC., a Delaware corporation, as Agent By: /s/ ----------------------------------- Name:_________________________________ Title:________________________________ SIGNATURE PAGE OF TRADEMARK SECURITY AGREEMENT

Exhibit 10.3   STOCK PURCHASE AGREEMENT   This STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into effective as of October 31, 2005 by and among PriceSmart, Inc., a Delaware corporation (“PriceSmart”), and Chancellor Holdings, a Trinidad and Tobago corporation (“Chancellor”). For purposes of this Agreement, each of PriceSmart and Chancellor are referred to as a “Party,” and collectively, as the “Parties.”   WITNESSETH:   WHEREAS, Chancellor desires to sell one hundred (100) shares of Class A capital stock of PriceSmart Jamaica (SL), Inc., a St. Lucia corporation (“PSMT Jamaica”), and PriceSmart desires to purchase from Chancellor those shares on the terms and conditions set forth in this Agreement;   NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:   1. AGREEMENT TO PURCHASE AND SELL STOCK. Chancellor agrees to sell to PriceSmart at the Closing (as defined in Section 2), and PriceSmart agrees to purchase from Chancellor at the Closing, one hundred (100) ordinary Class A PSMT Jamaica shares with par value of one U.S. Dollar ($1) (the “Purchased Shares”) payable by PriceSmart delivering to Chancellor, at the Closing, a cashiers check or wire transfer order in the amount of nine hundred thousand and one dollars even (US$901,000.00).   2. CLOSING. The purchase and sale of the Purchased Shares will take place at the offices of PriceSmart at 9740 Scranton Road, San Diego, CA 92121, on November 15, 2005, or at such other time and place on which PriceSmart and Chancellor mutually agree (which time and place are referred to in this Agreement as the “Closing”).   2.1 At the Closing, Chancellor will deliver to PriceSmart its share certificate, properly endorsed to PriceSmart or its designee, representing the Purchased Shares.   2.2 At the Closing, PriceSmart will deliver to Chancellor a check in the amount of nine hundred thousand and one dollars even (US$901,000.00).   3. MUTUAL REPRESENTATIONS AND WARRANTIES. The Parties hereby represent and warrant, as follows:   3.1 DISCLOSURE OF INFORMATION. Each Party has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Purchased Shares. Each Party has had an opportunity to ask questions and receive answers from PriceSmart, PSMT Jamaica or Chancellor, as the case may be, regarding the terms and conditions of the Purchased -------------------------------------------------------------------------------- Shares and to obtain additional information (to the extent PriceSmart, PSMT Jamaica or Chancellor possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Party or to which such Party had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by such Party in this Agreement.   3.2 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. Each Party is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.   3.3 DISCLOSURE OF INFORMATION. Each Party has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Purchased Shares. Each Party has had an opportunity to ask questions and receive answers from PriceSmart, PSMT Jamaica or Chancellor, as the case may be, regarding the terms and conditions of the Purchased Shares and to obtain additional information (to the extent PriceSmart, PSMT Jamaica or Chancellor possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to such Party or to which such Party had access. The foregoing, however, does not in any way limit or modify the representations and warranties made by such Party in this Agreement.   3.4 AUTHORIZATION. All corporate action on the part of each Party and its officers, directors and stockholders, necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of each Party hereunder and the transactions contemplated hereby have been taken, and this Agreement has been duly executed and delivered by each Party and constitutes a valid and legally binding obligation of each Party, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) the effect of rules of law governing the availability of equitable remedies.   3.5 NO CONFLICTS WITH OTHER AGREEMENTS. The execution, delivery and performance by each Party of this Agreement will not violate or be in conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under (i) any provision of PriceSmart’s certificate of incorporation or bylaws as they shall be in effect; (ii) any provision of any judgment, decree or order to which PriceSmart is a party or by which it is bound; (iii) any material contract, obligation or commitment to which PriceSmart is a party or by which it is bound; or (iv) any statute, rule or governmental regulation applicable to PriceSmart.   2 -------------------------------------------------------------------------------- 4. REPRESENTATIONS AND WARRANTIES OF Chancellor. Chancellor hereby represents and warrants to PriceSmart that it owns exactly one hundred (100) Class A shares of PSMT Jamaica, free and clear of all liens, encumbrances and any liabilities, except as may be created hereby. Other than the Purchased Shares, Chancellor owns no additional shares of capital stock of, or any other interest in, PSMT Jamaica. In addition, Chancellor has no options, warrants or other rights to acquire shares of capital stock of, or any other interest in, PSMT Jamaica. Following the Closing, Chancellor will have transferred all of its right, title and interest in PSMT Jamaica to PriceSmart and will have no outstanding claims against PriceSmart or PSMT Jamaica.   5. CONDITIONS TO CLOSING.   5.1 CONDITIONS TO OBLIGATIONS OF PRICESMART AT CLOSING. PriceSmart’s obligation to purchase the Purchased Shares at the Closing is subject to the fulfillment to PriceSmart’s satisfaction, on or prior to the Closing, of all of the following conditions, any of which may be waived by PriceSmart:   (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by Chancellor in Sections 3 and 4 hereof shall be true and correct in all material respects at the Closing with the same force and effect as if they had been made on and as of said date and Chancellor shall have performed and complied in all material respect with all obligations and conditions herein required to be performed or complied with by it on or prior to the Closing, and a certificate duly executed by an officer of Chancellor, to the effect of the foregoing, shall have been delivered to PriceSmart.   (b) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or country that are required in connection with the lawful sale of the Purchased Shares shall have been duly obtained and shall be effective on and as of the Closing   5.2 CONDITIONS TO OBLIGATIONS OF CHANCELLOR AT CLOSING. The obligations of Chancellor to sell the Purchased Shares to be sold at the Closing is subject to the fulfillment to Chancellor’s satisfaction on or prior to the Closing of the following conditions, any of which may be waived by Chancellor:   (a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by PriceSmart in Sections 3 and 4 hereof shall be true and correct in all material respects at the date of the Closing with the same force and effect as if they had been made on and as of the date hereof. PriceSmart shall have performed and complied with all agreements and conditions herein required to be performed or complied with by it on or before the Closing and a certificate duly executed by an officer of PriceSmart, to the effect of the foregoing, shall be delivered to Chancellor.   3 -------------------------------------------------------------------------------- (b) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state or country that are required in connection with the lawful sale and issuance of the Purchased Shares shall have been duly obtained and shall be effective on and as of the Closing. At the time of the Closing the sale and issuance of the Purchased Shares shall be legally permitted by all laws and regulations to which PriceSmart or Chancellor are subject.   6. MISCELLANEOUS.   6.1 SURVIVAL OF WARRANTIES. The representations, warranties and covenants of the Parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of PriceSmart or Chancellor, as the case may be.   6.2 SUCCESSORS AND ASSIGNS. Neither Party shall assign or transfer any of its rights or obligations under this Agreement without the other Party’s prior written consent which shall not be unreasonably withheld, except that PriceSmart may assign its rights hereunder to any subsidiary without the consent of any other Party. Subject to this restriction on assignment, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.   6.3 GOVERNING LAW. This Agreement shall be governed by and construed under the internal laws of the State of California, U.S.A. as applied to agreements among California residents entered into and to be performed entirely within California, without reference to principles of conflict of laws or choice of law.   6.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.   6.5 HEADINGS. The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections and paragraphs shall, unless otherwise provided, refer to sections and paragraphs hereof.   6.6 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be mailed, telecopied, sent by overnight courier or delivered to the Party to receive such notice at the address specified on the signature page hereto or at such other address as any Party may designate by giving ten (10) days advance written notice to all other Parties. All such notices and communications shall, when mailed, telecopied or sent by overnight courier, be effective when deposited in the mails, delivered to the courier, or transmitted by telecopier with confirmation of transmission, respectively.   4 -------------------------------------------------------------------------------- 6.7 NO FINDER’S FEES. PriceSmart and Chancellor represent that they neither are, nor will be, obligated for any finder’s or broker’s fee or commission in connection with this transaction. Chancellor agrees to indemnify and to hold harmless PriceSmart from any liability for any commission or compensation in the nature of a finders’ or broker’s fee (and any asserted liability) for which Chancellor is responsible. PriceSmart agrees to indemnify and hold harmless Chancellor from any liability for any commission or compensation in the nature of a finder’s or broker’s fee (and any asserted liability) for which PriceSmart or any of its officers, employees or representatives is responsible.   6.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of PriceSmart and Chancellor. .   6.9 EXPENSES. Each of the Parties shall pay its own fees and expenses incurred in entering into this Agreement. If any arbitration or other action at law or equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.   6.10 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.   6.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the Parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the Parties with respect to the subject matter hereof.   6.12 FURTHER ASSURANCES. From and after the date of this Agreement, upon the request of any of the Parties, the other Parties shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.   6.13 ARBITRATION. All disputes and claims concerning the validity, interpretation, performance, termination and/or breach of this Agreement (“Dispute(s)”) shall be referred for final resolution to arbitration in Miami, Florida, U.S.A. under the UNCITRAL Rules (“Rules”) as administered by the American Arbitration Association. The Parties hereby agree that arbitration hereunder shall be the Parties’ exclusive remedy and that the arbitration decision and award, if any, shall be final, binding upon, and enforceable against, the Parties, and may be confirmed by the judgment of a court of competent jurisdiction. In the event of any conflict between the Rules and this Section, the provisions of this Section shall govern.   5 -------------------------------------------------------------------------------- 6.14 CONFIDENTIALITY. The Parties agree not to disclose the price and related terms of the purchase and sale affected hereby, unless disclosure of the same is required by any applicable law.   IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.   PriceSmart, Inc.,       Chancellor Holdings Limited, a Delaware corporation       a Trinidad and Tobago Corporation /s/ John Heffner       /s/ Joe Esau Name:       Name: Joe Esau         President Address for Notice:       Address for Notice: 9740 Scranton Road       8 Chancellor Hill Road San Diego, CA 92121       Lady Chancellor Hill Telecopy: (858) 404-8828       Port of Spain Attn: General Counsel       Trinidad, W.I.         Telecopy: (868) 622-3242         Attn: Joe Esau   6

  EXHIBIT 10.1 SEVENTH AMENDMENT TO CREDIT AGREEMENT      This SEVENTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) dated as of November 27, 2006, by and among AGCO CORPORATION, a Delaware corporation (“AGCO”), AGCO CANADA, LTD., a Saskatchewan corporation (“Canadian Subsidiary”), AGCO LIMITED, an English corporation (“English Subsidiary One”), AGCO INTERNATIONAL LIMITED, an English corporation (“English Subsidiary Two”), AGCO HOLDING B.V., a Netherlands corporation (“Netherlands Subsidiary”), AGCO DEUTSCHLAND HOLDING LIMITED & CO. KG, a German limited partnership (“German Subsidiary”), and VALTRA HOLDING OY, a Finnish limited liability company (“Finnish Subsidiary”; AGCO, Canadian Subsidiary, English Subsidiary One, English Subsidiary Two, Netherlands Subsidiary, German Subsidiary and Finnish Subsidiary are referred to herein collectively as the “Borrowers” and individually as a “Borrower”); the lenders (the “Lenders”) signatory hereto; COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, CANADIAN BRANCH, as Canadian administrative agent for the Canadian Lenders (together with any successor, in such capacity, the “Canadian Administrative Agent”); and COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., “RABOBANK NEDERLAND”, NEW YORK BRANCH, as administrative agent for the Lenders (together with any successor, in such capacity, the “Administrative Agent”). W I T N E S S E T H:      WHEREAS, the Borrowers, the Administrative Agent, the Canadian Administrative Agent, the Lenders, the Issuing Banks (as defined in the Credit Agreement), SunTrust Bank and Morgan Stanley Senior Funding, Inc., as Co-Syndication Agents, and CoBank, ACB and The Bank of Tokyo-Mitsubishi, Ltd., NY Branch, as Co-Documentation Agents, are parties to that certain Credit Agreement dated as of December 22, 2003 (as amended by that certain First Amendment to Credit Agreement and Consent dated as of April 12, 2004, as further amended by that certain Second Amendment to Credit Agreement dated as of August 17, 2004, as further amended by that certain Third Amendment to Credit Agreement dated as of March 21, 2005, as further amended by that certain Fourth Amendment to Credit Agreement and Consent dated as of June 2, 2005, as further amended by that certain Fifth Amendment to Credit Agreement dated as of March 22, 2006, as further amended by that certain Sixth Amendment to Credit Agreement dated as of October 13, 2006 and as further amended, restated, supplemented or modified from time to time, the “Credit Agreement”); and      WHEREAS, the Borrowers have requested that certain terms and conditions of the Credit Agreement be amended, and the Lenders signatory hereto, the Canadian Administrative Agent and the Administrative Agent have agreed to the requested amendments on the terms and conditions set forth herein;   --------------------------------------------------------------------------------        NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree that all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Credit Agreement, and further agree as follows:      Section 1. Amendments                (a) Amendment to Section 1.1. Section 1.1 of the Credit Agreement, Certain Defined Terms, is hereby amended and modified by deleting the definitions of “Applicable Capital Market Transaction Documents,” and “New Capital Market Transactions,” and by substituting the following in lieu thereof:      ““Applicable Capital Market Transaction Documents” means, collectively, as of any date, the Convertible Note Documents, the Existing 2008 Note Documents, the New Senior Subordinated Note Documents, the New Convertible Note Documents and, after the issuance of the 2006 Subordinated Notes, the 2006 Subordinated Note Documents, and any other document governing the Capital Market Transactions that are in effect and binding on AGCO, as of such date of determination.”      ““New Capital Market Transactions” means, collectively, the transactions contemplated by the Convertible Note Documents, the New Senior Subordinated Note Documents, the New Convertible Note Documents, and, after issuance of the 2006 Subordinated Notes, the 2006 Subordinated Note Documents, together with any issuance of common stock by AGCO prior to the Initial Funding Date.”                (b) Amendment to Section 1.1. Section 1.1 of the Credit Agreement, Certain Defined Terms, is hereby further amended and modified by inserting the following definitions in appropriative alphabetical order therein:      ““2006 Subordinated Note Documents” means the 2006 Subordinated Note Indenture, the 2006 Subordinated Notes and such other documents and instruments executed by AGCO in connection therewith, in each case in form and substance satisfactory to the Administrative Agent.”      ““2006 Subordinated Note Indenture” means the Indenture by and among AGCO, as issuer, and the 2006 Subordinated Note Trustee, as trustee, executed in connection with the issuance of the 2006 Subordinated Notes, having subordination provisions identical to the New Senior Subordinated Note Indenture and otherwise in form and substance reasonably satisfactory to the Administrative Agent and as may be amended, modified and supplemented from time to time.” -2- --------------------------------------------------------------------------------        ““2006 Subordinated Notes” means those certain subordinated notes in a principal amount not to exceed U.S. $250,000,000, to be issued by AGCO during the fiscal quarter ending December 31, 2006 pursuant to the 2006 Subordinated Note Indenture, which are subordinated to the Obligations on the same terms as the New Senior Subordinated Notes and are otherwise issued on terms and conditions as are reasonably acceptable to the Administrative Agent.”      ““2006 Subordinated Note Trustee” means the trustee under the 2006 Subordinated Note Indenture, including any successor trustee thereunder.”                (c) Amendment to Section 4.1. Section 4.1 of the Credit Agreement, Representation and Warranties of Borrowers, is hereby amended and modified by deleting section (k) thereof in its entirety and by substituting the following in lieu thereof:           “(k) Senior Indebtedness. All Borrowings under this Agreement will be “Senior Indebtedness,” under and as defined in the Convertible Note Indenture and the New Convertible Note Indenture. Upon the making of the initial Loans hereunder and the delivery of the notice specified in Section 3.2(q)(xii) hereof, this Agreement and all Loan Documents shall be (i) the “Bank Credit Agreement,” as defined in the Existing 2008 Note Indenture and the Convertible Note Indenture, and (ii) a “Designated Credit Facility”, as defined in the New Senior Subordinated Note Documents. This Agreement and all Loan Documents shall be the “Bank Credit Agreement,” as defined in the New Convertible Note Indenture. Upon the issuance of the 2006 Subordinated Notes, (i) this Agreement and all Loan Documents shall be the “Bank Credit Agreement” or such other similar term as used in the 2006 Subordinated Note Indenture and (ii) the Obligations shall constitute “Senior Indebtedness” or such other similar term used in the 2006 Subordinated Note Indenture.                (d) Amendment to Section 7.13. Section 7.13 of the Credit Agreement, Prepayment of Indebtedness, is hereby amended and modified by deleting such Section in its entirety and by substituting the following in lieu thereof:           “Section 7.13 Prepayments of Indebtedness. From and after the Initial Funding Date, AGCO shall not, and shall not permit its Restricted Subsidiaries to, prepay, redeem, defease or purchase in any manner, or deposit or set aside funds for the purpose of any of the foregoing, make any payment in respect of principal of, or make any payment in respect of interest on, any Funded Debt, except AGCO and its Restricted Subsidiaries may (a) make regularly scheduled payments of principal or interest required in accordance with the terms of the Applicable Capital Market Transaction Documents or the terms of the documents evidencing other Funded Debt permitted hereunder, (b) prepay Indebtedness pursuant to refinancings permitted pursuant to Section 7.1(c), (c) -3- --------------------------------------------------------------------------------   prepay the Existing Capital Market Transactions and the Bridge Facility from the Net Cash Proceeds received from the issuance of common stock of AGCO, (d) redeem any convertible notes issued pursuant to the Capital Market Transactions provided that (i) any such redemption is mandatory and results from the exercise of a right of conversion by the holders of such notes pursuant to the Applicable Capital Market Transaction Documents, and (ii) at the time of such redemption, no Default or Event of Default shall have occurred and be continuing or would result therefrom, and (e) redeem or prepay the Existing 2008 Notes provided that at the time of such redemption or prepayment of the Existing 2008 Notes, no Default or Event of Default shall have occurred and be continuing or would result therefrom.”                (e) Section 7.18 of the Credit Agreement, Financial Covenants, is hereby amended and modified by deleting subsection (b), Senior Debt Ratio, in its entirety and by substituting the following in lieu thereof:      “(b) Senior Debt Ratio. AGCO shall not allow, as of the end of each fiscal quarter of AGCO, the Senior Debt Ratio to exceed the ratio set forth below for the applicable fiscal quarter corresponding thereto:       Fiscal Quarters Ending:   Ratio: From December 31, 2003 through September 30, 2004   3.70 to 1.00 December 31, 2004 through September 30, 2005   3.50 to 1.00 December 31, 2005   3.00 to 1.00 March 31, 2006 through September 30, 2006   3.25 to 1.00 December 31, 2006 through September 30, 2007   3.00 to 1.00 December 31, 2007 and thereafter   2.75 to 1.00      provided, however, if AGCO issues the 2006 Subordinated Notes, then, notwithstanding anything to the contrary contained in this Section 7.18(b), for all fiscal quarters of AGCO ending on December 31, 2006 and thereafter, AGCO shall not allow, as of the end of such fiscal quarter, the Senior Debt Ratio to exceed the ratio set forth below for the applicable fiscal quarter corresponding thereto: -4- --------------------------------------------------------------------------------         Fiscal Quarters Ending:   Ratio: December 31, 2006 through September 30, 2007   2.75 to 1.00 December 31, 2007 and thereafter   2.50 to 1.00      Section 2. Representations and Warranties. Each of AGCO and the other Borrowers represents and warrants as follows:                (a) The execution, delivery and performance by each Borrower of this Amendment and the other transactions contemplated hereby, are within such Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Borrower’s charter or bylaws; (ii) violate any Applicable Law (including, without limitation, to the extent applicable, the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970 and any similar statute); (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Borrower, any of its Subsidiaries or any of their properties (including any of the Applicable Capital Market Transaction Documents); or (iv) except for Permitted Liens, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Borrower or any of its Restricted Subsidiaries;                (b) 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 or performance by any Borrower of this Amendment and each other Loan Document contemplated hereby to which it is or is to be a party;                (c) This Amendment and each other document required to be delivered by a Borrower hereunder has been duly executed and delivered by each Borrower thereto, and constitutes the legal, valid and binding obligation of each Borrower thereto, enforceable against such Borrower in accordance with its terms;                (d) The representations and warranties contained in Article 4 of the Credit Agreement, and in each of the other Loan Documents, are true and correct on and as of the date hereof as though made on and as of such date, other than (i) any such representations and warranties that, by their terms, expressly refer to an earlier date, and (ii) as a result of changes permitted by the terms of the Credit Agreement; and -5- --------------------------------------------------------------------------------                  (e) After giving effect hereto, no event has occurred and is continuing which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both.      Section 3. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall be effective as of the date first set forth above when the Administrative Agent shall have received, in form and substance satisfactory to it, each of the following:                (a) this Amendment, duly executed by the Borrowers, the Canadian Administrative Agent and the Administrative Agent, and Lender Addenda, in the form attached hereto, duly executed by the Required Lenders; and                (b) the delivery of such other documents, instruments and information, as the Administrative Agent may reasonably request.      Section 4. Reference to and Effect on the Credit Agreement. Upon the effectiveness of this Amendment as set forth in Section 3 hereof, on and after the date hereof, 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, and each reference in the Notes and the other Loan Documents to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby.      Section 5. Reaffirmation of Guaranty. By executing this Amendment, each Guarantor hereby acknowledges, consents and agrees that all of its obligations and liability under the Guaranty Agreements to which it is a party remain in full force and effect, and that the execution and delivery of this Amendment and any and all documents executed in connection therewith shall not alter, amend, reduce or modify its obligations and liability under such Guaranty Agreements or any of the other Loan Documents to which it is a party.      Section 6. Costs, Expenses and Taxes. The Borrowers agree, jointly and severally, to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder (including, without limitation, the fees and expenses of counsel for the Administrative Agent with respect thereto).      Section 7. No Other Amendments. Except as otherwise expressed herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agents or the Lenders under the Credit Agreement, or any of the other Loan Documents, nor constitute a waiver of any provision of the Credit Agreement or any of the other Loan Documents. Except for the amendments set forth above, the text of the Credit Agreement and all other Loan Documents shall remain unchanged and in full force and effect and the Borrowers hereby ratify and confirm their respective obligations thereunder. This Amendment shall not constitute a modification of -6- --------------------------------------------------------------------------------   the Credit Agreement or a course of dealing with the Administrative Agent at variance with the Credit Agreement such as to require further notice by the Administrative Agent to require strict compliance with the terms of the Credit Agreement and the other Loan Documents in the future, except as expressly set forth herein. The Borrowers acknowledge and expressly agree that the Agents and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Credit Agreement and the other Loan Documents (in each case as amended hereby).      Section 8. Execution in Counterparts. This Amendment may be executed in any number of 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 a signature page hereto by facsimile transmission or via email transmission of an Adobe portable document format file (also known as a “PDF File”) shall be as effective as delivery of a manually executed counterpart hereof.      Section 9. Delivery of Lender Addenda. Each Lender executing this Amendment shall do so by delivering to the Administrative Agent a Lender Addendum, substantially in the form of Annex I attached hereto, duly executed by such Lender.      Section 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws (without giving effect to the conflicts of laws principles thereof) of the State of New York.      Section 11. Final Agreement. This Amendment represents the final agreement between the Borrowers, the Administrative Agent, the Canadian Administrative Agent and the Lenders as to the subject matter hereof 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 Amendment shall constitute a Loan Document for all purposes. [the remainder of the page is intentionally blank] -7- --------------------------------------------------------------------------------        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. BORROWERS:                   AGCO CORPORATION                   By:                                         Title:                                         AGCO CANADA, LTD.                   By:                                         Title:                                         AGCO LIMITED                   By:                                         Title:                                         AGCO INTERNATIONAL LIMITED                   By:                                         Title:                                         AGCO HOLDING B.V.                   By:                                         Title:                       [SIGNATURES CONTINUED ON FOLLOWING PAGE] Seventh Amendment to Credit Agreement Signature Page 1   --------------------------------------------------------------------------------                     AGCO DEUTSCHLAND HOLDING     LIMITED & CO. KG                   By:                                         Title:                                         By:                                         Title:                                         VALTRA HOLDING OY                   By:                                         Title:                                     GUARANTORS:   VALTRA DEUTSCHLAND GMBH     (formerly known as RM 2379     VERMÖGENSVERWALTUNGS GMBH)                   By:                                         Title:                                         AGCO VERTRIEBS GMBH                   By:                                         Title:                       Seventh Amendment to Credit Agreement Signature Page 2   --------------------------------------------------------------------------------                     AGCO GMBH                   By:                                         Title:                                         AGCO FRANCE S.A.                   By:                                         Title:                                         AGCO S.A.                   By:                                         Title:                                         VALTRA TRACTEURS FRANCE S.A.S.                   By:                                         Title:                                         VALTRA INTERNATIONAL B.V.                   By:                                         Title:                       Seventh Amendment to Credit Agreement Signature Page 3   --------------------------------------------------------------------------------                     MASSEY FERGUSON CORP.                   By:                                         Title:                                         AGCO EQUIPMENT COMPANY                   By:                                         Title:                                         SUNFLOWER MANUFACTURING COMPANY, INC.                   By:                                         Title:                                         AGCO MANUFACTURING LTD.                   By:                                         Title:                                         AGCO SERVICES LTD.                   By:                                         Title:                       Seventh Amendment to Credit Agreement Signature Page 4   --------------------------------------------------------------------------------                     VALTRA VUOKRAUS OY                   By:                                         Title:                                         AGCO DO BRASIL COMERCIA E INDUSTRIA LTDA.                   By:                                         Title:                                         VALTRA DO BRASIL LTDA.                   By:                                         Title:                                         EXPORT MARKET SERVICES LLC                   By:                                         Title:                       [SIGNATURES CONTINUED ON FOLLOWING PAGE] Seventh Amendment to Credit Agreement Signature Page 5   --------------------------------------------------------------------------------                 AGENTS, ISSUING BANKS   COÖPERATIEVE CENTRALE RAIFFEISEN- AND SWING LINE BANK:   BOERENLEENBANK B.A., “RABOBANK     NEDERLAND,” NEW YORK BRANCH, as     Administrative Agent and     Multi-Currency Issuing Bank                   By:                                         Title:                                         By:                                         Title:                                         COÖPERATIEVE CENTRALE RAIFFEISEN-     BOERENLEENBANK B.A., “RABOBANK     NEDERLAND,” CANADIAN BRANCH, as     Canadian Administrative Agent and Canadian     Issuing Bank                   By:                                         Title:                                         By:                                         Title:                                     LENDERS:   See each Lender Addendum attached hereto Seventh Amendment to Credit Agreement Signature Page 7   --------------------------------------------------------------------------------   LENDER ADDENDUM           Reference is made to the Credit Agreement dated as of December 22, 2003 (as amended by that certain First Amendment to Credit Agreement and Consent dated as of April 12, 2004, as further amended by that certain Second Amendment to Credit Agreement dated as of August 17, 2004, as further amended by that certain Third Amendment to Credit Agreement dated as of March 21, 2005 as further amended by that certain Fourth Amendment to Credit Agreement and Consent dated as of June 2, 2005, as further amended by that certain Fifth Amendment to Credit Agreement dated as of March 22, 2006, as further amended by that certain Sixth Amendment to Credit Agreement dated as of October 13, 2006 and as further amended, restated, supplemented or modified from time to time, the “Credit Agreement”) among AGCO Corporation, AGCO Canada Ltd., AGCO Limited, AGCO International Limited, AGCO Holding B.V., AGCO Deutschland Holding Limited & Co. KG and Valtra Holding Oy (collectively, the “Borrowers”), the lenders signatory thereto (together with any other financial institution that subsequently becomes a Lender thereunder, the “Lenders”), the Issuing Banks (as defined in the Credit Agreement), Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, Canadian Branch, as Canadian Administrative Agent, SunTrust Bank and Morgan Stanley Senior Funding, Inc., as Co-Syndication Agents, CoBank, ACB and The Bank of Tokyo-Mitsubishi, Ltd., NY Branch, as Co-Documentation Agents, and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as the Administrative Agent (the “Administrative Agent”). Capitalized terms used herein without definition shall have the respective meanings ascribed to those terms in the Credit Agreement.           Upon execution and delivery of this Lender Addendum by the undersigned Lender, the undersigned Lender hereby consents to and agrees with all of the terms and conditions contained in, and shall become a party to, the Seventh Amendment to Credit Agreement dated as of November 27, 2006.           THIS LENDER ADDENDUM SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.           This Lender Addendum may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page hereof by facsimile transmission or via email transmission of an Adobe portable document file (also known as a “PDF File”) shall be effective as delivery of a manually executed counterpart hereof. [The remainder of this page is intentionally left blank.]   --------------------------------------------------------------------------------             IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be duly executed and delivered by their proper and duly authorized officers effective as of the date set forth herein.                   [NAME OF LENDER]                   By:                           Name:                           Title:                       Lender Addendum Signature Page  

Exhibit 10(e)   EMPLOYMENT AGREEMENT   AGREEMENT, dated as of the 5th day of May, 2006 (this “Agreement”), by and between Alltel Corporation, a Delaware corporation (the “Company”), and Jeffrey H. Fox (the “Executive”).   WHEREAS, the Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined herein). The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive’s full attention and dedication to the Company in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control that ensure that the compensation and benefits expectations of the Executive will be satisfied and that provide the Executive with compensation and benefits arrangements that are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.   NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:   Section 1.  Certain Definitions. (a) “Effective Date” means the first date during the Change of Control Period (as defined herein) on which a Change of Control occurs. Notwithstanding anything in this Agreement to the contrary, if a Change of Control occurs and if the Executive’s employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (1) was at the request of a third party that has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then “Effective Date” means the date immediately prior to the date of such termination of employment.   (b)  “Change of Control Period” means the period commencing on the date hereof and ending on the tenth anniversary of the date hereof; provided, however, that, commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof, the “Renewal Date”), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the Company shall give notice to the Executive that the Change of Control Period shall not be so extended.   (c)  “Affiliated Company” means any company controlled by, controlling or under common control with the Company.   (d)  “Change of Control” means:     1 --------------------------------------------------------------------------------   (1)  Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (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, for purposes of this Section 1(d), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with Sections 1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C);   (2)  Any time at which individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;   (3)  Consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-     2 --------------------------------------------------------------------------------   outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity 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   (4)  Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.   Section 2.  Employment Period. The Company hereby agrees to continue the Executive in its employ, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the “Employment Period”). The Employment Period shall terminate upon the Executive’s termination of employment for any reason.   Section 3.  Terms of Employment. (a) Position and Duties. (1) During the Employment Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 30-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the office where the Executive was employed immediately preceding the Effective Date or at any other location less than 35 miles from such office.   (2)  During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.   (b)  Compensation. (1) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (the “Annual Base Salary”) at an annual rate at least equal to 12 times the highest monthly base salary paid or payable, including any base salary that has been earned but deferred, to the Executive by the Company and the Affiliated Companies in respect of the 6-month period immediately preceding the month in which the     3 --------------------------------------------------------------------------------   Effective Date occurs. The Annual Base Salary shall be paid at such intervals as the Company pays executive salaries generally. During the Employment Period, the Annual Base Salary shall be reviewed at least annually, beginning no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall not be reduced after any such increase and the term “Annual Base Salary” shall refer to the Annual Base Salary as so increased.   (2)  Short-Term Bonuses. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the annualized amount of the pre-established maximum short-term bonus(es) that may be earned by the Executive under the Company’s short-term incentive plan(s), or any comparable bonus under any predecessor or successor plan(s), including, without limitation, the Company’s Performance Incentive Compensation Plan and the Executive Incentive Compensation Plan, in each case, as in effect from time to time (the “Short-Term Bonus Plans”), for the fiscal year in which the Effective Date occurs or, if no short-term bonus(es) are established for such year, the fiscal year immediately preceding the fiscal year in which the Effective Date occurs (the “Maximum Annual Bonus”). Each such Annual Bonus shall be paid no later than 30 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus pursuant to an arrangement that meets the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).   (3)  Long-Term Cash Incentive Bonuses. In addition to the Annual Base Salary and Annual Bonus, the Executive shall be awarded, for each fiscal year ending during the Employment Period, a long-term cash incentive bonus (the “LTIP Bonus”) at least equal to the pre-established maximum bonus that may be earned by the Executive under the Company’s long-term cash incentive compensation plan(s), or any comparable bonus under any predecessor or successor plan(s), including, without limitation, the Company’s Long-Term Performance Incentive Compensation Plan as in effect from time to time (the “LTIP”), for the performance period commencing immediately prior to the Effective Date, but excluding for this purpose the LTIP Bonus granted to the Executive with respect to the period commencing on the Distribution Date (as defined in the Distribution Agreement by and between Alltel Corporation and Alltel Holding Corporation Dated as of December 8, 2005) and ending on December 31, 2007 (the “Maximum LTIP Bonus”) on terms and conditions no less favorable, in the aggregate, than the most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans as in effect at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies. Each such LTIP Bonus shall be paid no later than 30 days after the end of the performance period for which the LTIP Bonus is awarded, unless the Executive shall elect to defer the receipt of such LTIP Bonus pursuant to an arrangement that meets the requirements of Section 409A of the Code.     4 --------------------------------------------------------------------------------     (4)  Equity Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all equity incentive, including without limitation any stock option, stock appreciation right, restricted stock, restricted stock unit or other equity or equity-based compensation plans, practices, policies, and programs (other than the LTIP) and savings and retirement plans, practices, policies, and programs, in each case, applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with equity incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and the Affiliated Companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies.   (5)  Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and the Affiliated Companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and the Affiliated Companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits that are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and the Affiliated Companies.   (6)  Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and the Affiliated Companies in effect for the Executive at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.   (7)  Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and the Affiliated Companies in effect for the Executive at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.     5 --------------------------------------------------------------------------------   (8)  Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and the Affiliated Companies at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies.   (9)  Paid-Time Off. During the Employment Period, the Executive shall be entitled to paid vacation, sick leave, sabbatical, holiday and other paid-time off (“Paid-Time Off”) in accordance with the most favorable plans, policies, programs and practices of the Company and the Affiliated Companies as in effect for the Executive at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies. Without limiting the generality of the foregoing, during the Employment Period, in no event shall the Executive receive fewer paid vacation days and holidays (including floating holidays) than the Executive was eligible to receive at any time during the fiscal year immediately prior to the year in which the Effective Date occurs.   Section 4.  Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically if the Executive dies during the Employment Period. If the Company determines in good faith that the Disability (as defined herein) of the Executive has occurred during the Employment Period (pursuant to the definition of “Disability”), it may give to the Executive written notice in accordance with Section 11(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. “Disability” means the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness that is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.   (b)  Cause. The Company may terminate the Executive’s employment during the Employment Period with or without Cause. “Cause” means:   (1)  the willful and continued failure of the Executive to perform substantially the Executive’s duties (as contemplated by Section 3(a)(1)(A)) with the Company or any Affiliated Company (other than any such failure resulting from incapacity due to physical or mental illness or following the Executive’s delivery of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company that specifically identifies the manner in which the Board or the Chief Executive Officer of the     6 --------------------------------------------------------------------------------     Company believes that the Executive has not substantially performed the Executive’s duties, or   (2)  the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.   For purposes of this Section 4(b), no act, or failure to act, on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority (A) given pursuant to a resolution duly adopted by the Board, or if the Company is not the ultimate parent corporation of the Affiliated Companies and is not publicly-traded, the board of directors of the ultimate parent of the Company (the “Applicable Board”), (B) upon the instructions of the Chief Executive Officer of the Company or a senior officer of the Company or (C) based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Applicable Board (excluding the Executive, if the Executive is a member of the Applicable Board) at a meeting of the Applicable Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Applicable Board), finding that, in the good faith opinion of the board, the Executive is guilty of the conduct described in Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.   (c)  Good Reason. The Executive’s employment may be terminated by the Executive for Good Reason or by the Executive voluntarily without Good Reason. “Good Reason” means:   (1)  the assignment to the Executive of any duties inconsistent in any respect with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a), or any other diminution in such position, authority, duties or responsibilities (whether or not occurring solely as a result of the Company’s ceasing to be a publicly traded entity), excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;   (2)  any failure by the Company to comply with any of the provisions of Section 3(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;   (3)  the Company’s requiring the Executive (i) to be based at any office or location other than as provided in Section 3(a)(1)(B), (ii) to be based at a location other     7 --------------------------------------------------------------------------------   than the principal executive offices of the Company if the Executive was employed at such location immediately preceding the Effective Date, or (iii) to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;   (4)  any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement; or   (5)  any failure by the Company to comply with and satisfy Section 10(c).   For purposes of this Section 4(c), any good faith determination of Good Reason made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 90-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. The Executive’s mental or physical incapacity following the occurrence of an event described above in clauses (1) through (5) shall not affect the Executive’s ability to terminate employment for Good Reason.   (d)  Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b). “Notice of Termination” means a written notice that (1) indicates the specific termination provision in this Agreement relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (3) if the Date of Termination (as defined herein) is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s respective rights hereunder.   (e)  Date of Termination.“Date of Termination” means (1) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the Notice of Termination, (which date shall not be more than 30 days after the giving of such notice), as the case may be, (2) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination, (3) if the Executive resigns without Good Reason, the date on which the Executive notifies the Company of such termination, and (4) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be.   Section 5.  Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the     8 --------------------------------------------------------------------------------     Company terminates the Executive’s employment other than for Cause or Disability or the Executive terminates employment for Good Reason:   (1)  the Company shall pay to the Executive, in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the following amounts:   (A)  the sum of (i) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) notwithstanding any provision of any Short-Term Bonus Plans or LTIP, including, without limitation, any provision of any Short-Term Bonus Plans or LTIP requiring continued employment after the completed fiscal year or other measuring period, the amount of any incentive compensation under any Short-Term Bonus Plans or LTIP that has been earned by the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any Short-Term Bonus Plans or the LTIP, but has not yet been paid to the Executive, (iii) the product of (A) the greater of (x) the Maximum Annual Bonus and (y) the annualized amount of the pre-established maximum short-term bonus(es) that may be earned by the Executive under the Company’s Short-Term Bonus Plans for the fiscal year in which the Date of Termination occurs (such greater amount, the “Recent Annual Bonus”) and (B) a fraction, the numerator of which is the number of days in the applicable performance period through the Date of Termination and the denominator of which is 365, (iv) for each performance period then-outstanding under the LTIP, an amount equal to the product of (A) the greater of (x) the Maximum LTIP Bonus and (y) the pre-established maximum bonus that may be earned by the Executive under the LTIP for the performance period commencing immediately prior to the Date of Termination (such greater amount, the “Recent LTIP Bonus”) and (B) a fraction, the numerator of which is the number of days in the applicable performance period under the LTIP through the Date of Termination and the denominator of which is 1095, provided, that with respect to the performance period commencing under the LTIP on or about the Distribution Date and ending on December 31, 2008, a fraction, the numerator of which is the total number of days from the period commencing January 1, 2006 through the Date of Termination and the denominator of which is the total number of days from January 1, 2006 until December 31, 2008, and (v) any accrued Paid-Time Off pay to the extent not theretofore paid (the sum of the amounts described in subclauses (i), (ii), (iii), (iv) and (v), the “Accrued Obligations”);   (B)  the amount equal to the product of (i) three and (ii) the sum of (A) the Executive’s Annual Base Salary, (B) the Recent Annual Bonus and (C) the Recent LTIP Bonus; and   (C)  an amount equal to the sum of (i) excess of (A) the actuarial equivalent of the benefit under the Company’s qualified defined benefit retirement plan (the “Retirement Plan”) (utilizing actuarial assumptions no less favor-     9 --------------------------------------------------------------------------------     able to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date) and any excess or supplemental defined benefit retirement plan in which the Executive participates (collectively, the “SERP”) that the Executive would receive if the Executive’s employment continued for three years after the Date of Termination, assuming for this purpose that (1) all accrued benefits are fully vested, (2) the Executive’s age is increased by the number of years that the Executive is deemed to be so employed and (3) the Executive’s compensation in each of the three years is that required by Sections 3(b)(1), 3(b)(2) and 3(b)(3) payable in equal monthly installments over such three-year period, over (B) the actuarial equivalent of the Executive’s actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination and (ii) an amount equal to the sum of the Company matching or other Company contributions under the Company’s qualified defined contribution plans and any excess or supplemental defined contribution plans in which the Executive participates that the Executive would receive if the Executive’s employment continued for three years after the Date of Termination, assuming for this purpose that (w) the Company’s contribution under the Company’s Profit Sharing Plan is equal to the greater of (1) four percent of Compensation (within the meaning of the Alltel Corporation Profit-Sharing Plan) or (2) the highest percent contribution made by the Company in the three years preceding the year in which the Effective Date occurs, (x) the Executive’s benefits under such plans are fully vested, (y) the Executive’s compensation in each of the three years is that required by Sections 3(b)(1), 3(b)(2) and 3(b)(3) and (z) to the extent that the Company contributions are determined based on the contributions or deferrals of the Executive, that the Executive’s contribution or deferral elections, as appropriate, are those in effect immediately prior to the Date of Termination;   (2)  for three years after the Executive’s Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, but, to the extent required in order to comply with Section 409A, in no event beyond the end of the second calendar year that begins after the Executive’s “separation from service” within the meaning of Section 409A (the “Benefit Continuation Period”), the Company shall continue benefits to the Executive and/or the Executive’s family at least equal to, and at the same cost to the Executive and/or the Executive’s family, as those that would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(b)(5) and 3(b)(7) if the Executive’s employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and the Affiliated Companies and their families; provided, however, that, if the Executive becomes reemployed with another employer and is eligible to receive such benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan, and such other benefits shall not be provided by the Company, during such applicable period of eligibility. The Executive’s entitlement to COBRA continuation coverage under Section 4980B of     10 --------------------------------------------------------------------------------   the Code (“COBRA Coverage”) shall not be offset by the provision of benefits under this Section 5(a)(2) and the period of COBRA Coverage shall commence at the end of the Benefit Continuation Period. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Benefit Continuation Period and to have retired on the last day of such period;   (3)  the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Company, provided that such outplacement benefits shall begin at the Date of Termination and shall end not later than the last day of the second calendar year that begins after the Date of Termination; and   (4)  to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any Other Benefits (as defined in Section 6).   Notwithstanding the foregoing provisions of this Section 5(a), to the extent required in order to comply with Section 409A of the Code, cash amounts or benefits that would otherwise be payable or provided under this Section 5(a) during the six-month period immediately following the Date of Termination shall instead be paid, with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code (“Interest”), on the first business day after the date that is six months following the Executive’s “separation from service” within the meaning of Section 409A. (b)  Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, the Company shall provide the Executive’s estate or beneficiaries with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 5(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and the Affiliated Companies to the estates and beneficiaries of peer executives of the Company and the Affiliated Companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date of the Executive’s death with respect to other peer executives of the Company and the Affiliated Companies and their beneficiaries.   (c)  Disability. If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, the Company shall provide the Executive with the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. The Accrued Obligations   11 --------------------------------------------------------------------------------   shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, provided, that to the extent required in order to comply with Section 409A of the Code, amounts and benefits to be paid or provided under this Section 5(c) shall be paid, with Interest, or provided to the Executive on the first business day after the date that is six months following the Executive’s “separation from service” within the meaning of Section 409A. With respect to the provision of the Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and the Affiliated Companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 6-month period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other peer executives of the Company and the Affiliated Companies and their families.   (d)  Cause; Other Than for Good Reason. If the Executive’s employment is terminated for Cause during the Employment Period, the Company shall provide the Executive with the Executive’s Annual Base Salary through the Date of Termination, and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, the Company shall provide to the Executive the Accrued Obligations and the timely payment or delivery of the Other Benefits, and shall have no other severance obligations under this Agreement. In such case, all the Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, provided, that to the extent required in order to comply with Section 409A of the Code, amounts and benefits to be paid or provided under this sentence of Section 5(d) shall be paid, with Interest, or provided to the Executive on the first business day after the date that is six months following the Executive’s “separation from service” within the meaning of Section 409A.   Section 6.  Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or the Affiliated Companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement with the Company or the Affiliated Companies. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company or the Affiliated Companies at or subsequent to the Date of Termination (“Other Benefits”) shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement. Without limiting the generality of the foregoing, the Executive’s resignation under this Agreement with or without Good Reason, shall in no way affect the Executive’s ability to terminate employment by reason of the Executive’s “retirement” under any compensation and benefits plans, programs or arrangements of the Affiliated Companies, including without limitation any retirement or pension plans or arrangements or to be eligible to receive benefits under any com-     12 --------------------------------------------------------------------------------       pensation or benefit plans, programs or arrangements of the Affiliated Companies, including without limitation any retirement or pension plan or arrangement of the Affiliated Companies or substitute plans adopted by the Company or its successors, and any termination which otherwise qualifies as Good Reason shall be treated as such even if it is also a “retirement” for purposes of any such plan. Notwithstanding the foregoing, if the Executive receives payments and benefits pursuant to Section 5(a) of this Agreement, the Executive shall not be entitled to any severance pay or benefits under any severance plan, program or policy of the Company and the Affiliated Companies, unless otherwise specifically provided therein in a specific reference to this Agreement.   Section 7.  Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred (within 10 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus, in each case, Interest.   Section 8.  Certain Additional Payments by the Company.   (a)  Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any Payment would be subject to the Excise Tax, then the Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, but excluding any income taxes and penalties imposed pursuant to Section 409A, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The Company’s obligation to make Gross-Up Payments under this Section 8 shall not be conditioned upon the Executive’s termination of employment.   (b)  Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP, or such other nationally recognized certified public accounting firm as may be designated by the Executive (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has     13 --------------------------------------------------------------------------------   been a Payment or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within 5 days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments that will not have been made by the Company should have been made (the “Underpayment”), consistent with the calculations required to be made hereunder. In the event the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.   (c)  The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than 10 business days after the Executive is informed in writing of such claim. The Executive shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that the Company desires to contest such claim, the Executive shall:   (1)  give the Company any information reasonably requested by the Company relating to such claim,   (2)  take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,   (3)  cooperate with the Company in good faith in order effectively to contest such claim, and   (4)  permit the Company to participate in any proceedings relating to such claim;   provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs     14 -------------------------------------------------------------------------------- and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company pays such claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputed income in connection with such payment; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.   (d)  If, after the receipt by the Executive of a Gross-Up Payment or payment by the Company of an amount on the Executive’s behalf pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to the Excise Tax to which such Gross-Up Payment relates or with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 8(c), if applicable) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.   (e)  Notwithstanding any other provision of this Section 8, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of the Executive, all or any portion of any Gross-Up Payment, and the Executive hereby consents to such withholding.   (f)  Definitions. The following terms shall have the following meanings for purposes of this Section 8.   (i)  “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.   (ii)  A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to this Agreement or otherwise.     15 --------------------------------------------------------------------------------   Section 9.  Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or the Affiliated Companies, and their respective businesses, which information, knowledge or data shall have been obtained by the Executive during the Executive’s employment by the Company or the Affiliated Companies and which information, knowledge or data shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those persons designated by the Company. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.   Section 10.  Successors. (a) This Agreement is personal to the Executive, and, without the prior written consent of the Company, shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.   (b)  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Except as provided in Section 10(c), without the prior written consent of the Executive this Agreement shall not be assignable by the Company.   (c)  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. “Company” means the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise.   Section 11.  Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives.   (b)  All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:     16 --------------------------------------------------------------------------------     if to the Executive:       At the most recent address on file at the Company.   if to the Company:   ALLTEL Corporation One Allied Drive Little Rock, Arkansas 72202 Attention: General Counsel   or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.   (c)  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.   (d)  The Company may withhold from any amounts payable under this Agreement such United States federal, state or local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.   (e)  The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.   (f)  The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, subject to Section 1(a), prior to the Effective Date, the Executive’s employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, except as specifically provided herein, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.   (g)  If any compensation or benefits provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Executive, modify the Agreement in the least restrictive manner necessary in order to exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or in order to comply with the provisions of Section 409A, other applicable     17 -------------------------------------------------------------------------------- provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and without any diminution in the value of the payments to the Executive.   18 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.          /s/ Jeffrey H. Fox Jeffrey H. Fox     Alltel Corporation     By:  /s/ Richard N. Massey                               Richard N. Massey      Executive Vice President,      Secretary and General Counsel           19 --------------------------------------------------------------------------------          

Exhibit 10.3.2 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement is made this 23rd day of May 2006, by Highland Hospitality Corporation, a Maryland Corporation (the “REIT”), with its principal place of business at 8405 Greensboro Drive, Suite 500, McLean, VA 22102 and James L. Francis, residing at 7283 Kent Point Road, Stevensville, Maryland 21666 (the “Executive”). WHEREAS, the Company and the REIT entered into that certain Employment Agreement dated October 24, 2003 and amended on March 29, 2004 (the “Employment Agreement”) with the Executive; WHEREAS, the parties have agreed to amend the Employment Agreement to comply with the payment rules applicable to nonqualified deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended; and WHEREAS, Highland Hospitality, L.P. has consented to this Second Amendment. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as follows: 1. Section 6(d)(v) is amended by the addition of a new Sub-section 6(d)(v)(D) which shall read as follows: (D) Notwithstanding the preceding terms of this Section 6(d)(v), in determining the net benefits that that would have been retained by the Executive if the Excise Tax had not been applicable and for purposes of determining the Executive’s highest marginal rate of taxation used in determining the Gross-Up Amount, any interest or additional tax under Section 409A(a)(1)(B) of the Code (applicable to certain nonqualified deferred compensation payments) shall disregarded. 2. The Employment Agreement is amended by the addition of a new Section 12, which shall read as follows: 12. Section 409A Compliance Notwithstanding anything in this Agreement or any other agreements between the REIT or the Company, and the Executive (“Other Agreements”) to the contrary, if, based on Internal Revenue Service guidance available as of the date the payment or provision of any amount or other benefit is required to be made under this Agreement (including, but no limited to, any payment, accelerated vesting, benefit continuation right or Gross-Up Amount under Section 6 hereof) or under any Other Agreements, the REIT reasonably determines that the payment or provision of such amount or other benefit at such specified time may potentially subject the Executive to “additional tax” and “interest” under -------------------------------------------------------------------------------- Section 409A(a)(1)(B) of the Code (together with any interest or penalties imposed with respect to, or in connection with, such tax, a “409A Tax”), because the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code or otherwise, and if payment of such amount or provision of such benefit at a later date would likely avoid any such 409A Tax, then the payment or provision thereof shall be postponed to the earliest business day on which the REIT reasonably determines such amount or benefit can be paid or provided without incurring any such 409A Tax, but in no event later than the first business day after the six-month anniversary of the Executive’s severance from service within the meaning of Section 409A(a)(2) of the Code (the “Delayed Payment Date”). In the event a benefit is to be provided during the period commencing on the Executive’s separation from service and ending on the Delayed Payment Date and the provision of such benefit during that period would be treated as a payment of nonqualified deferred compensation in violation of Section 409A(a)(2)(B)(i) of the Code, then continuation of such benefit during that period shall be conditioned on payment by the Executive of the full premium or other cost of coverage and as of the Delayed Payment Date the REIT shall reimburse the Executive for the premiums or other cost of coverage paid by the Executive, which but for this paragraph would have been paid by the REIT. The REIT and the Executive may agree to take other actions to avoid the imposition of 409A Tax at such time and in such manner as permitted under Section 409A. The REIT shall have no liability to the Executive in the event that Executive shall be liable for a 409A Tax. IN WITNESS WHEREOF, the parties have executed this Second Amendment to Employment Agreement as of the day and year first above written.   HIGHLAND HOSPITALITY CORPORATION By:   /s/ Tracy M. J. Colden Name:   Tracy M. J. Colden Title:   Executive Vice President JAMES L. FRANCIS /s/ James L. Francis   -2- -------------------------------------------------------------------------------- Consent of Highland Hospitality, L.P. Highland Hospitality, L.P. hereby consents to this Second Amendment to the Employment Agreement of James L. Francis.   HIGHLAND HOSPITALITY, L.P. By:   HHC GP Corporation, its general partner By:   /s/ Tracy M. J. Colden Name:   Tracy M. J. Colden Title:   Executive Vice President   -3-

CONSULTING SERVICES AGREEMENT THIS CONSULTING SERVICES AGREEMENT (this "Agreement"), dated as of June 15, 2006 by and between Monumental Marketing, Inc., a Nevada corporation (the "Company"), and Casprey Capital Corp, of 161 Liberty Ave. Staten Island, New York 10305 ("Consultant"). WITNESSETH: WHEREAS, Company desires to retain Consultant to consult with and advise the Company and Consultant is willing to provide such services: NOW, THEREFORE, in consideration of the mutual undertakings contained herein, the parties agree as follows: The Company hereby engages Consultant as an independent contractor and not as an employee, to render consulting services to the Company as hereinafter provided and Consultant hereby accepts such engagement for a period commencing on June 15, 2006 and ending on the June 14, 2007. Consultant agrees that Consultant will not have any authority to bind or act on behalf of the Company. Consultant shall at all times be an independent contractor hereunder, rather than an agent, co-venturer, employee or representative of the Company. The Company hereby acknowledges and agrees that Consultant may engage directly or indirectly in other businesses and ventures and shall not be required to perform any services under this Agreement when, or for such periods in which, the rendering of such services shall unduly interfere with such other businesses and ventures, providing that such undertakings do not completely preempt Consultant's availability during the term of this Agreement. Neither Consultant nor his employees will be considered by reason of the provisions of this Agreement or otherwise as being an employee of the Company or as being entitled to participate in any health insurance, medical, pension, bonus or similar employee benefit plans sponsored by the Company for its employees. Consultant shall report all earnings under this Agreement in the manner appropriate to its status as an independent contractor and shall file all necessary reports and pay all taxes with respect to such payments. Services          1. Subject to the terms and conditions of this Agreement, the Company hereby engages the Consultant, and Consultant hereby accepts the engagement, to provide advice, analysis and recommendations (the "Services") to the Company with respect to the following: A.      Identifying prospective strategic partners and strategic alliances;   B.      Corporate planning, strategy and negotiations with potential strategic business partners and/or other general business consulting needs as expressed by Client;   C.      Business strategies;   D.      Financial strategies and resources;   E.      Periodic reporting as to developments concerning the industry which may be relevant or of interest or concern to the Client or the Client's business.   During the term of this Agreement, Consultant shall render such consulting services as the Company from time to time reasonably requests, which services shall include but not be limited to those rendered by Consultant to Company prior to the date hereof; provided that: Page 1 of 4 --------------------------------------------------------------------------------      (a) To the extent practicable such services shall be furnished only at such time and places as are mutually satisfactory to the Company and Consultant; and      (b) Consultant shall devote as much time as needed in performing such services and shall not be required to perform any services hereunder while Consultant is on vacation or suffering from an illness.      2. Compensation and Expenses. For the Services provided by the Consultant, the Company (i) shall compensate the Consultant by delivering to the Consultant, not later than July 1, 2006, Two Million Three hundred Thousand (2,300,000) shares of “144” restricted common stock of the Company ("Common Stock"). "144" means shares that may be sold by the Consultant at any such time that “144” requirements have been complied with, free of any contractual restriction on transfer and which have been appropriately listed or registered for such sale on all securities markets on any shares of the Common Stock then currently so listed or registered; and (ii) the Company shall be responsible, on a pre-approved basis, for the payment of the reasonable out-of-pocket costs and expenses of Consultant incurred prior to, or on or after the date of this Agreement, in connection with its engagement under this Agreement. The Company shall reimburse Consultant for such costs and expenses as they are incurred, promptly after receipt of a request for reimbursement from Consultant.      3. Successors and Assigns. This Agreement is binding upon and inures to the benefit of the Company and its affiliates, successors and assigns and is binding upon and inures to the benefit of Consultant and his successors and assigns; provided that in no event shall Consultant's obligations to perform the Services be delegated or transferred by Consultant without the prior written consent of the Company.      4. Term. This Agreement shall commence on the date hereof and, unless sooner terminated in accordance with the provisions of Section 5 hereof, shall expire on June 14, 2007.      5. Termination. Either the Company or Consultant may terminate this Agreement for material breach upon at least thirty (30) days prior written notice specifying the nature of the breach, if such breach has not been substantially cured within the thirty (30) day period.      6. Independent Contractor Relationship. Consultant and the Company are independent contractors and nothing contained in this Agreement shall be construed to place them in the relationship of partners, principal and agent, employer/employee or joint ventures. Neither party shall have the power or right to bind or obligate the other party, nor shall it hold itself out as having such authority.      7. Indemnification. Company shall indemnify and hold harmless the Consultant from and against any and all losses, damages, liabilities, reasonable attorney's fees, court costs and expenses resulting or arising from any third-party claims, actions, proceedings, investigations, or litigation relating to or arising from or in connection with this Agreement, or any act or omission by Company.      8. Notice. For the purpose of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given (i) when delivered, if personally delivered, (ii) when sent by facsimile transmission, when receipt therefore has been duly received, or (iii) when mailed by United States registered mail, return receipt requested, postage prepaid, or by recognized overnight courier, addressed set forth in the preamble to this Agreement or to such other address as any party may have furnished to the other in any writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.      9. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by authorized officers of each party. No waiver by either 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 Page 2 of 4 -------------------------------------------------------------------------------- provisions or conditions at the same or at any prior or subsequent time. No agreements or 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 internal laws of the State of Nevada. Any controversy arising under or in relation to this Agreement shall be settled by binding arbitration in Las Vegas, Nevada in accordance with the laws of the State of Nevada and the rules of the American Arbitration Association.      10. 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.      11. Severability. If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability, without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances. In addition, if any one or more of the provisions contained in this Agreement shall for any reason in any jurisdiction be held to be excessively broad as to time, duration, geographical scope, activity or subject, it shall be construed, by limiting and reduction it, so as to be enforceable to the extent compatible with the applicable law of such jurisdiction as it shall then appear. IN WITNESS WHEREOF, this Consulting Agreement has been executed by the Company and Consultant as of the date first written above. Signature of Consultant : Name:  Casprey Capital Corp  Address:  161 Liberty Ave.    Staten Island, New York 10305     Signature:  /s/ James Yeung    James Yeung, President  Signature of Company : Name:  Monumental Marketing, Inc.  Address:  7 Abba Hillel St.  P.O. Box # 31 Ramat – Gan 52522  Israel           Signature:  /s/ Haim Karo    Haim Karo, President  Page 3 of 4 --------------------------------------------------------------------------------

  Exhibit 10.13 AMENDED AND RESTATED EMPLOYMENT AGREEMENT              THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of the 6th day of November, 2006, between Developers Diversified Realty Corporation, an Ohio corporation (the “Company”), and Joan U. Allgood (the “Executive”). W I T N E S S E T H:              WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth herein; and              WHEREAS, the Company and the Executive desire for this Amended and Restated Employment Agreement to amend and supersede any prior Employment Agreements between the Company and the Executive.              NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows: 1.   Employment.   (a)   The Company hereby employs the Executive as its Executive Vice President of Corporate Transactions and Governance and Secretary, and the Executive hereby accepts such employment, on the terms and subject to the conditions hereinafter set forth.     (b)   During the term of this Employment Agreement, the Executive shall be and have the titles of Executive Vice President of Corporate Transactions and Governance and Secretary and shall devote all of her business time and all reasonable efforts to her employment and perform diligently such duties as are customarily performed by Executive Vice Presidents and Secretaries of companies similar in size to, and in a similar business as, the Company, together with such other duties as may be reasonably requested from time to time by the President or Chief Executive Officer of the Company or the Board of Directors of the Company (the “Board”), which duties shall be consistent with her positions previously set forth and as provided in Paragraph 2. 2.   Term and Positions.   (a)   The period of employment of the Executive by the Company shall, subject to earlier termination as provided in this Employment Agreement, continue until December 31, 2006, with automatic one year renewals thereafter. Notwithstanding the foregoing, this Employment Agreement may be terminated by the Company with “cause” (as hereinafter defined) at any time and without cause upon not less than ninety (90) days prior written notice to the Executive.     (b)   During the term of this Employment Agreement, the Executive shall be entitled to serve as the Executive Vice President of Corporate Transactions and Governance and Secretary of the Company. For service as an officer and employee of the Company, the Executive shall be entitled to the full protection of the applicable indemnification provisions of the articles of incorporation and code of regulations of the Company, as the same may be   --------------------------------------------------------------------------------         amended from time to time, and the Indemnification Agreement dated June 30, 2004 between the Company and the Executive (the “Indemnification Agreement”).   (c)   If:   (i)   the Company materially changes the Executive’s duties and responsibilities as set forth in Paragraphs 1(b) and 2(b) without her consent;     (ii)   the Executive’s place of employment or the principal executive offices of the Company are located more than fifty (50) miles from the geographical center of Cleveland, Ohio; or     (iii)   there occurs a material breach by the Company of any of its obligations under this Employment Agreement, which breach has not been cured in all material respects within thirty (30) days after the Executive gives notice thereof to the Company; then in any such event the Executive shall have the right to terminate her employment with the Company, but such termination shall not be considered a voluntary resignation or termination of such employment or of this Employment Agreement by the Executive but rather a discharge of the Executive by the Company without “cause” (as defined in Paragraph 5(a)(ii)).   (d)   The Executive shall be deemed not to have consented to any written proposal calling for a material change in her duties and responsibilities unless the Executive shall give written notice of her consent thereto to the Board within fifteen (15) days after receipt of such written proposal. If the Executive shall not have given such consent, the Company shall have the opportunity to withdraw such proposed material change by written notice to the Executive given within ten (10) days after the end of said fifteen (15) day period.     (e)   Notwithstanding anything in this Agreement to the contrary, if there shall occur a “Change in Control” and a “Triggering Event” (as those terms are defined in the Amended and Restated Change in Control Agreement, dated November 6, 2006, between the Company and the Executive (the “Change in Control Agreement”)), payments to the Executive will be governed by the Change in Control Agreement and the Executive shall not be entitled to any additional benefits under this Employment Agreement except as to that portion of any unpaid salary and other benefits accrued and earned by the Executive hereunder up to and including the effective date of such termination. 3.   Compensation.              During the term of this Employment Agreement, the Company shall pay or provide, as the case may be, to the Executive the compensation and other benefits and rights set forth in this Paragraph 3.   (a)   The Company shall pay to the Executive a base salary payable in accordance with the Company’s usual pay practices (and in any event no less frequently than monthly) of not less than Two Hundred Seventy Thousand Dollars ($270,000) per annum, subject to such increases as the Board may approve.     (b)   In addition to an annual base salary, if the Executive achieves the factors and criteria for bonus payments hereinafter described for any fiscal year of the Company, then the Page 2   --------------------------------------------------------------------------------         Company shall pay to the Executive bonus compensation for such fiscal year, not later than 75 days following the end of each fiscal year or, if applicable, the date of termination of employment, as the case may be, prorated on a per diem basis for partial fiscal years, determined and calculated in accordance with the percentages set forth on Exhibit B attached hereto. The Company’s award of bonus compensation to the Executive shall be determined by the factors and criteria, including the financial performance of the Company and the performance by the Executive of her duties hereunder, that may be established from time to time for the calculation of bonus awards by the Executive Compensation Committee (the “Committee”) of the Board.     (c)   The Company shall provide to the Executive such life, disability, medical, hospitalization and dental insurance for the Executive, her spouse and eligible family members as may be determined by the Board to be consistent with industry standards.     (d)   The Executive shall participate in all retirement and other benefit plans of the Company generally available from time to time to employees of the Company and for which the Executive qualifies under the terms thereof (and nothing in this Agreement shall or shall be deemed to in any way affect the Executive’s rights and benefits thereunder except as expressly provided herein).     (e)   The Executive shall be entitled to such periods of vacation and sick leave allowance each year as are determined by the Chief Executive Officer or the President of the Company in his reasonable and good faith discretion, which in any event shall be not less than four weeks per year or as otherwise provided under the Company’s vacation and sick leave policy for executive officers.     (f)   The Executive shall be entitled to participate in any equity or other employee benefit plan that is generally available to senior executive officers, as distinguished from general management, of the Company. The Executive’s participation in and benefits under any such plan shall be on the terms and subject to the conditions specified in the governing documents of the particular plan.     (g)   The Company shall reimburse the Executive or provide the Executive with an expense allowance during the term of this Employment Agreement for travel, entertainment and other expenses reasonably and necessarily incurred by the Executive in connection with the Company’s business. The Executive shall furnish such documentation with respect to reimbursement to be paid hereunder as the Company shall reasonably request.     (h)   The Company shall pay to the Executive an automobile allowance of $500 per month as may be adjusted from time to time. All expenses related to all automobiles owned by the Executive shall be the sole responsibility of the Executive.     (i)   The Company shall bear the cost of regular membership fees, assessments and dues incurred by the Executive as a member of The Shoreby Club and shall reimburse the Executive for the amount of any charge actually and reasonably incurred at The Shoreby Club in the conduct of the Company’s business. 4.   Payment in the Event of Death or Disability.   (a)   In the event of the Executive’s death or if the Executive becomes “disabled” (as hereinafter defined) during the term of this Employment Agreement, the Company shall pay to the Executive (or the successors and assigns of the Executive in the event of her Page 3 --------------------------------------------------------------------------------         death) an amount equal to the sum of (i) the Executive’s then effective per annum rate of salary, as determined under Paragraph 3(a), plus (ii) a bonus amount prorated up to and including the effective date of termination and determined in accordance with Paragraph 3(b) based on the aggregate amount accrued for bonuses for the then current fiscal year as presented in the Company’s general ledger for the month in which the Executive’s termination occurs, and shall continue the benefits described in Paragraph 3(c) for the Executive (except in the case of death) and the Executive’s family for a period of one (1) year.   (b)   The benefit to be paid pursuant to Paragraph 4(a) shall be paid within ninety (90) days after the date of death or disability, as the case may be.     (c)   For purposes of this Employment Agreement, the Executive shall become “disabled” only in the event of a permanent disability. Executive’s “disability” shall be deemed to have occurred after one hundred twenty (120) days in the aggregate during any consecutive twelve (12) month period, or after ninety (90) consecutive days, during which one hundred twenty (120) or ninety (90) days, as the case may be, the Executive, by reason of her physical or mental disability or illness, shall have been unable to discharge her duties under this Employment Agreement. The date of disability shall be such one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In the event either the Company or the Executive, after receipt of notice of the Executive’s disability from the other, dispute that the Executive’s permanent disability shall have occurred, the Executive shall promptly submit to a physical examination by the chief of medicine of any major accredited hospital in the Cleveland, Ohio, area and, unless such physician shall issue his written statement to the effect that in his opinion, based on his diagnosis, the Executive is capable of resuming her employment and devoting full time and energy to discharging her duties within thirty (30) days after the date of such statement, such permanent disability shall be deemed to have occurred. 5.   Termination.   (a)   The employment of the Executive under this Employment Agreement, and the terms hereof, may be terminated by the Company:   (i)   on the death of the Executive or if the Executive becomes disabled (as previously defined);     (ii)   for cause at any time by action of the Board. For purposes hereof, the term “cause” shall mean:   (A)   The Executive’s fraud, commission of a felony or of an act or series of acts which result in material injury to the business reputation of the Company, commission of an act or series of repeated acts of dishonesty which are materially inimical to the best interests of the Company, or the Executive’s willful and repeated failure to perform her duties under this Employment Agreement, which failure has not been cured within fifteen (15) days after the Company gives notice thereof to the Executive; or     (B)   The Executive’s material breach of any provision of this Employment Agreement, which breach has not been cured in all substantial respects Page 4 --------------------------------------------------------------------------------         within ten (10) days after the Company gives notice thereof to the Executive; or   (iii)   without cause pursuant to written notice provided to the Executive not less than ninety (90) days in advance of such termination date.       The exercise by the Company of its rights of termination under this Paragraph 5 shall be the Company’s sole remedy if such right to terminate arises. Upon any termination of this Employment Agreement, the Executive shall be deemed to have resigned from all offices and directorships held by the Executive in the Company.     (b)   In the event of a termination claim by the Company to be for “cause” pursuant to Paragraph 5(a)(ii), the Executive shall have the right to have the justification for said termination determined by arbitration in Cleveland, Ohio. In order to exercise such right, the Executive shall serve on the Company within thirty (30) days after termination a written request for arbitration. The Company immediately shall request the appointment of an arbitrator by the American Arbitration Association and thereafter the question of “cause” shall be determined under the rules of the American Arbitration Association, and the decision of the arbitrator shall be final and binding upon both parties. The parties shall use all reasonable efforts to facilitate and expedite the arbitration and shall act to cause the arbitration to be completed as promptly as possible. During the pendency of the arbitration, the Executive shall continue to receive all compensation and benefits to which the Executive is entitled hereunder, and if at any time during the pendency of such arbitration the Company fails to pay and provide all compensation and benefits to the Executive in a timely manner the Company shall be deemed to have automatically waived whatever rights it then may have had to terminate the Executive’s employment for cause. Expenses of the arbitration shall be borne equally by the parties except as otherwise determined by the arbitrator.     (c)   In the event of termination for any of the reasons set forth in subparagraph (a) of this Paragraph 5, except as otherwise provided in Paragraphs 3(d), 4(a) and 5(d), the Executive shall be entitled to no further compensation or other benefits under this Employment Agreement, except as to that portion of any unpaid salary and other benefits accrued and earned by the Executive hereunder up to and including the effective date of such termination.     (d)   In the event of the termination by the Company of the Executive without “cause” (other than as described in Paragraph 2(e)), or in the event of a termination by the Executive for reasons set forth in Paragraph 2(c), the Company shall pay to the Executive an amount equal to the sum of (i) the Executive’s then effective per annum rate of salary, as determined under Paragraph 3(a), plus, (ii) a bonus amount prorated up to and including the effective date of termination and determined in accordance with Paragraph 3(b) based on the aggregate amount accrued for bonuses for the then current fiscal year as presented in the Company’s general ledger for the month in which the Executive’s termination occurs, and shall continue the benefits described in Paragraph 3(c) for a period of one (1) year.     (e)   Notwithstanding anything herein to the contrary, the Company shall not be obligated to make any payment or provide any benefit pursuant to Paragraph 4(a) or Paragraph 5(d) unless (i) the Executive executes a release of all current and future claims, known or unknown, arising on or before the date of the release against the Company and its Page 5 --------------------------------------------------------------------------------         subsidiaries and the directors, officers and affiliates of any of them, in a form approved by the Company (or, in the case of death, the Executive’s estate executes such release or such other documents as may be reasonably requested by the Company) and (ii) the Executive (or the Executive’s estate) does not revoke any required release during any applicable revocation period. 6.   Covenants and Confidential Information.   (a)   The Executive acknowledges the Company’s reliance and expectation of the Executive’s continued commitment to performance of the Executive’s duties and responsibilities during the term of this Employment Agreement. In light of such reliance and expectation on the part of the Company, during the term of this Employment Agreement and for a period of one (1) year thereafter (and, as to clause (ii) of this subparagraph (a), at any time during and after the term of this Employment Agreement), the Executive shall not, directly or indirectly do or suffer either of the following:   (i)   own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity engaged in the business of, or otherwise engage in the business of, acquiring, owning, developing or managing commercial shopping centers; provided, however, that the ownership of not more than one percent (1%) of any class of publicly traded securities of any entity shall not be deemed a violation of this covenant; or     (ii)   disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company, any confidential information relating to the Company’s operations, properties or otherwise to its particular business or other trade secrets of the Company, it being acknowledged by the Executive that all such information regarding the business of the Company compiled or obtained by, or furnished to, the Executive while the Executive shall have been employed by or associated with the Company is confidential information and the Company’s exclusive property; provided, however, that the foregoing restrictions shall not apply to the extent that such information (A) is clearly obtainable in the public domain, (B) becomes obtainable in the public domain, except by reason of the breach by the Executive of the terms hereof, (C) was not acquired by the Executive in connection with the Executive’s employment or affiliation with the Company, (D) was not acquired by the Executive from the Company or its representatives or (E) is required to be disclosed by rule of law or by order of a court or governmental body or agency.   (b)   The Executive will not directly or indirectly during the term of this Employment Agreement and for a period of one (1) year after the expiration of this Employment Agreement or the termination of Executive’s employment for any reason, solicit or induce or attempt to solicit or induce any employee(s) of the Company and/or any subsidiary, affiliated or related companies to terminate their employment with the Company and/or any subsidiary, affiliated or related companies.     (c)   The Executive agrees and understands that the remedy at law for any breach by the Executive of this Paragraph 6 will be inadequate and that the damages following from such breach are not readily susceptible to being measured in monetary terms. Page 6 --------------------------------------------------------------------------------         Accordingly, it is acknowledged that, upon adequate proof of the Executive’s violation of any legally enforceable provision of this Paragraph 6, the Company shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Paragraph 6 shall be deemed to limit the Company’s remedies at law or in equity for any breach by the Executive of any of the provisions of this Paragraph 6 which may be pursued or availed of by the Company.   (d)   The Executive has carefully considered the nature and extent of the restrictions upon her and the rights and remedies conferred upon the Company under this Paragraph 6, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to the Company, do not stifle the inherent skill and experience of the Executive, would not operate as a bar to the Executive’s sole means of support, are fully required to protect the legitimate interests of the Company and do not confer a benefit upon the Company disproportionate to the detriment to the Executive. 7.   Tax Adjustment Payments. If all or any portion of the amounts payable to the Executive under this Employment Agreement or the Change in Control Agreement (including, without limitation, the issuance of common shares of the Company; the granting or vesting of restricted shares; and the granting, vesting, exercise or termination of options; but excluding any units or awards granted or vested pursuant to any Performance Unit Agreement between the Executive and the Company or any Outperformance Long-Term Incentive Plan Agreement between the Executive and the Company) constitutes “excess parachute payments” within the meaning of Section 280G of the Code that are subject to the excise tax imposed by Section 4999 of the Code (or any similar tax or assessment), the amounts payable to the Executive shall be increased to the extent necessary to place the Executive in the same after-tax position as the Executive would have been in had no such tax been imposed on any such amount paid or payable to the Executive under this Employment Agreement, the Change in Control Agreement or any other amount that the Executive may receive pursuant thereto (other than pursuant to a Performance Unit Agreement or an Outperformance Long-Term Incentive Plan Agreement). The determination of the amount of any such tax and the incremental payment required hereby in connection therewith shall be made by the accounting firm employed by the Executive within thirty (30) calendar days after such payment and said incremental payment shall be made within five (5) calendar days after determination has been made. If, after the date upon which the payment required by this Paragraph 7 has been made, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, Internal Revenue Service audit assessment or otherwise) that the amount of excise or other similar taxes payable by the Executive is greater than the amount initially so determined, then the Company shall pay the Executive an amount equal to the sum of: (i) such additional excise or other taxes, plus (ii) any interest, fines and penalties resulting from such underpayment, plus (iii) an amount necessary to reimburse the Executive for any income, excise or other tax assessment payable by the Executive with respect to the receipt of the amounts specified in (i) and (ii) above, and the reimbursement provided by this clause (iii), in the manner described above in this Paragraph 7. Payment thereof shall be made within five (5) calendar days after the date upon which such subsequent determination is made. 8.   Miscellaneous.   (a)   The Executive represents and warrants that the Executive is not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or Page 7 --------------------------------------------------------------------------------         prohibit the Executive from undertaking or performing employment in accordance with the terms and conditions of this Employment Agreement.   (b)   During the term of this Employment Agreement and thereafter, the Executive will provide reasonable assistance to the Company in litigation and regulatory matters that relate to events that occurred during the Executive’s period of employment with the Company and its predecessors, and will provide reasonable assistance to the Company with matters relating to its corporate history from the period of the Executive’s employment with it or its predecessors. The Executive will be entitled to reimbursement of reasonable out-of-pocket travel or related costs and expenses relating to any such cooperation or assistance that occurs following the term of employment.     (c)   The provisions of this Employment Agreement are severable and if any one or more provision may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provision and any partially unenforceable provision to the extent enforceable in any jurisdiction nevertheless shall be binding and enforceable.     (d)   The rights and obligations of the Company under this Employment Agreement shall inure to the benefit of, and shall be binding on, the Company and its successors and assigns, and the rights and obligations (other than obligations to perform services) of the Executive under this Employment Agreement shall inure to the benefit of, and shall be binding upon, the Executive and her heirs, personal representatives and assigns.     (e)   Any controversy or claim arising out of or relating to this Employment Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the City of Cleveland, Ohio, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess the powers to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Paragraph 8(e) shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of the covenants contained in Paragraph 6 hereof.     (f)   Any notice to be given under this Employment Agreement shall be personally delivered in writing or shall have been deemed duly given when received after it is posted in the United States mail, postage prepaid, registered or certified, return receipt requested, and if mailed to the Company, shall be addressed to its principal place of business, attention: President, and if mailed to the Executive, shall be addressed to the Executive at her home address last known on the records of the Company, or at such other address or addresses as either the Company or the Executive may hereafter designate in writing to the other.     (g)   The failure of either party to enforce any provision or provisions of this Employment Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Employment Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party’s right to assert all other legal remedies available to it under the circumstances. Page 8 --------------------------------------------------------------------------------     (h)   This Employment Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.     (i)   This Employment Agreement shall be governed by and construed according to the laws of the State of Ohio.     (j)   Captions and paragraph headings used herein are for convenience and are not a part of this Employment Agreement and shall not be used in construing it.     (k)   Where necessary or appropriate to the meaning hereof, the singular and plural shall be deemed to include each other, and the masculine, feminine and neuter shall be deemed to include each other. [Signatures on the following page.] Page 9 --------------------------------------------------------------------------------             IN WITNESS WHEREOF, the parties have executed this Amended and Restated Employment Agreement on the day and year first set forth herein.                   DEVELOPERS DIVERSIFIED REALTY         CORPORATION                       By:   /s/ Nan R. Zieleniec   Nan R. Zieleniec,             Senior Vice President of Human Resources                           /s/ Joan U. Allgood   Joan U. Allgood       --------------------------------------------------------------------------------   EXHIBIT B INCENTIVE OPPORTUNITY Bonus As % of Salary           Threshold   Target   Maximum 20%   40%   60%  

Exhibit 10.3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this “Agreement”) is made and entered into as of September 29, 2006, among Biovest International, Inc., a Delaware corporation (the “Company”) and the several purchasers signatory hereto (each such purchaser, a “Purchaser” and, collectively, the “Purchasers”). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between Accentia Biopharmaceuticals, Inc. (“Accentia”), a majority shareholder of the Company, and each Purchaser (the “Purchase Agreement”). The Company, as a majority owned subsidiary of Accentia, will directly and indirectly benefit from the extension of credit to Accentia represented by the issuance of the Debentures pursuant to the Purchase Agreement. The Company and each Purchaser hereby agrees 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: “Advice” shall have the meaning set forth in Section 6(d). “Effectiveness Date” means, with respect to the initial Registration Statement required to be filed hereunder, the 90th calendar day following the date hereof (the 135th calendar day in the case of a review by the Commission of the initial Registration Statement); provided, however, in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above. “Effectiveness Period” shall have the meaning set forth in Section 2(a). “Event” shall have the meaning set forth in Section 2(b). “Event Date” shall have the meaning set forth in Section 2(b). “Filing Date” means, with respect to the initial Registration Statement required hereunder, the 30th calendar day following the date hereof.   1 -------------------------------------------------------------------------------- “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities. “Indemnified Party” shall have the meaning set forth in Section 5(c). “Indemnifying Party” shall have the meaning set forth in Section 5(c). “Losses” shall have the meaning set forth in Section 5(a). “Plan of Distribution” shall have the meaning set forth in Section 2(a). “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 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 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 up to 18,000,000 shares of issued and outstanding BVTI Common Stock in the aggregate, transferable to a Holder (i) upon exchange of the Debentures, (ii) as a payment of principal on the Debentures, (iii) upon exercise of the Warrants, (iv) upon a foreclosure under the Pledge Agreement and (v) any securities issued or issuable upon any stock split, stock dividend or other similar transaction contemplated by Rule 416 under the Securities Act with respect to the foregoing. The number of Registrable Securities shall be registered on behalf of each Holder, on a pro-rata basis based upon such Holder’s Subscription Amount and the aggregate of the Subscription Amounts under the Purchase Agreement. “Registration Statement” means the registration statements required to be filed hereunder and any additional registration statements contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. “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 purpose and 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 purpose and effect as such Rule.   2 -------------------------------------------------------------------------------- “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a). 2. Shelf Registration (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of the Registrable Securities on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415. The 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) and shall contain (unless otherwise directed by at least a 75% majority in interest of the Holders) substantially the “Plan of Distribution” attached hereto as Annex A; provided such Plan of Distribution section of the Registration Statement shall be amended to the extent required to respond to comments received by the Company from the Commission, provided further that any such amendments shall be reasonably acceptable to the Holders. Subject to the terms of this Agreement, the Company shall use its best efforts to cause a Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold, or may be sold 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”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Trading Day. The Company shall immediately notify the Holders via facsimile of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of a Registration Statement. The Company shall, by 9:30 a.m. New York City time on the Trading Day after the Effective Date (as defined in the Purchase Agreement), file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within 1 Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(b). (b) If: (i) a Registration Statement is not filed on or prior to its Filing Date (if the Company files a Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or not subject to further review, unless the Company is required to include its next quarterly or annual financial statements prior to the expiration   3 -------------------------------------------------------------------------------- of such five Trading Days in which case such date (if later) shall be the earlier of the 10th calendar day following the earlier of (y) the date such financial statements are filed and (z) the date the applicable quarterly or annual financial statements are required to be filed with the Commission (without regard to any extensions), or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within 15 calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be declared effective, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by its Effectiveness Date, or (v) after the Effectiveness Date, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities for more than 15 consecutive calendar days or more than an aggregate of 30 calendar days during any 12-month period (which need not be consecutive calendar days) (any such failure or breach being referred to as an “Event”, and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for purposes of clause (iii) the date which such 15 calendar day period is exceeded, or for purposes of clause (v) the date on which such 15 or 30 calendar day period, as applicable, is exceeded being referred to as “Event Date”), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 2.0% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder. The parties agree that (1) the Company will not be liable for liquidated damages under this Agreement with respect to any Warrants or Warrant Shares, (2) in no event will the Company be liable for liquidated damages under this Agreement in excess of 2.0% of the aggregate Subscription Amount of the Holders in any 30-day period and (3) the maximum aggregate liquidated damages payable to a Holder under this Agreement shall be 24% of the aggregate Subscription Amount paid by such Holder pursuant to the Purchase Agreement (less any liquidated damages paid to such Holder by Accentia under that certain Registration Rights Agreement of even date herewith among the Purchasers and Accentia). If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event.   4 -------------------------------------------------------------------------------- 3. Registration Procedures. In connection with the Company’s registration obligations hereunder, the Company shall: (a) Not less than five Trading Days prior to the filing of each Registration Statement and not less than one Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders (provided, however, as to any related Prospectus, amendment or supplement thereto proposed to be filed, the Company shall only be required to provide the Holders with copies of such documents prior to the filing thereof to the extent there are changes to the Selling Stockholder table or Plan of Distribution contained therein from such sections included in the initial Registration Statement filed hereunder) 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 each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that the Company is notified of such objection in writing no later than 3 Trading Days after the Holders have been so furnished copies of a Registration Statement or 1 Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”) not less than three Trading Days prior to the Filing Date or by the end of the third Trading Day following the date on which such Holder receives draft materials in accordance with this Section. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements 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 (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that the Company may excise any information contained therein which would constitute material non-public information as to any Holder which has not executed a confidentiality agreement with the Company); and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable to the Company with respect to the disposition of all   5 -------------------------------------------------------------------------------- Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented. (c) [RESERVED] (d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a 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 a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information. (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a 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.   6 -------------------------------------------------------------------------------- (f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (g) Subject to the terms of this Agreement, 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, except after the giving of any notice pursuant to Section 3(d). (h) If NASDR Rule 2710 requires any broker-dealer to make a filing prior to executing a sale by a Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc. Corporate Financing Department pursuant to proposed NASDR Rule 2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments received from NASDR in connection therewith, (iii) and pay the filing fee required in connection therewith. (i) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction. (j) If requested by the Holders, 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 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. (k) Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the   7 -------------------------------------------------------------------------------- Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a 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 a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages pursuant to Section 2(b), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12 month period. (l) Comply with all applicable rules and regulations of the Commission. (m) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of BVTI Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the BVTI Common Stock. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request or a completed Selling Shareholder Questionnaire as described in Section 3(a) above, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information and/or questionnaire is delivered to the Company, and the Company shall be permitted to exclude such Holder from the Registration Statement, provided that as soon as such information and/or questionnaire is furnished, the Company shall use its best efforts to include such Holder on the Registration Statement after filing. 4. 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, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the BVTI Common Stock is then listed for trading, (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (C) if not previously paid by the Company in connection with an Issuer Filing,   8 -------------------------------------------------------------------------------- with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders. 5. Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, 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 BVTI Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of 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, members, shareholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) 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 or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, 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 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   9 -------------------------------------------------------------------------------- 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 (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), 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 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. (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 incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged 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 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 not misleading (i) 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 or (ii) to the extent that such information relates to 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 (it being understood that the Holder has approved Annex A hereto for this purpose), 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 3(d)(iii)-(vi), 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 6(d). 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 have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities   10 -------------------------------------------------------------------------------- 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 prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material 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 the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending 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. Subject to the terms of this Agreement, all reasonable 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; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is judicially determined to be not entitled to indemnification hereunder. (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, 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’   11 -------------------------------------------------------------------------------- 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 this Agreement, any reasonable attorneys’ or other 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 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net 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 omission. 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. 6. 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, shall 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 not assert or shall waive the defense that a remedy at law would be adequate. (b) No Piggyback on Registrations. Except as set forth on Schedule 6(b) attached 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 the initial Registration Statement other than the Registrable Securities. The Company shall not file any other registration statements until the initial Registration Statement required hereunder is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement. (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 a Registration Statement.   12 -------------------------------------------------------------------------------- (d) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b). (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 the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date 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; provided, however, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective 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 75% or more 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 all 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. (g) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered 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 (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.   13 -------------------------------------------------------------------------------- (i) 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 set forth on Schedule 6(i), neither the Company nor any of its subsidiaries 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. (j) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. (k) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement. (l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law. (m) 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 commercially 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. (n) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof. (o) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be   14 -------------------------------------------------------------------------------- deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. ********************   15 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.   BIOVEST INTERNATIONAL, INC. By:   /s/ James A. McNulty   Name:   James A.McNulty Title:   Chief Financial Officer [SIGNATURE PAGE OF HOLDERS FOLLOWS]   16 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Whitebox Hedged High Yield Partners, LP   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   17 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Wolverine Convertible Arbitrage Fund Trading Limited   Signature of Authorized Signatory of Holder:    /s/ James V. Harkness    Name of Authorized Signatory: James V. Harkness Title of Authorized Signatory: Director [SIGNATURE PAGES CONTINUE]   18 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Rockmore Investment Master Fund, Limited   Signature of Authorized Signatory of Holder:    /s/ Bruce Bernstein    Name of Authorized Signatory: Bruce Bernstein Title of Authorized Signatory: Managing Member [SIGNATURE PAGES CONTINUE]   19 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Pandora Select Partners, L.P.   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   20 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: GPC LIX, LLC   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   21 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Guggenheim Portfolio Company XXXI, LLC   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   22 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Whitebox Intermarket Partners, LP   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   23 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Whitebox Convertible Arbitrage Partners, L.P   Signature of Authorized Signatory of Holder:    /s/ Jonathan Wood    Name of Authorized Signatory: Jonathan Wood Title of Authorized Signatory: Chief Financial Officer/Director [SIGNATURE PAGES CONTINUE]   24 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Laurus Master Fund, Ltd.   Signature of Authorized Signatory of Holder:    /s/ Eugene Grin    Name of Authorized Signatory: Eugene Grin Title of Authorized Signatory: Director [SIGNATURE PAGES CONTINUE]   25 -------------------------------------------------------------------------------- [SIGNATURE PAGE OF HOLDERS TO ABPI/BVTI RRA] Name of Holder: Midsummer Investment Limited   Signature of Authorized Signatory of Holder:    /s/ Scott D. Kaufman    Name of Authorized Signatory: Scott D. Kaufman Title of Authorized Signatory: Managing Director of Midsummer Capital, LLC acting as investment manager of Midsummer Investment, Ltd. [SIGNATURE PAGES CONTINUE]   26 -------------------------------------------------------------------------------- Annex A Plan of Distribution Each Selling Stockholder (the “Selling Stockholders”) of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other 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. A Selling Stockholder 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; settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; a combination of any such methods of sale; or any other method permitted pursuant to applicable law. The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus. 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, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.   27 -------------------------------------------------------------------------------- In connection with the sale of the common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions entered into after the effective date of the registration statement of which this prospectus is a part, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares 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 purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%). The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders. We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.   28 -------------------------------------------------------------------------------- Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).   29 -------------------------------------------------------------------------------- Annex B BIOVEST INTERNATIONAL, INC. Selling Securityholder Notice and Questionnaire The undersigned beneficial owner of common stock (the “Common Stock”) of Biovest International, Inc., a Delaware corporation (the “Company”), (the “Registrable Securities”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus. NOTICE The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.   30 -------------------------------------------------------------------------------- The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate: QUESTIONNAIRE 1. Name.   (a)    Full Legal Name of Selling Securityholder   __________________________________________________________________________________________________________________ (b)    Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:   __________________________________________________________________________________________________________________ (c)    Full Legal Name of Natural Control Person(s) (which means a natural person(s) who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):   __________________________________________________________________________________________________________________ 2. Address for Notices to Selling Securityholder:   _________________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________________ _________________________________________________________________________________________________________________________     Telephone: _______________________________________________________________________________________________________     Fax: _______________________________________________________________________________________________________     Contact Person: _______________________________________________________________________________________________________ 3. Broker-Dealer Status:     (a) Are you a broker-dealer? Yes  ¨            No  ¨     (b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company. Yes  ¨             No  ¨     Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.   31 --------------------------------------------------------------------------------   (c) Are you an affiliate of a broker-dealer? Yes  ¨             No  ¨     (d) If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities? Yes  ¨             No  ¨     Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement. 4. Beneficial Ownership of Securities of the Company Owned by the Selling Securityholder. Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.     (a) Type and Amount of other securities beneficially owned by the Selling Securityholder: _____________________________________________________________________________________________________________________________ _____________________________________________________________________________________________________________________________   32 -------------------------------------------------------------------------------- 5. Relationships with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: __________________________________________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________________________________________ The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective. By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus. IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.   Dated: _______________________________________   Beneficial Owner: _______________________________________   By:       Name:     Title:   PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:   33 -------------------------------------------------------------------------------- Schedule 6(b) to Registration Rights Agreement None -------------------------------------------------------------------------------- Schedule 6(i) to Registration Rights Agreement Accentia Biopharmaceuticals, Inc. (the “Company”) has granted the following registration rights: Names of Investors and/or other security holders that have the right to cause the company to file a registration statement:     (a) Laurus Master Fund, Ltd.     (b) PIPE Investment dated May 15, 2006     (c) Series E Investors     (d) Series B Investors: The Agreement that gives them those rights     (a) February 13, 2006 Amended and Restated Registration Rights Agreement     (b) May 15, 2006 Registration Rights Agreement     (c) Investor Rights Agreement     (d) Registration Rights Agreement What securities are subject to those registration rights (including a description of the material terms of any derivative securities)? Set forth below are summaries of the existing registration rights. These are only summaries of the rights and are qualified in all respects by the terms of the actual agreements granting such rights. (a) The Company must register for public resale the shares of the Company’s common stock that may be issued to Laurus pursuant to the conversion of its second amended and restated secured convertible term note in the principal amount of $10.0 million, its second amended and restated secured convertible minimum borrowing note in the principal amount of up to $2.5 million, and its common stock purchase warrants. The Company filed Registration Statement No. 333-132237 on June 23, 2006 (b) The Company is required to file within 30 days following the closing of the private placement a resale registration statement for the shares issued in the private placement and the shares underlying all the warrants issued in the private placement to enable the resale of such shares by the selling stockholders on a delayed or continuous basis under Rule 415 of the Securities Act. We are then required to cause such registration statement to become effective within 90 days after the date of the closing of the private placement. The Company filed Registration Statement No. 333-135018 on June 22, 2006 (c) The former holders of our Series E preferred stock may demand that we register for public resale under the Securities Act all shares of common stock held by them as a result of conversion their Series E shares they request to be registered, provided that PPD International -------------------------------------------------------------------------------- make the demand for registration with an aggregate offering price expected to exceed $2.0 million. A majority of the former Series E stockholders have waived their right to include their shares in the registration statement, except for PPD International, which has elected to include 1,423,441 of its shares in such registration statement. We filed Registration Statement No. 333-132237 on June 23, 2006 pursuant to PPD’s registration right. Once we are eligible to register shares on Form S-3, the aggregate offering price requirement for the former holders of our Series E Preferred Stock to demand registration decreases to $500,000. (d) If the Company files a registration statement in connection with a public offering of our securities for cash, other than a registration statement for the resale of the Laurus shares or a registration statement pursuant to the above-described May 15, 2006 registration rights agreement, then the former Analytica stockholders may request that their shares be included in such registration statement, provided that in the case of an underwritten public offering, the underwriters in such offering may limit the number of such shares to be included in the registration statement if the underwriters determine that including such shares will jeopardize the offering. Biovest International (“BVTI”) has granted the following registration rights: Names of Investors and/or other security holders have the right to cause the company to file a registration statement     (a) Pulaski Bank and Trust.     (b) Laurus Master Fund, Ltd. The Agreement that gives them those rights     (a) September 5, 2006 Warrant     (b) March 31, 2006 Registration Rights Agreement What securities are subject to those registration rights (including a description of the material terms of any derivative securities)? (a) If BVTI plans to file a registration statement with the U.S. Securities and Exchange Commission covering shares of common stock of BVTI (“Registration Statement”), BVTI shall provide written notice to Pulaski and Pulaski shall have 30 days to require in writing that all shares of common stock underlying the Warrant, to the extent vested, be covered in the Registration Statement. Notwithstanding the foregoing, BVTI shall have full discretion to determine not to include the shares underlying the warrant in any registration statement if BVTI reasonably determines that such registration may adversely effect the registration statement, the offering described in the registration statement or otherwise adversely effect BVTI. (b) BVTI is to register for public resale the shares of their common stock that may be issued to Laurus pursuant to warrant purchase agreement. BVTI is obligated to file a registration statement covering the resale of all shares that may be acquired by Laurus pursuant to the above-described warrant.

Exhibit 10.9 Employment Agreement   EMPLOYMENT AGREEMENT   This Employment Agreement (“Agreement”), made effective as of the 13th day of January, 2006 (the “Effective Date”), by and between CHAPARRAL STEEL COMPANY, a Delaware corporation (hereinafter referred to as the “Company”), and TOMMY A. VALENTA (hereinafter referred to as the “Executive”).   WITNESSETH:   WHEREAS, Executive has been elected to the position of President and Chief Executive Officer of the Company and as a member of its Board of Directors;   WHEREAS, the Company and Executive previously entered into an Employment Agreement effective July 29, 2005;   WHEREAS, the Company desires to modify the terms and condition of Executive’s employment in order to insure the retention of Executive’s services and Executive is willing to render such services on the terms and conditions set forth herein:   NOW, THEREFORE, the Company and the Executive, in consideration of the premises and promises each to the other herein contained, have agreed and do hereby agree and covenant as follows:   15.5 Employment and Term:   (a) Position and Term. The Company agrees to employ the Executive as the President and Chief Executive Officer of the Company, during the three (3) year period commencing on January 13, 2006 and ending January 13, 2009 (the “Term”), and the Executive agrees to serve the Company in such capacity during such Term unless terminated earlier pursuant to Section 3 (the “Employment Period”). Such Term will automatically be extended for one (1) year as of January 13 of each year commencing as of January 13, 2007 so that the unexpired term of the Agreement as of January 13 of each year will always be three (3) years, unless either party on or prior to such January 13 provides the other written notice of termination at least thirty (30) days prior to such January 13 in which case the Agreement will expire in three (3) years (i.e., on the January 13 that is three (3) years from the January 13 with respect to which such notice of termination is given), unless this Agreement is terminated earlier pursuant to Section 3.   (b) Duties. Executive will report to the Board of Directors of the Company and will have general management over the business, affairs and property of the Company in the ordinary course of its business with all such powers with respect to such general management as may be reasonably incident to such responsibilities. The Board of Directors may assign Executive additional duties during the Term; provided, that such duties are not inconsistent with those set forth in the preceding sentence. Executive agrees to devote all of his time and attention during normal business hours during such term to the business and affairs of the Company, its subsidiaries and affiliates, subject to Section 1(d) hereof.   (c) Additional Duties for Company. Executive will serve as a Director of the Company and/or one or more of its subsidiaries or affiliates if elected as such and will hold the offices with the Company and/or its subsidiaries or affiliates to which, from time to time, he may be elected or appointed during the Employment Period. Executive agrees that he will not be entitled to receive any compensation for serving as a Director of the Company or, with respect to the subsidiaries or affiliates of the Company, in any capacity other than the compensation to be paid to Executive pursuant to this Agreement or any other written agreement between the Company or any of its subsidiaries or affiliates and Executive.   (d) Additional Activities. During the Employment Period, Executive may serve on charitable boards and other nonprofit organizations and attend to personal investments, provided, that such efforts involve a reasonable amount of time and do not detract from his duties with the Company and -------------------------------------------------------------------------------- its subsidiaries and affiliates. Further, with the approval of the Board of Directors, Executive may serve on the board of directors of unaffiliated “for profit” entities.   (e) Place of Performance. In connection with his employment under this Agreement, Executive will be based at 300 Ward Road, Midlothian, Texas 76065-9661. The Company will not, without the written consent of Executive, relocate or transfer Executive’s place of performance to a location that increases Executive’s daily commute distance based on the location of Executive’s principal residence as of the Effective Date to more than fifty (50) miles (one-way), except for reasonably required travel on Company business which is not materially greater than such travel requirements prior thereto.   15.6 Compensation   (a) Base Annual Compensation. Executive will receive a base salary at the rate of Five Hundred Thousand Dollars ($500,000.00) per annum payable in periodic installments in accordance with the Company’s payment practices and procedures.   (b) Incentive Compensation. Executive will participate in all incentive plans in which executive officers of the Company participate and will participate at multiples consistent with the Company’s current incentive plans (i.e., Executive will receive incentive payments calculated at a rate at least thirty three percent (33%) higher than the rate used to calculate payments to executive officers pursuant to single year incentive plans and at a rate at least fifty percent (50%) higher than the rate used to calculate payments to executive officers pursuant to multi-year incentive plans).   In the event that payment of any incentive compensation payable to Executive pursuant to this Section 2(b) would not be deductible by the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), then payment of the amount of such award which is not deductible will automatically be deferred, with interest equivalent to U.S. Treasury Bills, up to the earliest of (i) April 30th of the first year in which the Company reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Section 162(m) of the Code or (ii) the date which is six (6) months and one (1) day following the Executive’s termination of employment.   (c) Participation in Equity and Non-Equity Plans. Executive will participate in all equity and non-equity plans made available to executive officers of the Company to enable them to participate in the appreciation in value of the common stock of the Company.   (d) Other Benefits and Perquisites. During the Period of Employment, Executive will receive the following perquisites and other benefits:   (i) standard perquisites (e.g., company car or car allowance, club dues, professional association membership);   (ii) the reimbursement of or payment for business travel;   (iii) the reimbursement for out of pocket expenses incurred by Executive in performing his duties under this Agreement;   (iv) vacation time and holidays in accordance with Company policy;   (v) the reimbursement of legal fees incurred by Executive in connection with the review and negotiation of this Agreement up to a maximum of Ten Thousand Dollars ($10,000);   (vi) the reimbursement of legal fees incurred by Executive in seeking to enforce this Agreement, provided that any enforcement actions taken by Executive are not frivolous or taken in bad faith and that such legal fees are incurred by Executive and submitted to the Company for reimbursement no later than December 31 of the second (2nd) calendar year following the year in which Executive’s termination of employment occurs (i.e., pursuant to section 409A of the Code the reimbursement of such legal fees must occur by December 31 of the second (2nd) calendar year following Executive’s termination of employment); -------------------------------------------------------------------------------- (vii) the provision of a ten (10) year level term life insurance policy of five (5) times Executive’s Base Salary. Executive will have the right to designate the beneficiary and the policy will be assigned to Executive on his termination of employment;   (viii) participation in the Financial Security Plan of Chaparral Steel Company (the “FSP”) pursuant to the terms of the Executive’s “Election to Participate,” “Election Form” and “Plan Agreement,” as such documents are defined and described in the FSP;   (ix) participation in any other group life, health or similar insurance program made available to senior executives of the Company; and   (x) participation in any retirement, pension plan or other benefit programs made available to senior executives of the Company.   (e) Annual Review. Executive’s total compensation (i.e., Base Salary and incentive plan payment opportunities) will be reviewed annually by the Board of Directors of the Company and such Base Salary and multiples of incentive plan participation may not be decreased without Executive’s written consent.   15.7 Early Termination   (a) Death. Upon the death of Executive during the Term of this Agreement, the Agreement will terminate and Executive will be entitled to payment of his Base Salary accrued up to the date of his death plus any benefits payable pursuant to the terms of the benefit plans specified in Section 2 in which Executive is a participant (i.e., FSP benefits, transfer of the life insurance policy, group life insurance benefits, 401(k) etc.).   (b) Disability. In the event of Executive’s “Disability” during the Term of the Agreement, the Company may terminate Executive’s employment in which case this Agreement will terminate and Executive will be entitled to payment of the following benefits, the payment of which will be delayed for six (6) months and one (1) day to the extent required by section 409A of the Code: (i) his Base Salary for the remainder of the Term of the Agreement at the rate in effect for the prior year of the Agreement, (ii) long-term disability benefits pursuant to the terms of any long-term disability policy provided to senior executives of the Company in which Executive has elected to participate, (iii) payment of any benefits payable pursuant to the terms of the benefit plans in which Executive is a participant (e.g., FSP benefits, transfer of the life insurance policy, 401(k) etc), and (iv) payment (in a lump sum) (with respect to each fiscal year of the Company that ends during the remaining Term of this Agreement) of incentive compensation in an amount equal to the amount of incentive compensation paid during the prior year of the Agreement.   For purposes of this Agreement, “Disability” means Executive’s inability to perform with or without reasonable accommodation the essential functions of his position for an aggregate of one hundred twenty (120) days during any period of one hundred eighty (180) consecutive days due to a mental or physical incapacity as determined by the mutual agreement of a physician selected by the Company or its insurers (the “Company Physician”) and a physician selected by Executive (“Executive’s Physician”). In the event that the Company Physician and the Executive’s Physician cannot agree on whether Executive is Disabled, such determination will be made by a third physician who is jointly selected by the Company Physician and the Executive’s Physician.   (c) Breach of Agreement. If the Company materially breaches this Agreement during the Term and fails to cure such breach within thirty (30) days after written notice thereof by Executive, Executive will be entitled to terminate his employment and will be entitled to the following liquidated damages, the payment of which will be delayed for six (6) months and one (1) day to the extent required by section 409A of the Code:   (i) payment (in a lump sum) of Executive’s Base Salary through the remainder of the Term of the Agreement (computed at the rate in effect for the prior year of the Agreement); -------------------------------------------------------------------------------- (ii) payment (in a lump sum) of incentive compensation (with respect to each fiscal year of the Company that ends during the remainder of the Term of the Agreement) computed based upon the amount of incentive compensation paid during the prior year of the Agreement;   (iii) Notwithstanding any provision to the contrary in any option agreement, restricted stock agreement, or other agreement relating to equity-type compensation that may be outstanding between Executive and the Company, Executive will become one hundred percent (100%) vested in all units, stock options, incentive stock options, performance shares, stock appreciation rights, restricted stock and stock awards held by Executive immediately prior to the date of termination;   (iv) continued participation for the remainder of the Term of this Agreement in any medical, dental, or vision benefit plans in which Executive participated in at the time of his termination of employment (“Continued Medical”). Executive will be required to continue to pay his portion of the cost of any insured Continued Medical coverage on a pre-tax basis. However, to the extent that such Continued Medical is self-funded by the Company, Executive will be required to pay the full cost of such coverages on an after-tax basis in order to ensure that the benefits payable to Executive are not includible in his gross income. Such Continued Medical is in addition to any rights Executive may have to continue such coverages under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). The pre-tax deduction for the self-funded Continued Medical coverages described above will be taken from the lump sum payment of Executive’s Base Salary described in Section 3(c)(i); provided, however, that if such lump sum Base Salary payment is delayed for six (6) months and one (1) day, Executive will not be required to pay the cost of Continued Medical during such period and instead the Company will include the cost of such coverage in Executive’s income and report it as wages on Form W-2. This clause will not prohibit the Company from changing the terms of such medical, dental or vision benefit plans provided that any such changes apply to all senior executives of the Company (e.g., the Company may switch insurance carriers or preferred provider organizations). The Company’s obligation under this Agreement to provide Continued Medical will terminate if Executive obtains comparable coverage under a subsequent employer’s medical, dental or vision benefit plans. Executive must advise the Company of the attainment of any such subsequent employer benefit coverages within thirty (30) days following such attainment; and   (v) payment of any benefits payable pursuant to the terms of the benefit plans specified in Section 2 in which Executive is a participant (i.e., FSP, 401(k) etc.).   (d) Termination for Cause or Voluntary Resignation by Executive. If Executive’s employment is terminated during the Term of this Agreement for “Cause,” or Executive voluntarily resigns from the employment of the Company, the Company will pay Executive his Base Salary through the date of termination at the rate in effect at the time notice of termination is given. Such payments will discharge the Company’s obligations hereunder.   For purposes of this Agreement, “Cause” includes any of the following:   (i) a material breach by Executive of Section 4 of this Agreement (regarding the noncompetition, confidentiality, nonsolicitation and nondisparagement provisions) which is not remedied within thirty (30) days after receipt of written notice to Executive from the Company;   (ii) the commission of a willful criminal act by Executive, such as fraud, embezzlement or theft;   (iii) the conviction, plea of no contest or nolo contendere, deferred adjudication or unadjudicated probation of Executive for any felony or any crime involving moral turpitude; or   (iv) Executive’s failure or refusal to carry out, or comply with, in any material respect, any lawful directive of the Board of Directors of the Company consistent with the terms of the Agreement which is not remedied within thirty (30) days after Executive’s receipt of written notice from the Company;   provided, however, that no termination of Executive’s employment will be for Cause until (A) there will have been delivered to Executive a written notice specifying in detail the particulars of Executive’s conduct which is described in either (i) or (iv) above, (B) Executive has been provided an opportunity to be heard by the Board of Directors of the Company (with the assistance of Executive’s counsel if Executive so desires), and (C) a resolution is adopted in good faith by two thirds (2/3) of the full Board of Directors of the Company confirming Executive’s conduct is within the scope of the conduct described in either (i) or (iv) above (excluding the vote of -------------------------------------------------------------------------------- Executive). No act, nor failure to act, on Executive’s part, will be considered “willful” unless he has acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company.   15.8 Non-Competition, Confidentiality and Nondisparagement   (a) Agreement not to Compete. Executive agrees that in the event his employment with the Company is terminated for any reason whatsoever other than Cause, Executive will not, for a period of two (2) years after the date of such termination of employment, directly or indirectly, carry on or conduct, in competition with the Company or its subsidiaries or affiliates, any business of the nature in which the Company or its subsidiaries or affiliates are then engaged in any geographical area in which the Company or its subsidiaries or affiliates engage in business at the time of such termination or in which any of them, prior to termination of Executive’s employment, evidenced in writing, at any time during the six (6) month period prior to such termination, an intention to engage in such business. Executive agrees that he will not so conduct or engage in any such business either as an individual on his own account or as a partner or joint venturer or as an executive, agent, consultant or salesman for any other person or entity, or as an officer or director of a corporation or as a shareholder in a corporation of which he will then own ten percent (10%) or more of any class of stock. The provisions of this Section 4(a) will supersede any and all non-compete provisions contained in any and all other agreements which have been entered into between Executive and the Company and will survive the termination of this Agreement.   (b) Confidential Information. Executive will not, directly or indirectly, at any time following termination of his employment with the Company, reveal, divulge or make known to any person or entity, or use for Executive’s personal benefit (including without limitation for the purpose of soliciting business, whether or not competitive with any business of the Company or any of its subsidiaries or affiliates), any information acquired during the Employment Period with regard to the financial, business or other affairs of the Company or any of its subsidiaries or affiliates (including without limitation any list or record of persons or entities with which the Company or any of its subsidiaries or affiliates has any dealings), other than (i) information already in the public domain, (ii) information of a type not considered confidential by persons engaged in the same business or a business similar to that conducted by the Company or its subsidiaries and affiliates, or (iii) information that Executive is required to disclose under the following circumstances: (A) at the express direction of any authorized governmental entity; (B) pursuant to a subpoena or other court process; (C) as otherwise required by law or the rules, regulations, or orders of any applicable regulatory body; or (D) as otherwise necessary, in the opinion of counsel for Executive, to be disclosed by Executive in connection with any legal action or proceeding involving Executive and the Company or any subsidiary or affiliate of the Company in his capacity as an employee, officer, director, or stockholder of the Company or any subsidiary or affiliate of the Company. Executive will, at any time requested by the Company (either during or within two (2) years after his employment with the Company), promptly deliver to the Company all memoranda, notes, reports, lists and other documents (and all copies thereof) relating to the business of the Company or any of its subsidiaries and affiliates which he may then possess or have under his control.   (c) Agreement not to Solicit Employees. Executive agrees that, for a period of two (2) years following the termination of the Employment Period, Executive will not solicit or induce, or in any manner attempt to solicit or induce, any person employed by, or any agent of, the Company or any of its subsidiaries or affiliates to terminate such employee’s employment or agency, as the case may be, with the Company or any subsidiary or affiliate.   (d) Nondisparagement. Executive agrees that he will not disparage the Company, the Board of Directors of the Company, the Company’s executives, the Company’s employees and the Company’s products or services during his Period of Employment and thereafter. The Company likewise agrees that it will not disparage Executive during Executive’s Period of Employment or thereafter. For purposes of this Section 4(d), disparagement does not include (a) compliance with legal process or subpoenas to the extent only truthful statements are rendered in such compliance attempt, (b) statements in response to an inquiry from a court or regulatory body, or (c) statements or comments in rebuttal of media stories or alleged media stories. -------------------------------------------------------------------------------- (e) Reasonableness of Restrictions. Executive acknowledges that the geographic boundaries, scope of prohibited activities, and time duration set forth in this Section 4 are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company and the confidentiality of its Confidential Information and to protect the legitimate business interests of the Company, and that the enforcement of such provisions would not cause Executive any undue hardship nor unreasonably interfere with Executive’s ability to earn a livelihood If any court determines that any portion of this Section 4 is invalid or unenforceable, the remainder of this Section 4 will not thereby be affected and will be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 4, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court will have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.   (f) Enforcement. Upon Executive’s employment with an entity that is not a subsidiary or affiliate of the Company (a “Successor Employer”) during the period that the provisions of this Section 4 remain in effect, Executive will provide such Successor Employer with a copy of this Agreement and will notify the Company of such employment within thirty (30) days thereof. Executive agrees that in the event of a breach of the terms and conditions of this Section 4 by Executive, the Company will be entitled, if it so elects, to institute and prosecute proceedings, either in law or in equity, against Executive, to obtain damages for any such breach, or to enjoin Executive from any conduct in violation of this Section 4. Company and Executive both agree that in the event of a breach of the nondisparagement provisions of Section 4.4(d), the adversely affected party will be entitled, if it so elects, to institute and prosecute proceedings, either in law or in equity, against the other, to obtain damages for any such breach, or to enjoin the other from engaging in such disparagement.   15.9 Indemnification.   As required by the Company’s Bylaws, the Company will indemnify Executive for any liability he incurs in the event that he is made a party to any legal proceeding by reason of his employment as President and Chief Executive Officer of the Company or as a member of the Company’s Board of Directors.   15.10  Executive Acknowledgement.   Executive is entering into this Agreement of his own free will. Executive acknowledges that he has had adequate opportunity to review this Agreement and consult with counsel of his own choosing. Executive represents that he has read and understands this Agreement, he is fully aware of this Agreement’s legal effect and has not acted in reliance upon any statements made by the Company other than those set forth in writing in the Agreement.   15.11  Miscellaneous Provisions.   (a) Successors and Assigns. The rights and obligations of the Company under this Agreement will inure to the benefit of and will be binding upon the successors and assigns of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, sale of assets or otherwise) to all or substantially all of the business and/or assets of the Company, by a written agreement in form and substance reasonably satisfactory to Executive, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. This Agreement is personal to Executive and without the prior written consent of the Company is not assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by Executive’s personal and legal representatives, executors, administrators, heirs, distributes, devisees and legatees.   (b) Amendment. This Agreement will not be modified, changed or in any way amended except by an instrument in writing approved by the Board of Directors of the Company and signed by the Company and Executive.   (c) Severability. Except as otherwise provided in Section 4(e), if any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during -------------------------------------------------------------------------------- the term of this Agreement, such provision will be fully severable; this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, except as otherwise provided in Section 4(e), in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.   (d) Integration. The provisions of this Agreement constitute the entire and complete understanding and agreement between the parties with respect to the subject matter hereof, and supersede all prior and contemporaneous oral and written agreements, representations and understandings of the parties, which are hereby terminated.   (e) Choice of Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS OF TEXAS OR ANY OTHER JURISDICTION, AND, WHERE APPLICABLE, THE LAWS OF THE UNITED STATES.   (f) Survival. The provisions of Section 4, Section 5 and this Section 7 will survive the termination of this Agreement.   (g) 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 will be deemed a waiver of similar or dissimilar provisions or conditions at any time.   (h) Notice. All notices and other communications hereunder will be in writing and will be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:   If to Executive:    _________________________      _________________________      _________________________      _________________________      Telephone: ________________      Fax: _____________________ If to the Company:    Chaparral Steel Company.      300 Ward Road      Midlothian, TX 76065-9661      Attention: _________________      Telephone: ________________      Fax: ______________________   or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.   (i) Construction. This Agreement is deemed to be drafted equally by both Executive and the Company and will be construed as a whole and according to its fair meaning. Any presumption or principle that the language of this Agreement is to be construed against any party will not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections, subsections or clauses are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) “and” and “or” are each used both conjunctively and disjunctively; (iii) “any,” “all,” “each,” or “every” means “any and all”, and “each and every” (iv) “includes” and “including” are each used without limitation; (v) “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the -------------------------------------------------------------------------------- masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.   (j) No Mitigation. In no event will Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and except as provided in Section 3(c)(iv) (regarding Continued Medical) such amounts will not be reduced whether or not Executive obtains other employment. Neither Executive nor the Company will be liable to the other party for any damages for breach of this Agreement in addition to the amounts payable under Section 3(c) arising out of the termination of Executive’s employment prior to the end of the Term; provided, however, that the Company will be entitled to seek damages from Executive for any breach of Section 4 by Executive or for Executive’s criminal misconduct and Executive may seek to enforce the provisions of Section 4(d) in the event of a breach of such provisions by the Company.   (k) Restatement of Prior Agreement. Upon the execution of this Agreement by Executive and the Company, this Agreement will restate and supersede the Employment Agreement dated as of July 29, 2005, by and between Executive and the Company (the “Prior Employment Contract”), and upon such execution hereof the Prior Employment Contract will be superceded in full hereby. Any provision contained in this Agreement that refers to or is dependent upon the time period during which Executive has been employed by the Company will take into account and include periods prior to the date hereof during which Executive was employed by the Company, and the termination of the Prior Employment Contract will not be deemed a termination or any cessation of Executive’s employment by the Company.   CHAPARRAL STEEL COMPANY By:   /s/    J. CELTYN HUGHES             J. Celtyn Hughes, Vice President and Chief Financial Officer   ATTEST: /s/    ROBERT E. CRAWFORD, JR.         Robert E. Crawford, Jr. Secretary EXECUTIVE /s/    TOMMY A. VALENTA         Tommy A. Valenta

Exhibit 10.5     PERFORMANCE UNIT AWARD AGREEMENT   THIS PERFORMANCE UNIT AWARD AGREEMENT (“Agreement”) is made and entered effective as of the 1st day of April, 2006, by and between TXU CORP., a Texas corporation (“Company”), and «Participant» (“Participant”).   WHEREAS, the Company has adopted the TXU Corp. 2005 Omnibus Incentive Plan (“Plan”), the purpose of which is to assist the Company in attracting, retaining and motivating executive officers and other key employees essential to the success of the Company through performance-related incentives linked to long-range performance goals; and   WHEREAS, the Plan provides for various types of stock and cash based incentive compensation awards, as well as covered employee annual incentive awards to be made to eligible Employees; and   WHEREAS, in accordance with the provisions of the Plan, the Participant has been designated as being eligible to receive an award of performance units payable in, and valued on the basis of, Company common stock as described herein (“Performance Units”) in order to carry out the intent and purposes of the Plan all as set forth herein; and   WHEREAS, this Agreement constitutes part of a prospectus covering the Performance Units which are being awarded hereunder, where Company common stock constituting the value of the Award has been registered under the Securities Act of 1933.   NOW THEREFORE, in consideration of the covenants herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:   1.  Award of Performance Units. The Company hereby awards to Participant «Award» Performance Units, each such Performance Unit having a value equal to one share of the Company’s common stock, without par value (“Company Stock”), pursuant to the terms and subject to the conditions and restrictions set forth herein.   2.  Performance Period and Adjustment of Number of Performance Units. The award of Performance Units shall be subject to comparative and absolute total shareholder return performance criteria as described below. For purposes of determining the adjustments to the number of Performance Units under this section, the Target Award (“Target”) shall be the number of Performance Units awarded under Section 1 hereof plus any additional Performance Units added to this Award during the Performance Period by virtue of the “dividends” provisions of Section 6 hereof.   (a)  During the period commencing April 1, 2006 and ending March 31, 2009. (“Performance Period”), the Company’s financial performance, measured in terms of total shareholder return, shall be compared to, and measured against, the performance of other     companies within a peer group consisting of all of the companies which are included within either or both of the Standard & Poor’s (S&P’s) 500 Electric Utilities Index and the S&P’s 500 Multi-Utilities Index (“Peer Group”). Upon the expiration of the Performance Period, the Committee will compare the Company’s total shareholder return with the total shareholder return of the companies within the Peer Group and determine the Company’s percentile ranking within the Peer Group during the Performance Period. Based on the Company’s performance within the Peer Group during the Performance Period, fifty percent (50%) of the number of Performance Units awarded to Participant under Section 1 hereof shall be adjusted in accordance with the methodology set forth below. Performance  Levels Total Shareholder  Return Ranges Initial Number of Performance Units Adjusted by the Following:   Maximum   81st Percentile & Above   Maximum payout (200% of Target)   150% of Target   71st - 80.99th Percentiles    Interpolate between 150% of Target & Maximum (150% & 200% of Target)   125% of Target   61st - 70.99th Percentiles   Interpolate between 125% of Target & 150% of Target   Target   51st - 60.99th Percentiles    Interpolate between 100% of Target & 125% of Target   Minimum   41st - 50.99th Percentiles    Interpolate between Minimum & Target (50% to 100% of Target)   Zero   40.99th Percentile & Below   No payout (b)  During and over the Performance Period, the Company’s financial performance, measured in terms of the Company’s total shareholder return, shall be measured by the Committee. Upon the expiration of the Performance Period, fifty percent (50%) of the number of Performance Units awarded to Participant under Section 1 hereof shall be adjusted in accordance with the methodology set forth below. Performance  Levels Aggregate 3-Year Total Shareholder Return Initial Number of Performance Units Adjusted by the Following:   Maximum ≥ 40.5%   Maximum payout (150% of Target)   Target ≥ 29.5%   Interpolate between 100% of Target & Maximum (100% & 150% of Target)   Minimum ≥ 19.1%   Interpolate between 50% of Target & 100% of Target   Zero <19.1%   No payout (c)  For purposes of this Agreement, the term Performance Units will include the number of Performance Units adjusted in accordance with Sections 2(a) and 2(b).   3.  Vesting, Valuation and Payment of Award.   (a)  The Performance Units, as adjusted in accordance with the provisions of Sections 2(a) and 2(b) above, shall become vested upon the expiration of the Performance Period, and shall be valued as of the date of the Committee’s certification of the Company’s performance against the performance criteria described in Sections 2(a) and 2(b) (“Valuation Date”), at which time the adjustments described in Sections 2(a) and 2(b) shall be made. In calculating the value of the Award, each Performance Unit will equal the value of the average of the high and low trading price of one (1) share of Company Stock on the Valuation Date.   2 (b)  This Award in accordance with the provisions of Section 3(a) above, shall be paid to Participant in the form of shares of Company Stock having an aggregate value equal to the value of the Award determined in accordance with the valuation methodology described in Section 3(a) above. Such distribution of Company Stock, net of applicable tax withholding, shall be made as soon as reasonably practicable (and in any event within forty-five (45) days) following the Valuation Date. The Valuation Date and the distribution of the Company Stock shall occur within the same calendar year as the expiration of the Performance Period.   4.  Forfeiture of Performance Units Under Certain Circumstances.               (a)       Forfeiture Upon Termination of Employment under Certain Circumstances. If Participant’s employment with the Company shall, at any time during the Performance Period, be terminated by the Company for Cause (as defined in that certain Employment Agreement between the Company and Participant dated as of «Date_of_Emp_Agt», (“Employment Agreement”)) or by Participant without Good Reason (as defined in the Employment Agreement), this Award and all Performance Units covered hereunder shall immediately be forfeited by Participant. Upon such forfeiture, Participant shall have no further right, title or interest in or to this Award or any Performance Units.                (b)         Continuation Following Termination of Employment Under Certain Circumstances. If Participant’s employment with the Company shall, at any time during the Performance Period, be terminated under circumstances which, pursuant to the terms and conditions of the Employment Agreement, do not result in the forfeiture of this Award, this Award shall not forfeit and shall be paid at the time and in the amount provided for in, and subject to the terms and conditions of, this Agreement, consistent with the provisions of the Employment Agreement.              (c)          Consistency With Terms of Employment Agreement. The terms of this Section 4 are intended to be consistent with the terms of the Employment Agreement regarding the forfeiture or the continuation of this Award under the various circumstances described in the Employment Agreement, and this Section 4 shall be so construed. In the event of any conflict between the provisions of this Agreement and the Employment Agreement relating to the terms of this Award, the provisions of the Employment Agreement will control. 5.  Nontransferability. No right of the Participant hereunder may be sold, transferred, pledged, assigned or otherwise alienated, hypothecated or disposed of and any attempt to effect any such sale, transfer, pledge, assignment or disposition shall be null and void and of no force or effect whatsoever.         6.      Dividends. If and when dividends are paid on Company Stock, the number of Performance Units covered by the Award will be increased by: (a) in the case of a dividend paid in cash, the number of full and fractional shares of Company Stock which could have been purchased with the amount of the dividend that would have been paid had each Performance Unit been one (1) share of Company Stock and as if the Performance Units had been invested in the TXU Direct Stock Purchase and Dividend Reinvestment Plan; or (b) in the case of a dividend     3 paid in stock, the number of full and fractional shares of Company Stock which would have been distributed in connection with such dividend had each Performance Unit been one (1) share of Company Stock.   7.  Capital Adjustments. The number of Performance Units covered by this Award shall be subject to adjustment, if any, as the Committee deems appropriate upon the occurrence of certain events and in the manner as described in Section 4.4 of the Plan.   8.  No Right to Employment. Neither this Agreement, nor the Award of the Performance Units provided for herein, shall be construed as giving Participant any right of employment or continued employment with the Company or any affiliated entity of the Company.   9.  Withholding. Participant understands and agrees that the Company shall deduct or withhold any taxes required by law to be withheld in connection with the Award provided for herein.   10.  Subject to Plan. The Award of the Performance Units and this Agreement are subject to all of the terms and conditions of the Plan (as the Plan may be amended from time to time). In the event of any conflict between the terms and conditions of the Plan and those set forth herein, the terms and conditions of the Plan shall control.   11.  Governing Law. This Agreement shall be governed, construed, interpreted and administered in accordance with the laws of the State of Texas. This Agreement is being entered into and shall be performed, in whole or in part, in Dallas County, Texas, and the parties hereby acknowledge and agree that, in any dispute involving this Agreement, venue shall be in the appropriate court in Dallas County, Texas.   12.  Severability. In the event any provision of this Agreement shall be held invalid, illegal or unenforceable, in whole or in part, for any reason, such determination shall not affect the validity, legality or enforceability of any remaining provision or portion of provision, which shall remain in full force and effect as if this Agreement had not contained the invalid, illegal or unenforceable provision or portion.   13.  Amendment. The Committee shall have the right at any time and from time to time, without the approval or consent of Participant, to amend this Agreement if additions and/or changes are made to the Internal Revenue Code of 1986, as amended, any federal or state securities law, or other law or regulation applicable to the Award provided for herein. The Committee shall have the right at any time, and from time to time, to amend this Agreement for any other reason with the consent of Participant.   14.  Award Not Benefit Eligible. Participant understands and agrees that the Award of Performance Units shall be considered as extraordinary, special incentive compensation and will not be included as “earnings,” “wages,” “salary” or “compensation” in any pension, welfare, life insurance, or other employee benefit plan or arrangement of the Company.   4 15.  Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party hereto at the address shown opposite his, her or its signature below or at such other address as such party may designate by not less than five (5) days’ advance written notice to the other party hereto.   16.  Further Assurances. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.   17.  Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.   18.  Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, executors, administrators, guardians and personal representatives. Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto and their respective successors any legal or equitable right, remedy or claim under this Agreement.   19.  Capitalized Terms. Unless otherwise defined herein, each of the capitalized terms used herein shall have the meaning given to such term in the Plan.   20.  Headings. Headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.   IN WITNESS WHEREOF, the parties hereto have entered into this Agreement.                TXU CORP. Address:                      By: ____________________________________ 1601 Bryan Street                        M. Riz Chand Dallas, TX 75201                                     Senior Vice President, Attn: Corporate Secretary                             Human Resources               PARTICIPANT Address:                        _________________________________________ _____________________________                  «Participant»  _____________________________ _____________________________                                                                           5

EXHIBIT 10.3 AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1 (the “Amendment”) is entered into effective as of April 19, 2006, to amend that certain Employment Agreement by and between Richard Barnes (hereinafter “Executive”) and ZOMAX INCORPORATED, a Minnesota corporation (“Zomax”) dated August 22, 2005 (the “Agreement”). 1.             Sections 4.3 and 4.4 of the Agreement are modified to read as follows: 4.3                               Payment Upon Termination of Employment Without Cause, Termination or  Resignation for Good Reason, Termination or Resignation Following Change of Control, and Failure to Extend Employment Agreement. a.                                       If Executive’s employment is terminated Without Cause, Executive resigns from his employment hereunder for Good Reason, or Company fails to extend this Agreement at the end of the Initial Term or an Extension Year, Executive shall be entitled to the Accrued Benefits and to receive the following: (i)            Executive shall receive, within thirty (30) days after such termination, resignation, or end of the Initial Term or an Extension Year without an extension, a lump sum payment in an amount equal to 1.5 times his Base Salary in effect on the effective date of such termination or resignation or as of the end of the Initial Term or Extension Year.  Zomax shall be entitled to deduct or withhold all taxes and charges which Zomax may be required to deduct or withhold therefrom. (ii)           With respect to any outstanding stock options, SARs, restricted stock awards, performance share awards or other equity-based awards granted to Executive, all restrictions shall lapse immediately and such awards shall fully vest, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to have been met. (iii)          Executive and his family shall be entitled to continued participation in hospital and medical plans and programs of Zomax at Zomax’s expense for a twelve (12) month period following such termination, resignation or end of Term subject to early termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (iv)          Executive shall be entitled to payment in full, upon the effective date of termination, of all unpaid vacation allowances. b.                                      If Executive is terminated or resigns from his employment hereunder for any reason within one (1) year after a Change of Control, Executive shall be entitled to the Accrued Benefits and the following: (i)            Executive shall receive within thirty (30) days after such termination or resignation, a lump sum payment in an amount equal to 1.5 times his Base Salary in effect on the effective date of such termination or resignation.  Zomax or its successor shall be entitled to deduct or withhold all taxes and charges which may be required to be deducted or withheld therefrom. (ii)           With respect to any outstanding stock options, SARs, restricted stock awards, performance share awards or other equity-based awards granted to Executive, all restrictions shall lapse immediately and such awards shall fully vest, all outstanding options and SARs will become exercisable immediately, and all performance share objectives shall be deemed to have been met. (iii)          Executive and his family shall be entitled to continued participation in hospital and medical plans and programs of Zomax at Zomax’s expense for a twelve (12) month period following such termination, resignation or end of Term subject to early termination of participation upon Executive becoming entitled to comparable benefits on subsequent employment. (iv)          Executive shall be entitled to payment in full, upon the effective date of termination, of all unpaid vacation allowances. --------------------------------------------------------------------------------   c.                                       The date of termination of Executive’s employment Without Cause shall be ninety (90) days after receipt by Executive of written notice of termination.  The date of termination or resignation by Executive for any reason within one (1) year after a Change of Control or Resignation for Good Reason shall be effective immediately upon receipt by Zomax of written notice of resignation or the date of receipt by Executive of the termination notice.  The date of termination of Executive’s employment for failure to extend his employment shall be the date on which the Initial Term or Extension Year ends. d.                                      Anything in the Agreement to the contrary notwithstanding, if any payment or benefit of any type to or for the benefit of Executive by Zomax, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of Zomax’s assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”)) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (the “Payments”), would, but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the “Excise Tax”), then such Payment(s) shall be equal to the Greater Amount.  The “Greater Amount” shall be either (1) the largest portion of the Payment(s) that would result in no portion of the Payment(s) being subject to the Excise Tax or (2) the Payment(s) in full, whichever amount after taking into account all applicable federal, state and local taxes and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greatest amount of the Payment(s).  If a reduction in payments or benefits is necessary so that the Payment(s) equals the Greater Amount, reduction shall occur in the following order unless Executive elects in writing a different order:  reduction of cash payments; reduction of non-cash payments. 4.4.         Termination of Employment by Disability or Death. a.                                       In the event of termination of Executive’s employment pursuant to Section 4.1(b) or 4.1(c), the Executive and/or his family (or Executive’s estate, as the case may be), shall be entitled to receive from Zomax the following: (i)            Executive shall receive, within thirty (30) days after such termination, resignation, or end of the Initial Term or Extension Year without an extension, a lump sum payment in an amount equal to 1.5 times his Base Salary in effect on the effective date of such termination or resignation or as of the end of the Initial Term or Extension Year.  Zomax shall be entitled to deduct or withhold all taxes and charges which Zomax may be required to deduct or withhold therefrom. (ii)           With respect to any outstanding stock options, SARS, restricted stock awards, performance share awards or other equity-based awards granted to Executive, all restrictions shall lapse immediately and such awards shall fully vest, all outstanding options and SARS will become exercisable immediately, and all performance share objectives shall be deemed to have been met. (iii)          Executive and/or his family shall be entitled to continue participation in hospital and medical plans and programs of Zomax at Zomax’s expense for an eighteen (18) month period.  Thereafter, Zomax shall pay to Executive and/or his family the sum of $6,000 per year to be prorated for a partial year, during the period of disability or, if later, until Executive reaches age 62 or would have reached age 62 if he had survived; provided, that the first payment shall be payable on the day following the expiration of such eighteen (18) month period and any subsequent payments shall be payable on each anniversary of such day. (iv)          Executive (or, in the event of his death, Executive’s estate or his designated beneficiary) shall be entitled to receive benefits under any other Company plan or program (to the extent Executive is vested) in accordance with the terms of such plan or program.  Should Executive’s employment terminate pursuant to Section 4.1(c), he shall be entitled to continued contributions under Zomax’s qualified profit sharing plan 401(k) to the extent permitted in said Plan. (v)           Executive shall be entitled to payment in full, upon the effective date of termination, of all unpaid vacation allowances. b.                                      The date of termination of Executive’s employment under the circumstances described in this Section 4.4 shall be the date Executive’s employment is terminated pursuant to Section 4.1(c) or the date of Executive’s death, as the case may be. -------------------------------------------------------------------------------- 2.             Except as expressly set forth in this Amendment, all other terms and conditions set forth in the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year set forth above. ZOMAX INCORPORATED: EXECUTIVE:             By: /s/ Anthony Angelini   /s/ Richard Barnes   Its: Chief Executive Officer   Richard Barnes     --------------------------------------------------------------------------------

EXECUTION COPY ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT, dated May 30, 2006, between Residential Funding Corporation, a Delaware corporation ("RFC"), and Residential Accredit Loans, Inc., a Delaware corporation (the "Company"). Recitals A. RFC has entered into contracts ("Seller Contracts") with various seller/servicers, pursuant to which such seller/servicers sell to RFC mortgage loans. B. The Company wishes to purchase from RFC certain Mortgage Loans (as hereinafter defined) sold to RFC pursuant to the Seller Contracts. C. The Company, RFC, as master servicer, and Deutsche Bank Trust Company Americas, as trustee (the "Trustee"), are entering into a Series Supplement, dated as of May 1, 2006 (the "Series Supplement"), and the Standard Terms of Pooling and Servicing Agreement, dated as of March 1, 2006 (collectively, the "Pooling and Servicing Agreement"), pursuant to which the Company proposes to issue Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QS5 (the "Certificates") consisting of thirteen classes designated as Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Class A-9, Class A-P, Class A-V, Class R-I and Class R-II Certificates; and six classes designated as Class M-1, Class M-2, Class M-3 (collectively the "Class M Certificates"), Class B-1, Class B-2 and Class B-3 Certificates (collectively the "Class B Certificates") representing beneficial ownership interests in a trust fund consisting primarily of a pool of Mortgage Loans identified in Exhibit One to the Series Supplement (the "Mortgage Loans"). D. In connection with the purchase of the Mortgage Loans, the Company will assign to RFC the Class A-P Certificates and Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates. E. In connection with the purchase of the Mortgage Loans and the issuance of the Certificates, RFC wishes to make certain representations and warranties to the Company. F. The Company and RFC intend that the conveyance by RFC to the Company of all its right, title and interest in and to the Mortgage Loans pursuant to this Agreement shall constitute a purchase and sale and not a loan. NOW THEREFORE, in consideration of the recitals and the mutual promises herein and other good and valuable consideration, the parties agree as follows: 1. All capitalized terms used but not defined herein shall have the meanings assigned thereto in the Pooling and Servicing Agreement. 2. Concurrently with the execution and delivery hereof, RFC hereby assigns to the Company without recourse all of its right, title and interest in and to the Mortgage Loans, including all interest and principal, and with respect to the Sharia Mortgage Loans, all amounts in respect of profit payments and acquisition payments, received on or with respect to the Mortgage Loans after May 1, 2006 (other than payments of principal and interest, and with respect to the Sharia Mortgage Loans, all amounts in respect of profit payments and acquisition payments, due on the Mortgage Loans on or before May 31, 2006). In consideration of such assignment, RFC or its designee will receive from the Company in immediately available funds an amount equal to $689,190,164.07, the Class A-P Certificates, the Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates. In connection with such assignment and at the Company's direction, RFC has in respect of each Mortgage Loan endorsed the related Mortgage Note (other than any Destroyed Mortgage Note) to the order of the Trustee and delivered an assignment of mortgage or security instrument, as applicable, in recordable form to the Trustee or its agent. RFC and the Company agree that the sale of each Pledged Asset Loan pursuant to this Agreement will also constitute the assignment, sale, setting-over, transfer and conveyance to the Company, without recourse (but subject to RFC's covenants, representations and warranties specifically provided herein), of all of RFC's obligations and all of RFC's right, title and interest in, to and under, whether now existing or hereafter acquired as owner of such Pledged Asset Loan with respect to any and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description consisting of, arising from or related, (i) the Credit Support Pledge Agreement, the Funding and Pledge Agreement among the Mortgagor or other Person pledging the related Pledged Assets (the "Customer"), Combined Collateral LLC and National Financial Services Corporation, and the Additional Collateral Agreement between GMAC Mortgage Corporation and the Customer (collectively, the "Assigned Contracts"), (ii) all rights, powers and remedies of RFC as owner of such Pledged Asset Loan under or in connection with the Assigned Contracts, whether arising under the terms of such Assigned Contracts, by statute, at law or in equity, or otherwise arising out of any default by the Mortgagor under or in connection with the Assigned Contracts, including all rights to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, approval or waiver thereunder, (iii) the Pledged Amounts and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description and all cash and non-cash proceeds of the sale, exchange, or redemption of, and all stock or conversion rights, rights to subscribe, liquidation dividends or preferences, stock dividends, rights to interest, dividends, earnings, income, rents, issues, profits, interest payments or other distributions of cash or other property that secures a Pledged Asset Loan, (iv) all documents, books and records concerning the foregoing (including all computer programs, tapes, disks and related items containing any such information) and (v) all insurance proceeds (including proceeds from the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation or any other insurance company) of any of the foregoing or replacements thereof or substitutions therefor, proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. The foregoing transfer, sale, assignment and conveyance does not constitute and is not intended to result in the creation, or an assumption by the Company, of any obligation of RFC, or any other Person in connection with the Pledged Assets or under any agreement or instrument relating thereto, including any obligation to the Mortgagor, other than as owner of the Pledged Asset Loan. The Company and RFC intend that the conveyance by RFC to the Company of all its right, title and interest in and to the Mortgage Loans pursuant to this Section 2 shall be, and be construed as, a sale of the Mortgage Loans by RFC to the Company. It is, further, not intended that such conveyance be deemed to be a pledge of the Mortgage Loans by RFC to the Company to secure a debt or other obligation of RFC. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in this Section shall be deemed to be, and hereby is, a grant by RFC to the Company of a security interest in all of RFC's right, title and interest, whether now owned or hereafter acquired, in and to any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property consisting of, arising from or relating to any of the following: (A) the Mortgage Loans, including (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate, Cooperative Lease, any insurance policies and all other documents in the related Mortgage File, (ii) with respect to each Sharia Mortgage Loan, the related Sharia Mortgage Loan Security Instrument, Sharia Mortgage Loan Co-Ownership Agreement, Obligation to Pay, Assignment Agreement and Amendment of Security Instrument, any insurance policies and all other documents in the related Mortgage File and (iii) with respect to each Mortgage Loan other than a Cooperative Loan or a Sharia Mortgage Loan, the related Mortgage Note, the Mortgage, any insurance policies and all other documents in the related Mortgage File, (B) all monies due or to become due pursuant to the Mortgage Loans in accordance with the terms thereof and (C) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction (including, without limitation, Sections 8-106, 9-313 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for, (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. RFC shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were determined to create a security interest in the Mortgage Loans and the other property described above, such security interest would be determined to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, RFC shall prepare and deliver to the Company not less than 15 days prior to any filing date, and the Company shall file, or shall cause to be filed, at the expense of RFC, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Company's security interest in or lien on the Mortgage Loans, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of RFC or the Company, (2) any change of location of the state of formation, place of business or the chief executive office of RFC, or (3) any transfer of any interest of RFC in any Mortgage Loan. Notwithstanding the foregoing, (i) the Master Servicer shall retain all servicing rights (including, without limitation, primary servicing and master servicing) relating to or arising out of the Mortgage Loans, and all rights to receive servicing fees, servicing income and other payments made as compensation for such servicing granted to it under the Pooling and Servicing Agreement pursuant to the terms and conditions set forth therein (collectively, the "Servicing Rights") and (ii) the Servicing Rights are not included in the collateral in which RFC grants a security interest pursuant to the immediately preceding paragraph. 3. Concurrently with the execution and delivery hereof, the Company hereby assigns to RFC without recourse all of its right, title and interest in and to the Class A-P Certificates, the Class A-V Certificates and a de minimis portion of each of the Class R-I and Class R-II Certificates as part of the consideration payable to RFC by the Company pursuant to this Agreement. 4. RFC represents and warrants to the Company that on the date of execution hereof (or, if otherwise specified below, as of the date so specified): (a) The information set forth in Exhibit One to the Series Supplement with respect to each Mortgage Loan or the Mortgage Loans, as the case may be, is true and correct in all material respects, at the date or dates respecting which such information is furnished; (b) Each Mortgage Loan is required to be covered by a standard hazard insurance policy. Except in the case of one (1) Mortgage Loan representing approximately 0.1% of the aggregate principal balance of the Mortgage Loans, each Mortgage Loan with a Loan-to-Value Ratio at origination in excess of 80% will be insured by a Primary Insurance Policy covering at least 35% of the principal balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 100.00% and 95.01%, at least 30% of the principal balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 95.00% and 90.01%, at least 25% of the balance if the Loan-to-Value Ratio is between 90.00% and 85.01% and at least 12% of the balance if the Loan-to-Value Ratio is between 85.00% and 80.01%. To the best of the Company's knowledge, each such Primary Insurance Policy is in full force and effect and the Trustee is entitled to the benefits thereunder; (c) Each Primary Insurance Policy insures the named insured and its successors and assigns, and the issuer of the Primary Insurance Policy is an insurance company whose claims-paying ability is currently acceptable to the Rating Agencies; (d) Immediately prior to the assignment of the Mortgage Loans to the Company, RFC had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation and, with respect to certain Mortgage Loans, the monthly payment due on the first Due Date following the Cut-off Date), and no action has been taken or failed to be taken by RFC that would materially adversely affect the enforceability of any Mortgage Loan or the interests therein of any holder of the Certificates; (e) No Mortgage Loan was 30 or more days delinquent in payment of principal and interest as of the Cut-off Date and no Mortgage Loan has been so delinquent more than once in the 12-month period prior to the Cut-off Date; (f) Subject to clause (e) above as respects delinquencies, there is no default, breach, violation or event of acceleration existing under any Mortgage Note or Mortgage and no event which, with notice and expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration, and no such default, breach, violation or event of acceleration has been waived by the Seller or by any other entity involved in originating or servicing a Mortgage Loan; (g) There is no delinquent tax or assessment lien against any Mortgaged Property; (h) No Mortgagor has any right of offset, defense or counterclaim as to the related Mortgage Note or Mortgage except as may be provided under the Servicemembers Civil Relief Act, formerly known as the Soldiers' and Sailors' Civil Relief Act of 1940, as amended, and except with respect to any buydown agreement for a Buydown Mortgage Loan; (i) There are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of the related Mortgage, except such liens that are insured or indemnified against by a title insurance policy described under clause (aa) below; (j) Each Mortgaged Property is free of damage and in good repair and no notice of condemnation has been given with respect thereto and RFC knows of nothing involving any Mortgaged Property that could reasonably be expected to materially adversely affect the value or marketability of any Mortgaged Property; (k) Each Mortgage Loan at the time it was made complied in all material respects with applicable local, state, and federal laws, including, but not limited to, all applicable anti-predatory lending laws; (l) Each Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder adequate to realize the benefits of the security against the Mortgaged Property, including (i) in the case of a Mortgage that is a deed of trust, by trustee's sale, (ii) by summary foreclosure, if available under applicable law, and (iii) otherwise by foreclosure, and there is no homestead or other exemption available to the Mortgagor that would interfere with such right to sell at a trustee's sale or right to foreclosure, subject in each case to applicable federal and state laws and judicial precedents with respect to bankruptcy and right of redemption; (m) With respect to each Mortgage that is a deed of trust, a trustee duly qualified under applicable law to serve as such is properly named, designated and serving, and except in connection with a trustee's sale after default by a Mortgagor, no fees or expenses are payable by the Seller or RFC to the trustee under any Mortgage that is a deed of trust; (n) The Mortgage Loans are conventional, fixed rate, fully-amortizing, first mortgage loans having terms to maturity of not more than 30 years from the date of origination or modification with monthly payments due, with respect to a majority of the Mortgage Loans, on the first day of each month; (o) No Mortgage Loan provides for deferred interest or negative amortization; (p) If any of the Mortgage Loans are secured by a leasehold interest, with respect to each leasehold interest: the use of leasehold estates for residential properties is an accepted practice in the area where the related Mortgaged Property is located; residential property in such area consisting of leasehold estates is readily marketable; the lease is recorded and no party is in any way in breach of any provision of such lease; the leasehold is in full force and effect and is not subject to any prior lien or encumbrance by which the leasehold could be terminated or subject to any charge or penalty; and the remaining term of the lease does not terminate less than ten years after the maturity date of such Mortgage Loan; (q) Each Assigned Contract relating to each Pledged Asset Loan is a valid, binding and legally enforceable obligation of the parties thereto, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other similar laws affecting generally the enforcement of creditor's rights; (r) The Assignor is the holder of all of the right, title and interest as owner of each Pledged Asset Loan in and to each of the Assigned Contracts delivered and sold to the Company hereunder, and the assignment hereof by RFC validly transfers such right, title and interest to the Company free and clear of any pledge, lien, or security interest or other encumbrance of any Person; (s) The full amount of the Pledged Amount with respect to such Pledged Asset Loan has been deposited with the custodian under the Credit Support Pledge Agreement and is on deposit in the custodial account held thereunder as of the date hereof; (t) RFC is a member of MERS, in good standing, and current in payment of all fees and assessments imposed by MERS, and has complied with all rules and procedures of MERS in connection with its assignment to the Trustee as assignee of the Depositor of the Mortgage relating to each Mortgage Loan that is registered with MERS, including, among other things, that RFC shall have confirmed the transfer to the Trustee, as assignee of the Depositor, of the Mortgage on the MERS(R)System; (u) No instrument of release or waiver has been executed in connection with the Mortgage Loans, and no Mortgagor has been released, in whole or in part from its obligations in connection with a Mortgage Loan; (v) With respect to each Mortgage Loan, either (i) the Mortgage Loan is assumable pursuant to the terms of the Mortgage Note, or (ii) the Mortgage Loan contains a customary provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event the related Mortgaged Property is sold without the prior consent of the mortgagee thereunder; (w) The proceeds of the Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor (including any escrow funds held to make Monthly Payments pending completion of such improvements) have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid; (x) The appraisal was made by an appraiser who meets the minimum qualifications for appraisers as specified in the Program Guide; (y) To the best of RFC's knowledge, any escrow arrangements established with respect to any Mortgage Loan are in compliance with all applicable local, state and federal laws and are in compliance with the terms of the related Mortgage Note; (z) Each Mortgage Loan was originated (1) by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution that is supervised and examined by a federal or state authority, (2) by a mortgagee approved by the Secretary of HUD pursuant to Sections 203 and 211 of the National Housing Act, as amended, or (3) by a mortgage broker or correspondent lender in a manner such that the Certificates would qualify as "mortgage related securities" within the meaning of Section 3(a)(41) of the Securities Exchange Act of 1934, as amended; (aa) All improvements which were considered in determining the Appraised Value of the Mortgaged Properties lie wholly within the boundaries and the building restriction lines of the Mortgaged Properties, or the policy of title insurance affirmatively insures against loss or damage by reason of any violation, variation, encroachment or adverse circumstance that either is disclosed or would have been disclosed by an accurate survey; (bb) Each Mortgage Note and Mortgage constitutes a legal, valid and binding obligation of the borrower, or the consumer in the case of the Sharia Mortgage Loans, enforceable in accordance with its terms except as limited by bankruptcy, insolvency or other similar laws affecting generally the enforcement of creditor's rights; (cc) None of the Mortgage Loans are subject to the Home Ownership and Equity Protection Act of 1994; (dd) None of the Mortgage Loans are loans that, under applicable state or local law in effect at the time of origination of such loan, are referred to as (1) "high cost" or "covered" loans or (2) any other similar designation if the law imposes greater restrictions or additional legal liability for residential mortgage loans with high interest rates, points and/or fees; (ee) None of the Mortgage Loans secured by a property located in the State of Georgia was originated on or after October 1, 2002 and before March 7, 2003; (ff) No Mortgage Loan is a High Cost Loan or Covered Loan, as applicable (as such terms are defined in the then current Standard & Poor's LEVELS(R)Glossary which is now Version 5.6 Revised, Appendix E (attached hereto as Exhibit A)); provided that no representation and warranty is made in this clause (ff) with respect to 0.00% of the Mortgage Loans (by outstanding principal balance as of the Cut-off Date) secured by property located in the State of Kansas, and with respect to 0.12% of the Mortgage Loans (by outstanding principal balance as of the Cut-off Date) secured by property located in the State of West Virginia; (gg) With respect to each Sharia Mortgage Loan, mortgage pass-through certificates or notes representing interests in mortgage loans that are in all material respects of the same type as the Mortgage Loans, and which are structured to be permissible under Islamic law utilizing a declining balance co-ownership structure, have been, for a least one year prior to the date hereof, (a) held by investors other than employee benefit plans, and (b) rated at least BBB- or Baa3, as applicable, by a Rating Agency; and (hh) No fraud or misrepresentation has taken place in connection with the origination of any Mortgage Loan. RFC shall provide written notice to GMAC Mortgage Corporation of the sale of each Pledged Asset Loan to the Company hereunder and by the Company to the Trustee under the Pooling and Servicing Agreement, and shall maintain the Schedule of Additional Owner Mortgage Loans (as defined in the Credit Support Pledge Agreement), showing the Trustee as the Additional Owner of each such Pledged Asset Loan, all in accordance with Section 7.1 of the Credit Support Pledge Agreement. Upon discovery by RFC or upon notice from the Company or the Trustee of a breach of the foregoing representations and warranties in respect of any Mortgage Loan which materially and adversely affects the interests of any holders of the Certificates or of the Company in such Mortgage Loan or upon the occurrence of a Repurchase Event (hereinafter defined), notice of which breach or occurrence shall be given to the Company by RFC, if it discovers the same, RFC shall, within 90 days after the earlier of its discovery or receipt of notice thereof, either cure such breach or Repurchase Event in all material respects or, either (i) purchase such Mortgage Loan from the Trustee or the Company, as the case may be, at a price equal to the Purchase Price for such Mortgage Loan or (ii) substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan in the manner and subject to the limitations set forth in Section 2.04 of the Pooling and Servicing Agreement. If the breach of representation and warranty that gave rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to this Section 4 was the representation and warranty set forth in clause (k) or (hh) of this Section 4, then RFC shall pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. 5. With respect to each Mortgage Loan, a first lien repurchase event ("Repurchase Event") shall have occurred if it is discovered that, as of the date thereof, the related Mortgage was not a valid first lien on the related Mortgaged Property subject only to (i) the lien of real property taxes and assessments not yet due and payable, (ii) covenants, conditions, and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage and such permissible title exceptions as are listed in the Program Guide and (iii) other matters to which like properties are commonly subject which do not materially adversely affect the value, use, enjoyment or marketability of the Mortgaged Property. In addition, with respect to any Mortgage Loan as to which the Company delivers to the Trustee or the Custodian an affidavit certifying that the original Mortgage Note has been lost or destroyed, if such Mortgage Loan subsequently is in default and the enforcement thereof or of the related Mortgage is materially adversely affected by the absence of the original Mortgage Note, a Repurchase Event shall be deemed to have occurred and RFC will be obligated to repurchase or substitute for such Mortgage Loan in the manner set forth in Section 4 above. 6. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, and no other person shall have any right or obligation hereunder. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have entered into this Assignment and Assumption Agreement on the date first written above. RESIDENTIAL FUNDING CORPORATION By: /s/ Mark White Name: Mark White Title: Associate RESIDENTIAL ACCREDIT LOANS, INC. By: /s/ Heather Anderson Name: Heather Anderson Title: Vice President -------------------------------------------------------------------------------- EXHIBIT A APPENDIX E OF THE STANDARD & POOR'S GLOSSARY FOR FILE FORMAT FOR LEVELS(R)VERSION 5.6B REVISED REVISED July 11, 2005 APPENDIX E - STANDARD & POOR'S PREDATORY LENDING CATEGORIES Standard & Poor's has categorized loans governed by anti-predatory lending laws in the Jurisdictions listed below into three categories based upon a combination of factors that include (a) the risk exposure associated with the assignee liability and (b) the tests and thresholds set forth in those laws. Note that certain loans classified by the relevant statute as Covered are included in Standard & Poor's High Cost Loan Category because they included thresholds and tests that are typical of what is generally considered High Cost by the industry. STANDARD & POOR'S HIGH COST LOAN CATEGORIZATION ------------------------------------------------------------------------------------------------ ---------------------------------------- -------------------------- State/Jurisdiction Name of Anti-Predatory Lending Category under Applicable Anti-Predatory Lending Law/Effective Date Law ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Arkansas Arkansas Home Loan Protection Act, High Cost Home Loan Ark. Code Ann.ss.ss.23-53-101 et seq. Effective July 16, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Cleveland Heights, OH Ordinance No. 72-2003 (PSH), Mun. Code Covered Loan ss.ss.757.01 et seq. Effective June 2, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Colorado Consumer Equity Protection, Colo. Covered Loan Stat. Ann.ss.ss.5-3.5-101 et seq. Effective for covered loans offered or entered into on or after January 1, 2003. Other provisions of the Act took effect on June 7, 2002 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Connecticut Connecticut Abusive Home Loan Lending High Cost Home Loan Practices Act, Conn. Gen. Stat.ss.ss. 36a-746 et seq. Effective October 1, 2001 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- District of Columbia Home Loan Protection Act, D.C. Codess.ss. Covered Loan 26-1151.01 et seq. Effective for loans closed on or after January 28, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Florida Fair Lending Act, Fla. Stat. Ann.ss.ss. High Cost Home Loan 494.0078 et seq. Effective October 2, 2002 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code High Cost Home Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Georgia as amended (Mar. Georgia Fair Lending Act, Ga. Code High Cost Home Loan 7, 2003 - current) Ann.ss.ss.7-6A-1 et seq. Effective for loans closed on or after March 7, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- HOEPA Section 32 Home Ownership and Equity Protection High Cost Loan Act of 1994, 15 U.S.C.ss.1639, 12 C.F.R.ss.ss.226.32 and 226.34 Effective October 1, 1995, amendments October 1, 2002 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Illinois High Risk Home Loan Act, Ill. Comp. High Risk Home Loan Stat. tit. 815,ss.ss.137/5 et seq. Effective January 1, 2004 (prior to this date, regulations under Residential Mortgage License Act effective from May 14, 2001) ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Kansas Consumer Credit Code, Kan. Stat. Ann. High Loan to Value ss.ss.16a-1-101 et seq. Consumer Loan (id.ss. 16a-3-207) and; Sections 16a-1-301 and 16a-3-207 became effective April 14, 1999; Section 16a-3-308a became effective July 1, 1999 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- High APR Consumer Loan (id.ss.16a-3-308a) ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Kentucky 2003 KY H.B. 287 - High Cost Home Loan High Cost Home Loan Act, Ky. Rev. Stat.ss.ss.360.100 et seq. Effective June 24, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Maine Truth in Lending, Me. Rev. Stat. tit. High Rate High Fee 9-A,ss.ss.8-101 et seq. Mortgage Effective September 29, 1995 and as amended from time to time ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Massachusetts Part 40 and Part 32, 209 C.M.R.ss.ss. High Cost Home Loan 32.00 et seq. and 209 C.M.R.ss.ss.40.01 et seq. Effective March 22, 2001 and amended from time to time ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Nevada Assembly Bill No. 284, Nev. Rev. Stat. Home Loan ss.ss.598D.010 et seq. Effective October 1, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New Jersey New Jersey Home Ownership Security Act High Cost Home Loan of 2002, N.J. Rev. Stat.ss.ss.46:10B-22 et seq. Effective for loans closed on or after November 27, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New Mexico Home Loan Protection Act, N.M. Rev. High Cost Home Loan Stat.ss.ss.58-21A-1 et seq. Effective as of January 1, 2004; Revised as of February 26, 2004 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New York N.Y. Banking Law Article 6-l High Cost Home Loan Effective for applications made on or after April 1, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- North Carolina Restrictions and Limitations on High High Cost Home Loan Cost Home Loans, N.C. Gen. Stat.ss.ss. 24-1.1E et seq. Effective July 1, 2000; amended October 1, 2003 (adding open-end lines of credit) ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Ohio H.B. 386 (codified in various sections Covered Loan of the Ohio Code), Ohio Rev. Code Ann. ss.ss.1349.25 et seq. Effective May 24, 2002 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Oklahoma Consumer Credit Code (codified in Subsection 10 Mortgage various sections of Title 14A) Effective July 1, 2000; amended effective January 1, 2004 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- South Carolina South Carolina High Cost and Consumer High Cost Home Loan Home Loans Act, S.C. Code Ann.ss.ss. 37-23-10 et seq. Effective for loans taken on or after January 1, 2004 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- West Virginia West Virginia Residential Mortgage West Virginia Mortgage Lender, Broker and Servicer Act, W. Loan Act Loan Va. Code Ann.ss.ss.31-17-1 et seq. Effective June 5, 2002 ---------------------------- ---------------------------------------- -------------------------- STANDARD & POOR'S COVERED LOAN CATEGORIZATION ---------------------------- ---------------------------------------- -------------------------- State/Jurisdiction Name of Anti-Predatory Lending Category under Applicable Anti-Predatory Lending Law/Effective Date Law ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code Covered Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New Jersey New Jersey Home Ownership Security Act Covered Home Loan of 2002, N.J. Rev. Stat.ss.ss.46:10B-22 et seq. Effective November 27, 2003 - July 5, 2004 ---------------------------- ---------------------------------------- -------------------------- STANDARD & POOR'S HOME LOAN CATEGORIZATION ------------------------------------------------------------------------------------------------ ---------------------------- ---------------------------------------- -------------------------- State/Jurisdiction Name of Anti-Predatory Lending Category under Applicable Anti-Predatory Lending Law/Effective Date Law ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- Georgia (Oct. 1, 2002 - Georgia Fair Lending Act, Ga. Code Home Loan Mar. 6, 2003) Ann.ss.ss.7-6A-1 et seq. Effective October 1, 2002 - March 6, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New Jersey New Jersey Home Ownership Security Act Home Loan of 2002, N.J. Rev. Stat.ss.ss.46:10B-22 et seq. Effective for loans closed on or after November 27, 2003 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- New Mexico Home Loan Protection Act, N.M. Rev. Home Loan Stat.ss.ss.58-21A-1 et seq. Effective as of January 1, 2004; Revised as of February 26, 2004 ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- North Carolina Restrictions and Limitations on High Consumer Home Loan Cost Home Loans, N.C. Gen. Stat.ss.ss. 24-1.1E et seq. Effective July 1, 2000; amended October 1, 2003 (adding open-end lines of credit) ---------------------------- ---------------------------------------- -------------------------- ---------------------------- ---------------------------------------- -------------------------- South Carolina South Carolina High Cost and Consumer Consumer Home Loan Home Loans Act, S.C. Code Ann.ss.ss. 37-23-10 et seq. Effective for loans taken on or after January 1, 2004 ---------------------------- ---------------------------------------- --------------------------

EXECUTION COPY RESIDENTIAL ACCREDIT LOANS, INC., Company, RESIDENTIAL FUNDING CORPORATION, Master Servicer, and DEUTSCHE BANK TRUST COMPANY AMERICAS, Trustee SERIES SUPPLEMENT, Dated as of May 1, 2006, TO STANDARD TERMS OF POOLING AND SERVICING AGREEMENT dated as of March 1, 2006 Mortgage Asset-Backed Pass-Through Certificates SERIES 2006-QA4 -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS...............................................................7 Section 1.01. Definitions.......................................................7 Section 1.02. Determination of LIBOR...........................................45 Section 1.03. Use of Words and Phrases.........................................46 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES..........46 Section 2.01. Conveyance of Mortgage Loans.....................................46 Section 2.02. Acceptance by Trustee............................................52 Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company.........................................52 Section 2.04. Representations and Warranties of Sellers........................55 Section 2.05. Execution and Authentication of Certificates/Issuance of Certificates Evidencing Interests in REMIC I Certificates........55 Section 2.06. Conveyance of REMIC I Regular Interests; Acceptance by the Trustee..........................................................56 Section 2.07. Issuance of Certificates Evidencing Interest in REMIC II.........56 Section 2.08. Purposes and Powers of the Trust.................................56 Section 2.09. Agreement Regarding Ability to Disclose..........................56 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS...........................57 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS...........................................61 Section 4.01. Certificate Account..............................................61 Section 4.02. Distributions....................................................61 Section 4.03. Statements to Certificateholders; Statements to the Rating Agencies; Exchange Act Reporting.................................67 Section 4.04. Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer..................................67 Section 4.05. Allocation of Realized Losses....................................68 Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property....70 Section 4.07. Optional Purchase of Defaulted Mortgage Loans....................70 Section 4.08. Surety Bond......................................................70 Section 4.09. Swap Agreement...................................................70 ARTICLE V THE CERTIFICATES.........................................................73 ARTICLE VI THE COMPANY AND THE MASTER SERVICER......................................78 ARTICLE VII DEFAULT..................................................................79 ARTICLE VIII CONCERNING THE TRUSTEE...................................................80 ARTICLE IX TERMINATION..............................................................82 ARTICLE X REMIC PROVISIONS.........................................................87 Section 10.01. REMIC Administration.............................................87 Section 10.02. Master Servicer; REMIC Administrator and Trustee Indemnification..................................................87 Section 10.03. Designation of REMIC.............................................87 Section 10.04. Distributions on the REMIC I Regular Interests...................87 Section 10.05. Compliance with Withholding Requirements.........................87 ARTICLE XI MISCELLANEOUS PROVISIONS.................................................89 Section 11.01. Amendment........................................................89 Section 11.02. Recordation of Agreement; Counterparts...........................89 Section 11.03. Limitation on Rights of Certificateholders.......................89 Section 11.04. Governing Laws...................................................89 Section 11.05. Notices..........................................................89 Section 11.06. Required Notices to Rating Agency and Subservicer................90 Section 11.07. Severability of Provisions.......................................90 Section 11.08. Supplemental Provisions for Resecuritization.....................90 Section 11.09. Allocation of Voting Rights......................................90 Section 11.10. No Petition......................................................91 ARTICLE XII COMPLIANCE WITH REGULATION AB............................................92 -------------------------------------------------------------------------------- EXHIBITS Exhibit One: Mortgage Loan Schedule Exhibit Two: Information to be Included in Monthly Distribution Date Statement Exhibit Three: Standard Terms of Pooling and Servicing Agreement, dated as of March 1, 2006 Exhibit Four: Swap Agreement Exhibit Five: SB-AM Swap Agreement Exhibit Six Form of Certificate to be Given by Certificate Owner Exhibit Seven Form of Certificate to be Given by Euroclear or Cedel Exhibit Eight Form of Certificate to be Given by Transferree of Beneficial Interest in a Regulation S Book-Entry Certificate Exhibit Nine Form of Transfer Certificate for Exchange or Transfer from 144A Book-Entry Certificate to Regulation S Book-Entry Certificate Exhibit Ten Form of Initial Purchaser Exchange Instructions Exhibit Eleven Form of Class SB Certificate -------------------------------------------------------------------------------- This is a Series Supplement, dated as of May 1, 2006 (the "Series Supplement"), to the Standard Terms of Pooling and Servicing Agreement, dated as of March 1, 2006 and attached as Exhibit Four hereto (the "Standard Terms" and, together with this Series Supplement, the "Pooling and Servicing Agreement" or "Agreement"), among RESIDENTIAL ACCREDIT LOANS, INC., as the company (together with its permitted successors and assigns, the "Company"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee (together with its permitted successors and assigns, the "Trustee"). PRELIMINARY STATEMENT: The Company intends to sell mortgage asset-backed pass-through certificates (collectively, the "Certificates"), to be issued hereunder in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans. The terms and provisions of the Standard Terms are hereby incorporated by reference herein as though set forth in full herein. If any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Standard Terms, the terms and provisions of this Series Supplement shall govern. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Standard Terms. The Pooling and Servicing Agreement shall be dated as of the date of this Series Supplement. REMIC I As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the Mortgage Loans and certain other related assets (exclusive of the Swap Account, the Swap Agreement and the SB-AM Swap Agreement) subject to this Agreement as a real estate mortgage investment conduit (a "REMIC") for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC I." The Class R-I Certificates will represent the sole Class of "residual interests" in REMIC I for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC I Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC I (the "REMIC I Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii)) for each REMIC I Regular Interest shall be the Maturity Date. None of the REMIC I Regular Interests will be certificated. UNCERTIFICATED REMIC I INITIAL UNCERTIFICATED REMIC I LATEST POSSIBLE DESIGNATION PASS-THROUGH RATE PRINCIPAL BALANCE MATURITY DATE I-1-A Variable(1) $3,496,148.450 May 25, 2036 I-2-A Variable(1) $3,414,954.290 May 25, 2036 I-3-A Variable(1) $3,333,775.185 May 25, 2036 I-4-A Variable(1) $3,254,524.250 May 25, 2036 I-5-A Variable(1) $3,177,155.730 May 25, 2036 I-6-A Variable(1) $3,101,624.930 May 25, 2036 I-7-A Variable(1) $3,027,888.240 May 25, 2036 I-8-A Variable(1) $2,955,903.045 May 25, 2036 I-9-A Variable(1) $2,885,627.795 May 25, 2036 I-10-A Variable(1) $2,817,021.885 May 25, 2036 I-11-A Variable(1) $2,750,045.685 May 25, 2036 I-12-A Variable(1) $2,684,660.520 May 25, 2036 I-13-A Variable(1) $2,620,828.595 May 25, 2036 I-14-A Variable(1) $2,558,513.070 May 25, 2036 I-15-A Variable(1) $2,497,677.915 May 25, 2036 I-16-A Variable(1) $2,438,288.000 May 25, 2036 I-17-A Variable(1) $2,380,309.015 May 25, 2036 I-18-A Variable(1) $2,323,707.460 May 25, 2036 I-19-A Variable(1) $2,268,450.630 May 25, 2036 I-20-A Variable(1) $2,214,506.600 May 25, 2036 I-21-A Variable(1) $2,161,844.210 May 25, 2036 I-22-A Variable(1) $2,110,433.025 May 25, 2036 I-23-A Variable(1) $2,060,243.335 May 25, 2036 I-24-A Variable(1) $2,011,246.145 May 25, 2036 I-25-A Variable(1) $1,963,413.130 May 25, 2036 I-26-A Variable(1) $1,916,716.665 May 25, 2036 I-27-A Variable(1) $1,871,129.755 May 25, 2036 I-28-A Variable(1) $1,826,626.050 May 25, 2036 I-29-A Variable(1) $1,783,179.840 May 25, 2036 I-30-A Variable(1) $1,740,766.010 May 25, 2036 I-31-A Variable(1) $1,699,360.045 May 25, 2036 I-32-A Variable(1) $1,658,938.015 May 25, 2036 I-33-A Variable(1) $1,619,476.555 May 25, 2036 I-34-A Variable(1) $1,580,952.860 May 25, 2036 I-35-A Variable(1) $1,543,344.655 May 25, 2036 I-36-A Variable(1) $1,506,630.200 May 25, 2036 I-37-A Variable(1) $1,323,788.270 May 25, 2036 I-38-A Variable(1) $1,435,798.160 May 25, 2036 I-39-A Variable(1) $1,401,639.625 May 25, 2036 I-40-A Variable(1) $1,368,292.920 May 25, 2036 I-41-A Variable(1) $1,335,738.770 May 25, 2036 I-42-A Variable(1) $1,303,958.350 May 25, 2036 I-43-A Variable(1) $1,272,933.280 May 25, 2036 I-44-A Variable(1) $1,242,645.635 May 25, 2036 I-45-A Variable(1) $1,213,077.885 May 25, 2036 I-46-A Variable(1) $1,184,212.940 May 25, 2036 I-47-A Variable(1) $1,156,034.110 May 25, 2036 I-48-A Variable(1) $1,128,525.100 May 25, 2036 I-49-A Variable(1) $1,101,669.995 May 25, 2036 I-50-A Variable(1) $1,075,453.270 May 25, 2036 I-51-A Variable(1) $1,049,859.755 May 25, 2036 I-52-A Variable(1) $1,024,874.655 May 25, 2036 I-53-A Variable(1) $1,000,483.515 May 25, 2036 I-54-A Variable(1) $976,672.230 May 25, 2036 I-55-A Variable(1) $953,427.015 May 25, 2036 I-56-A Variable(1) $930,734.445 May 25, 2036 I-57-A Variable(1) $908,581.370 May 25, 2036 I-58-A Variable(1) $886,843.315 May 25, 2036 I-59-A Variable(1) $865,716.105 May 25, 2036 I-60-A Variable(1) $34,719,167.500 May 25, 2036 I-1-B Variable(1) $3,496,148.450 May 25, 2036 I-2-B Variable(1) $3,414,954.290 May 25, 2036 I-3-B Variable(1) $3,333,775.185 May 25, 2036 I-4-B Variable(1) $3,254,524.250 May 25, 2036 I-5-B Variable(1) $3,177,155.730 May 25, 2036 I-6-B Variable(1) $3,101,624.930 May 25, 2036 I-7-B Variable(1) $3,027,888.240 May 25, 2036 I-8-B Variable(1) $2,955,903.045 May 25, 2036 I-9-B Variable(1) $2,885,627.795 May 25, 2036 I-10-B Variable(1) $2,817,021.885 May 25, 2036 I-11-B Variable(1) $2,750,045.685 May 25, 2036 I-12-B Variable(1) $2,684,660.520 May 25, 2036 I-13-B Variable(1) $2,620,828.595 May 25, 2036 I-14-B Variable(1) $2,558,513.070 May 25, 2036 I-15-B Variable(1) $2,497,677.915 May 25, 2036 I-16-B Variable(1) $2,438,288.000 May 25, 2036 I-17-B Variable(1) $2,380,309.015 May 25, 2036 I-18-B Variable(1) $2,323,707.460 May 25, 2036 I-19-B Variable(1) $2,268,450.630 May 25, 2036 I-20-B Variable(1) $2,214,506.600 May 25, 2036 I-21-B Variable(1) $2,161,844.210 May 25, 2036 I-22-B Variable(1) $2,110,433.025 May 25, 2036 I-23-B Variable(1) $2,060,243.335 May 25, 2036 I-24-B Variable(1) $2,011,246.145 May 25, 2036 I-25-B Variable(1) $1,963,413.130 May 25, 2036 I-26-B Variable(1) $1,916,716.665 May 25, 2036 I-27-B Variable(1) $1,871,129.755 May 25, 2036 I-28-B Variable(1) $1,826,626.050 May 25, 2036 I-29-B Variable(1) $1,783,179.840 May 25, 2036 I-30-B Variable(1) $1,740,766.010 May 25, 2036 I-31-B Variable(1) $1,699,360.045 May 25, 2036 I-32-B Variable(1) $1,658,938.015 May 25, 2036 I-33-B Variable(1) $1,619,476.555 May 25, 2036 I-34-B Variable(1) $1,580,952.860 May 25, 2036 I-35-B Variable(1) $1,543,344.655 May 25, 2036 I-36-B Variable(1) $1,506,630.200 May 25, 2036 I-37-B Variable(1) $1,323,788.270 May 25, 2036 I-38-B Variable(1) $1,435,798.160 May 25, 2036 I-39-B Variable(1) $1,401,639.625 May 25, 2036 I-40-B Variable(1) $1,368,292.920 May 25, 2036 I-41-B Variable(1) $1,335,738.770 May 25, 2036 I-42-B Variable(1) $1,303,958.350 May 25, 2036 I-43-B Variable(1) $1,272,933.280 May 25, 2036 I-44-B Variable(1) $1,242,645.635 May 25, 2036 I-45-B Variable(1) $1,213,077.885 May 25, 2036 I-46-B Variable(1) $1,184,212.940 May 25, 2036 I-47-B Variable(1) $1,156,034.110 May 25, 2036 I-48-B Variable(1) $1,128,525.100 May 25, 2036 I-49-B Variable(1) $1,101,669.995 May 25, 2036 I-50-B Variable(1) $1,075,453.270 May 25, 2036 I-51-B Variable(1) $1,049,859.755 May 25, 2036 I-52-B Variable(1) $1,024,874.655 May 25, 2036 I-53-B Variable(1) $1,000,483.515 May 25, 2036 I-54-B Variable(1) $976,672.230 May 25, 2036 I-55-B Variable(1) $953,427.015 May 25, 2036 I-56-B Variable(1) $930,734.445 May 25, 2036 I-57-B Variable(1) $908,581.370 May 25, 2036 I-58-B Variable(1) $886,843.315 May 25, 2036 I-59-B Variable(1) $865,716.105 May 25, 2036 I-60-B Variable(1) $34,719,167.500 May 25, 2036 A-I Variable(1) $14,207,425.[ ] May 25, 2036 _______________ (1) Calculated as provided in the definition of Uncertificated REMIC I Pass-Through Rate. REMIC II As provided herein, the REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as "REMIC II." The Class R-II Certificates will represent the sole Class of "residual interests" in REMIC II for purposes of the REMIC Provisions (as defined herein) under federal income tax law. The following table irrevocably sets forth the designation, remittance rate (the "Uncertificated REMIC II Pass-Through Rate") and initial Uncertificated Principal Balance for each of the "regular interests" in REMIC II (the "REMIC II Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii)) for each REMIC II Regular Interest shall be the Maturity Date. None of the REMIC II Regular Interests will be certificated. UNCERTIFICATED INITIAL UNCERTIFICATED REMIC II REMIC II LATEST POSSIBLE DESIGNATION PASS-THROUGH RATE PRINCIPAL BALANCE MATURITY DATE LT1 Variable(1) $306,391,024.41 May 25, 2036 LT2 Variable(1) $12,707.53 May 25, 2036 LT3 Variable(1) $17,936.43 May 25, 2036 LT4 Variable(1) $17,936.43 May 25, 2036 LT-IO Variable(1) (2) May 25, 2036 ____________ (1) Calculated in accordance with the definition of "Uncertificated REMIC II Pass-Through Rate" herein. (2) REMIC II Regular Interest LT-IO will not have an Uncertificated Principal Balance but will accrue interest on its uncertificated notional amount calculated in accordance with the definition of "Uncertificated Notional Amount" herein. -------------------------------------------------------------------------------- REMIC III As provided herein, the REMIC Administrator will elect to treat the segregated pool of assets consisting of the REMIC II Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets will be designated as REMIC III. The Class R-III Certificates will represent the sole Class of "residual interests" in REMIC III for purposes of the REMIC Provisions under federal income tax law. The following table irrevocably sets forth the designation, Pass-Through Rate, aggregate Initial Certificate Principal Balance, Maturity Date, initial ratings and certain features for each Class of Certificates comprising the interests representing "regular interests" in REMIC III (the "REMIC III Regular Interests"). The "latest possible maturity date" (determined solely for purposes of satisfying Treasury Regulation Section 1.860G-1(a)(4)(iii)) for each of the REMIC III Regular Interests shall be the Maturity Date. Aggregate Initial Certificate Pass-Through Principal Maturity S&P/ Minimum Designation Type Rate Balance Features Date Moody's Denominations Senior/Super Adjustable Senior/Adjustable Class A Regular(1) Rate(2)(3) $286,520,000 Rate May 25, 2036 AAA / Aaa $100,000.00 Class M-1 Regular(1) Adjustable $5,056,000 Mezzanine/Adjustable May 25, 2036 AA+ / Aa1 $100,000.00 Rate(2)(3) Rate Class M-2 Regular(1) Adjustable $2,604,000 Mezzanine/Adjustable May 25, 2036 AA+ / Aa2 $100,000.00 Rate(2)(3) Rate Class M-3 Regular(1) Adjustable $1,991,000 Mezzanine/Adjustable May 25, 2036 AA+ / Aa3 $100,000.00 Rate(2)(3) Rate Class M-4 Regular(1) Adjustable $1,072,000 Mezzanine/Adjustable May 25, 2036 AA / A1 $100,000.00 Rate(2)(3) Rate Class M-5 Regular(1) Adjustable $1,072,000 Mezzanine/Adjustable May 25, 2036 AA / A2 $100,000.00 Rate(2)(3) Rate Class M-6 Regular(1) Adjustable $1,072,000 Mezzanine/Adjustable May 25, 2036 AA / A3 $100,000.00 Rate(2)(3) Rate Class M-7 Regular(1) Adjustable $1,072,000 Mezzanine/Adjustable May 25, 2036 AA- / $250,000.00 Rate(2)(3) Rate Baa1 Class M-8 Regular(1) Adjustable $1,072,000 Mezzanine/Adjustable May 25, 2036 A / Baa2 $250,000.00 Rate(2)(3) Rate Class M-9 Regular(1) Adjustable $1,378,000 Mezzanine/Adjustable May 25, 2036 A- / Baa3 $250,000.00 Rate(2)(3) Rate Class M-10 Regular(1) Adjustable $1,533,000 Mezzanine/Adjustable May 25, 2036 BBB / Ba2 $250,000.00 Rate(2)(3) Rate Class SB (4) Regular (4) (4) $1,997,505 Subordinate May 25, 2036 N/R N/A IO Regular (5) (6) (7) Interest Only N/R N/R (1) This Class of Certificates represents ownership of a REMIC III Regular Interest together with certain rights to payments to be made from amounts received under the Swap Agreement which will be deemed made for federal income tax purposes outside of REMIC III by the holder of the Class SB Certificates as the owner of the Swap Agreement and (ii) the obligation to pay the Class IO Distribution Amount. Any amount distributed on this Class of Certificates on any Distribution Date in excess of the amount distributable on the related REMIC III Regular Interest on such Distribution Date shall be treated for federal income tax purposes as having been paid from the Swap Account and any amount distributable on such REMIC III Regular Interest on such Distribution Date in excess of the amount distributable on such Class of Certificates on such Distribution Date shall be treated as having been paid to the Swap Account, all pursuant to and as further provided in Section 4.09 hereof. (2) The REMIC III Regular Interests, ownership of which is represented by the Class A Certificates and Class M Certificates, will accrue interest at a per annum rate equal to the lesser of (i) LIBOR plus the applicable Margin and (ii) the Net WAC Cap Rate. (3) The Class A Certificates and Class M Certificates will also entitle their holders to receive certain payments from the Holder of the Class SB Certificates from amounts to which REMIC III Regular Interest SB-IO is entitled and from amounts received under the Swap Agreement, which will not be a part of their ownership of the REMIC III Regular Interests. (4) The Class SB Certificates will accrue interest as described in the definition of Accrued Certificate Interest. The Class SB Certificates will not accrue interest on their Certificate Principal Balance. The Class SB Certificates will be comprised of two REMIC III Regular Interests, a principal only regular interest designated SB-PO and an interest only regular interest designated SB-IO, which will be entitled to distributions as set forth herein. The rights of the Holder of the Class SB Certificates to payments from the Swap Agreement shall be outside and apart from its rights under REMIC III Regular Interests SB-IO and SB-PO. (5) REMIC III Regular Interest IO will be held as an asset of the Swap Account established by the Trustee and will be treated for federal income tax purposes as owned by the holder of the Class SB Certificates. REMIC III Regular Interest IO will be uncertificated. (6) For federal income tax purposes, REMIC III Regular Interest IO will not have a Pass Through Rate, but will be entitled to 100% of the amounts distributed on REMIC II Regular Interest LT-IO. (7) For federal income tax purposes, REMIC III Regular Interest IO will not have an Uncertificated Principal Balance, but will have a notional amount equal to the Uncertificated Notional Amount of REMIC II Regular Interest LT-IO. The Mortgage Loans have an aggregate Cut-off Date Principal Balance equal to $306,439,504.80. The Mortgage Loans are hybrid adjustable-rate mortgage loans having terms to maturity at origination or modification of generally not more than 30 years. In consideration of the mutual agreements herein contained, the Company, the Master Servicer and the Trustee agree as follows: -------------------------------------------------------------------------------- ARTICLE I DEFINITIONS Section 1.01. DEFINITIONS. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accrued Certificate Interest: With respect to each Distribution Date and each Class of Class A Certificates and Class M Certificates, interest accrued during the related Interest Accrual Period on the Certificate Principal Balance thereof immediately prior to such Distribution Date at the Pass-Through Rate for that Distribution Date. The amount of Accrued Certificate Interest on each Class of Class A Certificates and Class M Certificates shall be reduced by the amount of Prepayment Interest Shortfalls on the Mortgage Loans during the prior calendar month to the extent not covered by Compensating Interest pursuant to Section 3.16, by Relief Act Shortfalls on the Mortgage Loans during the related Due Period. All such reductions with respect to the Mortgage Loans will be allocated among the Class A Certificates and Class M Certificates in proportion to the amount of Accrued Certificate Interest payable on such Certificates on such Distribution Date absent such reductions. Accrued Certificate Interest with respect to any Class of Class M Certificates for any Distribution Date shall further be reduced by the interest portion of Realized Losses allocated to any Class of Class M Certificates pursuant to Section 4.05. Accrued Certificate Interest with respect to the Class A Certificates and Class M Certificates shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. With respect to each Distribution Date and the Class SB Certificates, interest accrued during the preceding Interest Accrual Period at the Pass-Through Rate on the Notional Amount as specified in the definition of Pass-Through Rate, immediately prior to such Distribution Date, reduced by any interest shortfalls with respect to the Mortgage Loans, including Prepayment Interest Shortfalls to the extent not covered by Compensating Interest pursuant to Section 3.16 or by Excess Cash Flow pursuant to Section 4.02(c)(iii) and (iv). Accrued Certificate Interest on the Class SB Certificates shall accrue on the basis of a 360-day year and the actual number of days in the related Interest Accrual Period. Adjustment Date: With respect to each Mortgage Loan, each date set forth in the related Mortgage Note on which an adjustment to the interest rate on such Mortgage Loan becomes effective. Affected Party: As defined in the Swap Agreement. Assignment Agreement and Amendment of Security Instrument: With respect to a Sharia Mortgage Loan, the agreement between the consumer and the co-owner pursuant to which all of the co-owner's interest as a beneficiary under the related Sharia Mortgage Loan Security Instrument and the co-owner's interest in the related Mortgaged Property is conveyed to a subsequent owner, which may take the form of an "Assignment Agreement" and an "Amendment of Security Instrument" or an "Assignment Agreement and Amendment of Security Instrument", as applicable. Available Distribution Amount: As to any Distribution Date, an amount equal to (a) the sum of (i) the amount relating to the Mortgage Loans on deposit in the Custodial Account as of the close of business on the immediately preceding Determination Date, including any Subsequent Recoveries, and amounts deposited in the Custodial Account in connection with the substitution of Qualified Substitute Mortgage Loans, (ii) the amount of any Advance made on the immediately preceding Certificate Account Deposit Date, (iii) any amount deposited in the Certificate Account on the related Certificate Account Deposit Date pursuant to the second paragraph of Section 3.12(a), (iv) any amount deposited in the Certificate Account pursuant to Section 4.07 or Section 9.01, (v) any amount that the Master Servicer is not permitted to withdraw from the Custodial Account or the Certificate Account pursuant to Section 3.16(e), (vi) any amount received by the Trustee pursuant to the Surety Bond in respect of such Distribution Date and (vii) the proceeds of any Pledged Assets received by the Master Servicer, reduced by (b) the sum as of the close of business on the immediately preceding Determination Date of (v) any payments or collections consisting of Prepayment Charges on the Mortgage Loans that were received during the related Prepayment Period; (w) aggregate Foreclosure Profits, (x) the Amount Held for Future Distribution, (y) amounts permitted to be withdrawn by the Master Servicer from the Custodial Account in respect of the Mortgage Loans pursuant to clauses (ii)-(x), inclusive, of Section 3.10(a), and (z) any Net Swap Payments required to be made to the Swap Counterparty and Swap Termination Payments not due to a Swap Counterparty Trigger Event for such Distribution Date. Basis Risk Shortfall: With respect to each Class of the Class A Certificates and Class M Certificates, and any Distribution Date, the sum of (a) with respect to any Distribution Date on which the Net WAC Cap Rate is used to determine the Pass-Through Rate of such Class, an amount equal to the excess of (x) Accrued Certificate Interest for such Class calculated at a per annum rate equal to LIBOR plus the related Margin for such Distribution Date (but, with respect to any class of Class M Certificates, not more than 14.00% per annum), over (y) Accrued Certificate Interest for such Class calculated using the Net WAC Cap Rate (but, with respect to any class of Class M Certificates, not more than 14.00% per annum), (b) any shortfalls for such Class calculated pursuant to clause (a) above remaining unpaid from prior Distribution Dates, and (c) interest on the amount in clause (b) from the Distribution Date on which such amount was incurred at a per annum rate equal to the related Pass-Through Rate. Book-Entry Certificate: The Class A, Class M and Class SB Certificates. Capitalization Reimbursement Amount: As to any Distribution Date, the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the Mortgage Loans during the prior calendar month and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date pursuant to Section 3.10(a)(vii), plus the Capitalization Reimbursement Shortfall Amount remaining unreimbursed from any prior Distribution Date and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date. Capitalization Reimbursement Shortfall Amount: As to any Distribution Date, the amount, if any, by which the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of the Mortgage Loans during the preceding calendar month exceeds the amount of principal payments on the Mortgage Loans included in the Available Distribution Amount for that Distribution Date. Certificate: Any Class A, Class M, Class SB or Class R Certificate. Certificate Account: The separate account or accounts created and maintained pursuant to Section 4.01 of the Standard Terms, which shall be entitled "DEUTSCHE BANK TRUST COMPANY AMERICAS, as trustee, in trust for the registered holders of Residential Accredit Loans, Inc., Mortgage Asset-Backed Pass-Through Certificates, Series 2006-QA4" and which must be an Eligible Account. Certificate Principal Balance: With respect to any Class A Certificate or Class M Certificate, on any date of determination, an amount equal to (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof minus (ii) the sum of (x) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.02(c) and (y) in the case of any Class of Class M Certificates, the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.05; provided, that with respect to any Distribution Date, the Certificate Principal Balance of the Class A Certificates and Class M Certificates will be increased, in each case to the extent Realized Losses were previously allocated thereto and remain unreimbursed, in the following order of priority: first to the Class A Certificates, pro rata, and then to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in that order, but only to the extent of Subsequent Recoveries received during the preceding calendar month. With respect to each Class SB Certificate, on any date of determination, an amount equal to the Percentage Interest evidenced by such Certificate, multiplied by an amount equal to (i) the excess, if any, of (A) the then aggregate Stated Principal Balance of the Mortgage Loans over (B) the then aggregate Certificate Principal Balance of the Class A, Class M and Class R Certificates then outstanding, which represents the sum of (i) the Initial Principal Balance of the REMIC III Regular Interest SB-PO, as reduced by Realized Losses allocated thereto and payments deemed made thereon, and (ii) accrued and unpaid interest on the REMIC III Regular Interest SB-IO, as reduced by Realized Losses allocated thereto. The Class R Certificates will not have a Certificate Principal Balance. Certificate Policy: None. Class A Certificate: Any one of the Class A Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit A, senior to the Class M Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class A Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.180% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.360% per annum. Class A Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the Principal Distribution Amount for that Distribution Date or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the Principal Distribution Amount for that Distribution Date; and (ii) the excess, if any, of (A) the aggregate Certificate Principal Balance of the Class A Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class A-P Certificates: None. Class M Certificates: Collectively, the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates. Class M-1 Certificate: Any one of the Class M-1 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit B, senior to the Class 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 SB and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-1 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.320% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.450% per annum. Class M-1 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates (after taking into account the payment of the Class A Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-1 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-2 Certificate: Any one of the Class M-2 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit B, senior to the 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 SB and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-2 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.340% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.465% per annum. Class M-2 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and Class M-1 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount and the Class M-1 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates and Class M-1 Certificates (after taking into account the payment of the Class A Principal Distribution Amount and the Class M-1 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-2 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-3 Certificate: Any one of the Class M-3 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-3 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.370% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.495% per annum. Class M-3 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount and Class M-2 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount and Class M-2 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1 and Class M-2 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount and the Class M-2 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-3 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-4 Certificate: Any one of the Class M-4 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-5, Class M-6, Class M-7, Class M-8, Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-4 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.440% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.540% per annum. Class M-4 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, Class M-2 Principal Distribution Amount and Class M-3 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, Class M-2 Principal Distribution Amount and Class M-3 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1, Class M-2 and Class M-3 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount and the Class M-3 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-4 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-5 Certificate: Any one of the Class M-5 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-6, Class M-7, Class M-8, Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-5 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.480% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.600% per annum. Class M-5 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, Class M-2 Principal Distribution Amount, Class M-3 Principal Distribution Amount and Class M-4 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, Class M-3 Principal Distribution Amount and Class M-4 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1, Class M-2, Class M-3 and Class M-4 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount and the Class M-4 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-5 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-6 Certificate: Any one of the Class M-6 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-7, Class M-8, Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-6 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 0.550% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 0.720% per annum. Class M-6 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, Class M-2 Principal Distribution Amount, Class M-3 Principal Distribution Amount, Class M-4 Principal Distribution Amount and Class M-5 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, Class M-3 Principal Distribution Amount, Class M-4 Principal Distribution Amount and Class M-5 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1, Class M-2, Class M-3, Class M-4 and Class M-5 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount and the Class M-5 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-6 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-7 Certificate: Any one of the Class M-7 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-8, Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-7 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 1.050% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 1.425% per annum. Class M-7 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, 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 and Class M-6 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, 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 and Class M-6 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1, Class M-2, Class M-3, Class M-4, Class M-5 and Class M-6 Certificates (after taking into account the payment of 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 and Class M-6 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-7 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-8 Certificate: Any one of the Class M-8 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-9, Class M-10, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-8 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 1.150% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 1.650% per annum. Class M-8 Principal Distribution Amount: With respect to any Distribution Date (i) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, 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 and Class M-7 Principal Distribution Amount or (ii) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, 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 and Class M-7 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A, Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6 and Class M-7 Certificates (after taking into account the payment of 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 and Class M-7 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-8 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-9 Certificate: Any one of the Class M-9 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class M-10 Certificates, Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-9 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 2.050% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 2.850% per annum. Class M-9 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates and Class M-8 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount and the Class M-8 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-9 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class M-10 Certificate: Any one of the Class M-10 Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B, senior to the Class SB Certificates and Class R Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing (i) an interest designated as a "regular interest" in REMIC III for purposes of the REMIC Provisions, (ii) the right to receive payments under the Swap Agreement and SB-AM Swap Agreement and (iii) the right to receive Basis Risk Shortfalls. Class M-10 Margin: With respect to any Distribution Date prior to the second Distribution Date after the first possible Optional Termination Date, 2.250% per annum, and on any Distribution Date on or after the second Distribution Date after the first possible Optional Termination Date, 3.375% per annum. Class M-10 Principal Distribution Amount: With respect to any Distribution Date (a) prior to the Stepdown Date or on or after the Stepdown Date if a Trigger Event is in effect for that Distribution Date, the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, the Class M-7 Principal Distribution Amount, the Class M-8 Principal Distribution Amount and the Class M-9 Principal Distribution Amount or (b) on or after the Stepdown Date if a Trigger Event is not in effect for that Distribution Date, the lesser of: (i) the remaining Principal Distribution Amount for that Distribution Date after distribution of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount, the Class M-8 Principal Distribution Amount and the Class M-9 Principal Distribution Amount; and (ii) the excess, if any, of (A) the sum of (1) the aggregate Certificate Principal Balance of the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates and Class M-9 Certificates (after taking into account the payment of the Class A Principal Distribution Amount, the Class M-1 Principal Distribution Amount, the Class M-2 Principal Distribution Amount, the Class M-3 Principal Distribution Amount, the Class M-4 Principal Distribution Amount, the Class M-5 Principal Distribution Amount, Class M-6 Principal Distribution Amount, Class M-7 Principal Distribution Amount, the Class M-8 Principal Distribution Amount and the Class M-9 Principal Distribution Amount for that Distribution Date) and (2) the Certificate Principal Balance of the Class M-10 Certificates immediately prior to that Distribution Date over (B) the lesser of (x) the product of (1) the applicable Subordination Percentage and (2) the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date and (y) the excess, if any, of the aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date, over the Overcollateralization Floor. Class R Certificate: Any one of the Class R-I, Class R-II or Class R-III Certificates. Class R-I Certificate: Any one of the Class R-I Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit D and evidencing an interest designated as a "residual interest" in REMIC I for purposes of the REMIC Provisions. Class R-II Certificate: Any one of the Class R-II Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit D and evidencing an interest designated as a "residual interest" in REMIC II for purposes of the REMIC Provisions. Class R-III Certificate: Any one of the Class R-III Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed to the Standard Terms as Exhibit D and evidencing an interest designated as a "residual interest" in REMIC III for purposes of the REMIC Provisions. Class SB Certificate: Any one of the Class SB Certificates executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit Eleven, subordinate to the Class A Certificates and Class M Certificates with respect to distributions and the allocation of Realized Losses as set forth in Section 4.05, and evidencing ownership of REMIC III Regular Interests SB-IO and SB-PO designated as "regular interests" in REMIC III for purposes of the REMIC Provisions, together with certain rights to payments under the Swap Agreement for purposes of the REMIC Provisions and certain obligations with respect to payments of Basis Risk Shortfalls. Clearstream: Clearstream Banking, societe anonyme. Closing Date: May 30, 2006. Corporate Trust Office: The principal office of the Trustee at which at any particular time its corporate trust business with respect to this Agreement shall be administered, which office at the date of the execution of this instrument is located at 1761 East St. Andrew Place, Santa Ana, California 92705-4934, Attention: Residential Funding Corporation, RALI 2006-QA4. Cut-off Date Balance: $306,439,504.80. Cut-off Date: May 1, 2006. Defaulting Party: As defined in the Swap Agreement. Definitive Certificate: Any definitive, fully registered Certificate. Determination Date: With respect to any Distribution Date, the second Business Day prior to each Distribution Date. Discount Net Mortgage Rate: Not applicable. Due Period: With respect to each Distribution Date, the calendar month in which such Distribution Date occurs. Early Termination Date: Shall have the meaning set forth in the Swap Agreement. Euroclear: Euroclear Bank, S.A./NA, as operator of The Euroclear System. Excess Bankruptcy Loss: Not applicable. Excess Cash Flow: With respect to any Distribution Date, an amount equal to the sum of (A) the excess of (i) the Available Distribution Amount for that Distribution Date over (ii) the sum of (a) the Interest Distribution Amount for that Distribution Date and (b) the lesser of (1) the aggregate Certificate Principal Balance of Class A Certificates and Class M Certificates immediately prior to such Distribution Date and (2) the Principal Remittance Amount for that Distribution Date to the extent not applied to pay interest on the Class A Certificates and Class M Certificates on such Distribution Date, (B) the Overcollateralization Reduction Amount, if any, for that Distribution Date and (C) any Net Swap Payments received by the Trustee under the Swap Agreement for that Distribution Date and deposited in the Swap Account pursuant to Section 4.09(c). Excess Fraud Loss: Not applicable. Excess Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the Overcollateralization Amount on such Distribution Date over (b) the Required Overcollateralization Amount. Excess Special Hazard Loss: Not applicable. Excess Subordinate Principal Amount: Not applicable. Expense Fee Rate: With respect to any Mortgage Loan as of any date of determination, the sum of the Servicing Fee Rate and the rate per annum at which the Subservicing Fee accrues. Fixed Swap Payment: With respect to any Distribution Date on or prior to the Distribution Date in May 2011, an amount equal to the product of (x) a fixed rate equal to 5.39% per annum, (y) the Swap Agreement Notional Balance for that Distribution Date and (z) a fraction, the numerator of which is 30 and the denominator of which is 360. Floating Swap Payment: With respect to any Distribution Date on or prior to the Distribution Date in May 2011, an amount equal to the product of (x) One-Month LIBOR as determined pursuant to the Swap Agreement, (y) the Swap Agreement Notional Balance for that Distribution Date and (z) a fraction, the numerator of which is equal to the number of days in the related calculation period as provided in the Swap Agreement and the denominator of which is 360. Gross Margin: With respect to each Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule attached hereto as the "NOTE MARGIN," which percentage is added to the related Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such Mortgage Loan until the next Adjustment Date. Index: With respect to any Mortgage Loan and as to any Adjustment Date therefor, the related index as stated in the related Mortgage Note. Initial Subordinate Class Percentage: Not applicable. Interest Accrual Period: (i) With respect to the Distribution Date in June 2006, the period commencing on the Closing Date and ending on the day immediately preceding the Distribution Date in June 2006, and with respect to any Distribution Date after the Distribution Date in June 2006, the period commencing on the Distribution Date in the month immediately preceding the month in which such Distribution Date occurs and ending on the day immediately preceding such Distribution Date. Interest Distribution Amount: For any Distribution Date, the aggregate of the amounts payable pursuant to Section 4.02(c)(i). Interest Only Certificates: None. LIBOR: With respect to any Distribution Date, the arithmetic mean of the London interbank offered rate quotations for one-month U.S. Dollar deposits, expressed on a per annum basis, determined in accordance with Section 1.02. LIBOR Business Day: Any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in London, England are required or authorized to by law to be closed. LIBOR Certificates: The Class A Certificates and Class M Certificates. LIBOR Rate Adjustment Date: With respect to each Distribution Date, the second LIBOR Business Day immediately preceding the commencement of the related Interest Accrual Period. Liquidation Proceeds: As defined in the Standard Terms but excluding Subsequent Recoveries. Margin: The Class A Margin, Class M-1 Margin, Class M-2 Margin, Class M-3 Margin, Class M-4 Margin, Class M-5 Margin, Class M-6 Margin, Class M-7 Margin, Class M-8 Margin, Class M-9 Margin or Class M-10 Margin, as applicable. Marker Rate: With respect to the Class SB Certificates or REMIC III Regular Interest SB-IO and any Distribution Date, in relation to the REMIC II Regular Interests LT1, LT2, LT3, and LT4, a per annum rate equal to two (2) times the weighted average of the Uncertificated REMIC II Pass-Through Rates for REMIC II Regular Interest LT2 and REMIC II Regular Interest LT3. Maturity Date: May 25, 2036, the Distribution Date in the month of the latest scheduled maturity date of any Mortgage Loan. Maximum Mortgage Rate: As to any Mortgage Loan, the per annum rate indicated in Mortgage Loan Schedule hereto attached hereto as the "NOTE CEILING," which rate is the maximum interest rate that may be applicable to such Mortgage Loan at any time during the life of such Mortgage Loan. Maximum Net Mortgage Rate: As to any Mortgage Loan and any date of determination, the Maximum Mortgage Rate minus the Expense Fee Rate. Mortgage: With respect to each Mortgage Note related to a Mortgage Loan which is not a Cooperative Loan, the mortgage, deed of trust or other comparable instrument creating a first lien on an estate in fee simple or leasehold interest in real property securing a Mortgage Note. With respect to each Obligation to Pay related to a Sharia Mortgage Loan, the Sharia Mortgage Loan Security Instrument. Mortgage Loan Schedule: The list or lists of the Mortgage Loans attached hereto as Exhibit One ( and as amended from time to time to reflect the addition of Qualified Substitute Mortgage Loans), which list or lists shall set forth the following information as to each Mortgage Loan: (i) the Mortgage Loan identifying number ("RFC LOAN #"); (ii) the maturity of the Mortgage Note ("MATURITY DATE"); (iii) the Mortgage Rate as of origination ("ORIG RATE"); (iv) the Mortgage Rate as of the Cut-off Date ("CURR RATE"); (v) the Net Mortgage Rate as of the Cut-off Date ("CURR NET"); (vi) the scheduled monthly payment of principal, if any, and interest as of the Cut-off Date ("ORIGINAL P & I" or "CURRENT P & I"); (vii) the Cut-off Date Principal Balance ("PRINCIPAL BAL"); (viii) the Maximum Mortgage Rate ("NOTE CEILING"); (ix) the maximum Net Mortgage Rate ("NET CEILING"); (x) the Note Margin ("NOTE MARGIN"); (xi) the Note Margin ("NOTE MARGIN"); (xii) the Periodic Cap ("PERIODIC DECR" or "PERIODIC INCR"); (xiii) the rounding of the semi-annual or annual adjustment to the Mortgage Rate ("NOTE METHOD"); (xiv) the Loan-to-Value Ratio at origination ("LTV"); (xv) the rate at which the Subservicing Fee accrues ("SUBSERV FEE") and at which the Servicing Fee accrues ("MSTR SERV FEE"); (xvi) a code "T," "BT" or "CT" under the column "LN FEATURE," indicating that the Mortgage Loan is secured by a second or vacation residence; and (xvii) a code "N" under the column "OCCP CODE," indicating that the Mortgage Loan is secured by a non-owner occupied residence. Such schedule may consist of multiple reports that collectively set forth all of the information required. Mortgage Loans: Such of the mortgage loans, including any Sharia Mortgage Loans, transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate, Cooperative Lease and Mortgage File and all rights appertaining thereto, (ii) with respect to each Sharia Mortgage Loan, the related Obligation to Pay, Sharia Mortgage Loan Security Instrument, Sharia Mortgage Loan Co-Ownership Agreement, Assignment Agreement and Amendment of Security Instrument and Mortgage File and all rights appertaining thereto and (iii) with respect to each Mortgage Loan other than a Cooperative Loan or a Sharia Mortgage Loan, each related Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. Mortgage Note: The originally executed note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan, together with any modification thereto. With respect to each Sharia Mortgage Loan, the related Obligation to Pay. Mortgage Rate: With respect to any Mortgage Loan, the interest rate borne by the related Mortgage Note, or any modification thereto other than a Servicing Modification. As to any Sharia Mortage Loan, the profit factor described in the related Obligation to Pay, or any modification thereto other than a Servicing Modification. The Mortgage Rate on each Mortgage Loan will adjust on each Adjustment Date to equal the sum (rounded to the nearest multiple of one eighth of one percent (0.125%) or up to the nearest one-eighth of one percent, which are indicated by a "U" on the Mortgage Loan Schedule, except in the case of the Mortgage Loans indicated by an "X" on the Mortgage Loan Schedule under the heading "NOTE METHOD"), of the related Index plus the Note Margin, in each case subject to the applicable Periodic Cap, Maximum Mortgage Rate and Minimum Mortgage Rate. Mortgagor: The obligor on a Mortgage Note, or with respect to a Sharia Mortgage Loan, the consumer on an Obligation to Pay. Net Mortgage Rate: With respect to any Mortgage Loan as of any date of determination, a per annum rate equal to the Mortgage Rate for such Mortgage Loan as of such date minus the related Expense Fee Rate. Net Swap Payment: With respect to each Distribution Date, the net payment required to be made pursuant to the terms of the Swap Agreement by either the Swap Counterparty or the Trustee, on behalf of the Trust, which net payment shall not take into account any Swap Termination Payment. Net WAC Cap Rate: With respect to any Distribution Date, a per annum rate equal to (i) the product of (a) the weighted average of the Net Mortgage Rates (or, if applicable, the Modified Net Mortgage Rates) on the Mortgage Loans using the Net Mortgage Rates in effect for the Monthly Payments due on the Mortgage Loans during the related Due Period, weighted on the basis of the respective Stated Principal Balances thereof for such Distribution Date, and (b) a fraction the numerator of which is 30 and the denominator of which is the actual number of days in the related Interest Accrual Period minus (ii) the product of (a) a fraction expressed as a percentage, the numerator of which is the amount of any Net Swap Payments or Swap Termination Payment not due to a Swap Counterparty Trigger Event owed to the Swap Counterparty as of such Distribution Date and the denominator of which is the aggregate Stated Principal Balance of the Mortgage Loans for such Distribution Date, and (b) a fraction expressed as percentage, the numerator of which is 360 and the denominator of which is the actual number of days in the related Interest Accrual Period. Note Margin: With respect to each Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated in Exhibit One hereto as the "NOTE MARGIN," which percentage is added to the Index on each Adjustment Date to determine (subject to rounding in accordance with the related Mortgage Note, the Periodic Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate) the interest rate to be borne by such Mortgage Loan until the next Adjustment Date. Notional Amount: With respect to the Class SB Certificates or the REMIC III Regular Interest SB-IO, immediately prior to any Distribution Date is equal to the aggregate of the Uncertificated Principal Balances of the REMIC II Regular Interests. Obligation to Pay: The originally executed obligation to pay or similar agreement evidencing the obligation of the consumer under a Sharia Mortgage Loan, together with any modification thereto. Offered Certificates: The Class A Certificates and the Class M Certificates. Optional Termination Date: Any Distribution Date on or after which the aggregate Stated Principal Balance (after giving effect to distributions to be made on such Distribution Date) of the Mortgage Loans is less than 10.00% of the Cut-off Date Balance. Overcollateralization Amount: With respect to any Distribution Date, the excess, if any, of (a) the aggregate Stated Principal Balance of the Mortgage Loans before giving effect to distributions of principal to be made on such Distribution Date over (b) the aggregate Certificate Principal Balance of the Class A, Class M and Class R Certificates immediately prior to such date. Overcollateralization Floor: An amount equal to the product of 0.50% and the Cut-off Date Balance. Overcollateralization Increase Amount: With respect to any Distribution Date, the lesser of (a) Excess Cash Flow for that Distribution Date (to the extent not used to cover the amounts described in clauses (b)(iv), (v) and (vi) of the definition of Principal Distribution Amount as of such Distribution Date) and (b) the excess of (1) the Required Overcollateralization Amount for such Distribution Date over (2) the Overcollateralization Amount for such Distribution Date. Overcollateralization Reduction Amount: With respect to any Distribution Date on which the Excess Overcollateralization Amount is, after taking into account all other distributions to be made on such Distribution Date, greater than zero, the Overcollateralization Reduction Amount shall be equal to the lesser of (i) the Excess Overcollateralization Amount for that Distribution Date and (ii) the Principal Remittance Amount on such Distribution Date. Pass-Through Rate: With respect to the Class of Class A Certificates and any Distribution Date, a per annum rate equal to the lesser of (i) LIBOR plus the related Margin and (ii) the Net WAC Cap Rate. With respect to each class of Class M Certificates and any Distribution Date, a per annum rate equal to the least of (i) LIBOR plus the related Margin, (ii) the Net WAC Cap Rate and (iii) 14.00% per annum. With respect to the Class SB Certificates and any Distribution Date or REMIC III Regular Interest SB-IO, a rate per annum equal to the percentage equivalent of a fraction, the numerator of which is the sum of the amounts calculated pursuant to clauses (i) through (iii) below, and the denominator of which is the aggregate principal balance of the REMIC II Regular Interests. For purposes of calculating the Pass-Through Rate for the Class SB Certificates or REMIC III Regular Interest SB-IO, the numerator is equal to the sum of the following components: (i) the Uncertificated Pass-Through Rate for REMIC II Regular Interest LT1 minus the Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC II Regular Interest LT1; (ii) the Uncertificated Pass-Through Rate for REMIC II Regular Interest LT2 minus the Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC II Regular Interest LT2; and (iii) the Uncertificated Pass-Through Rate for REMIC II Regular Interest LT4 minus twice the Marker Rate, applied to a notional amount equal to the Uncertificated Principal Balance of REMIC II Regular Interest LT4. Permanent Regulation S Global Offered Certificate: Any one of the Class SB Certificates substantially in the form of Exhibit Eleven-B hereto, and, in both cases, more fully described in Section 5.02(g) hereof. Prepayment Assumption: The prepayment assumption to be used for determining the accrual of original issue discount and premium and market discount on the Certificates for federal income tax purposes, which assumes a constant prepayment rate of 30% per annum of the then outstanding principal balance of the Mortgage Loans. Prepayment Charge: With respect to any Mortgage Loan, the charges or premiums, if any, received in connection with a full or partial prepayment of such Mortgage Loan in accordance with the terms thereof. Prepayment Charge Loan: Any Mortgage Loan for which a Prepayment Charge may be assessed and to which such Prepayment Charge the Class SB Certificates are entitled, as indicated on the Mortgage Loan Schedule. Principal Distribution Amount: With respect to any Distribution Date, the lesser of (a) the excess of (x) Available Distribution Amount over (y) the Interest Distribution Amount and (b) the sum of: (i) the principal portion of each Monthly Payment received or Advanced with respect to the related Due Period on each Outstanding Mortgage Loan; (ii) the Stated Principal Balance of any Mortgage Loan repurchased during the related Prepayment Period (or deemed to have been so repurchased in accordance with Section 3.07(b)) pursuant to Section 2.02, 2.03, 2.04 or 4.07 and the amount of any shortfall deposited in the Custodial Account in connection with the substitution of a Deleted Mortgage Loan pursuant to Section 2.03 or 2.04 during the prior calendar month; (iii) the principal portion of all other unscheduled collections, other than Subsequent Recoveries, on the Mortgage Loans received (or deemed to have been so received) during the prior calendar month or, in the case of Principal Prepayments in Full, during the related Prepayment Period, including, without limitation, Curtailments, Insurance Proceeds, Liquidation Proceeds, REO Proceeds and Principal Prepayments, to the extent applied by the Master Servicer as recoveries of principal pursuant to Section 3.14; (iv) the lesser of (1) Subsequent Recoveries for such Distribution Date and (2) the principal portion of any Realized Losses allocated to the Class A Certificates or the Class M Certificates on a prior Distribution Date and remaining unpaid; (v) the lesser of (1) the Excess Cash Flow for such Distribution Date (to the extent not used pursuant to clause (iv) of this definition on such Distribution Date) and (2) the principal portion of any Realized Losses incurred (or deemed to have been incurred) on any Mortgage Loans in the calendar month preceding such Distribution Date that are allocated to any Class of Certificates; and (vi) the lesser of (a) the Excess Cash Flow for such Distribution Date, to the extent not used pursuant to clauses (iv) and (v) of this definition on such Distribution Date, and (b) the amount of any Overcollateralization Increase Amount for such Distribution Date; minus (vii) (A) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (B) the amount of any Capitalization Reimbursement Amount for such Distribution Date. Principal Only Certificates: None. Principal Remittance Amount: With respect to any Distribution Date, all amounts described in clauses (b)(i) through (iii) of the definition of Principal Distribution Amount for that Distribution Date. Record Date: With respect to each Distribution Date and each Class of Book Entry Certificates, the Business Day immediately preceding such Distribution Date. With respect to each Class of Definitive Certificates, the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs, except in the case of the first Record Date which shall be the Closing Date. Relief Act: The Servicemembers Civil Relief Act, as amended. Relief Act Shortfalls: Interest shortfalls on the Mortgage Loans resulting from the Relief Act or similar legislation or regulations. REMIC I: The segregated pool of assets (exclusive of the Swap Account, the Swap Agreement and the SB-AM Swap Agreement), with respect to which a REMIC election is to be made, consisting of: (i) the Mortgage Loans and the related Mortgage Files; (ii) all payments and collections in respect of the Mortgage Loans due after the Cut-off Date (other than Monthly Payments due in the month of the Cut-off Date) as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund; (iii) property which secured a Mortgage Loan and which has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure; (iv) the hazard insurance policies and Primary Insurance Policies pertaining to the Mortgage Loans, if any; and (v) all proceeds of clauses (i) through (iv) above. REMIC I Available Distribution Amount: The Available Distribution Amount increased by the amount of any Net Swap Payment described in clause (b)(z) thereof. REMIC I Distribution Amount: For any Distribution Date, the REMIC I Available Distribution Amount shall be distributed to REMIC II in respect of the REMIC I Regular Interests and the Class R-I Certificates in the following amounts and priority: (a) to REMIC I Regular Interest A-I and REMIC I Regular Interest I-1-A through I-60-B, pro rata, in an amount equal to (A) Uncertificated Accrued Interest for such REMIC I Regular Interests for such Distribution Date, plus (B) any amounts payable in respect thereof remaining unpaid from previous Distribution Dates; and (b) to the extent of amounts remaining after the distributions made pursuant to clause (a) above, payments of principal shall be allocated as follows: first, to REMIC I Regular Interests I-1-A through I-60-B starting with the lowest numerical denomination until the Uncertificated Principal Balance of each such REMIC I Regular Interest is reduced to zero, provided that, for REMIC I Regular Interests with the same numerical denomination, such payments of principal shall be allocated pro rata between such REMIC I Regular Interests and second, to the extent of any Overcollateralization Reduction Amount to REMIC I Regular Interest A-I until the Uncertificated Principal Balance of such REMIC I Regular Interest is reduced to zero. REMIC I Interests: The REMIC I Regular Interests and the Class R-I Certificates. REMIC I Realized Losses: All Realized Losses on the Mortgage Loans shall be allocated first, on each Distribution Date, to REMIC I Regular Interest A-I until such REMIC I Regular Interest has been reduced to zero. Second, Realized Losses shall be allocated to REMIC I Regular Interest I-1-A through REMIC I Regular Interest I-60-B, starting with the lowest numerical denomination until such REMIC I Regular Interest has been reduced to zero, provided that, for REMIC I Regular Interests with the same numerical denomination, such Realized Losses shall be allocated pro rata between such REMIC I Regular Interests. REMIC I Regular Interest. Any of the separate non-certificated beneficial ownership interests in REMIC I issued hereunder and designated as a "regular interest" in REMIC I. Each REMIC I Regular Interest shall accrue interest at the related Uncertificated REMIC I Pass-Through Rate in effect from time to time, and shall be entitled to distributions of principal, subject to the terms and conditions hereof, in an aggregate amount equal to its initial Uncertificated Principal Balance as set forth in the Preliminary Statement hereto. The designations for the respective REMIC I Regular Interests are set forth in the Preliminary Statement hereto. REMIC I Regular Interest A-I: A regular interest in REMIC I that is held as an asset of REMIC II, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC I Pass-Through Rate, and that has such other terms as are described herein. REMIC II: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC I Regular Interests. REMIC II Available Distribution Amount: For any Distribution Date, the amount distributed from REMIC I to REMIC II on such Distribution Date in respect of the REMIC I Regular Interests. REMIC II Distribution Amount: For any Distribution Date, the REMIC II Available Distribution Amount shall be distributed to REMIC III in respect of the REMIC II Regular Interests and the Class R-II Certificates in the following amounts and priority: (a) to REMIC II Regular Interest LT-IO, in an amount equal to (i) Uncertificated Accrued Interest for such REMIC II Regular Interest for such Distribution Date, plus (ii) any amounts in respect thereof remaining unpaid from previous Distribution Dates; (b) to the extent of amounts remaining after the distributions made pursuant to clause (a) above, to REMIC II Regular Interests LT1, LT2, LT3 and LT4, pro rata, in an amount equal to (i) their Uncertificated Accrued Interest for such Distribution Date, plus (ii) any amounts in respect thereof remaining unpaid from previous Distribution Dates; and (c) to the extent of amounts remaining after the distributions made pursuant to clauses (a) and (b) above: (i) to REMIC II Regular Interests LT2, LT3 and LT4, their respective Principal Distribution Amounts; (ii) to REMIC II Regular Interest LT1 any remainder until the Uncertificated Principal Balance thereof is reduced to zero; (iii) any remainder to REMIC II Regular Interests LT2, LT3 and LT4, pro rata according to their respective Uncertificated Principal Balances as reduced by the distributions deemed made pursuant to (i) above, until their respective Uncertificated Principal Balances are reduced to zero; and (d) to the extent of amounts remaining after the distributions made pursuant to clauses (a) through (c) above: (i) first, to each of the REMIC II Regular Interests, pro rata according to the amount of unreimbursed Realized Losses allocable to principal previously allocated to each such REMIC II Regular Interest, the aggregate amount of any distributions to the Certificates as reimbursement of such Realized Losses on such Distribution Date pursuant to clause (vii) in Section 4.02(c); provided, however, that any amounts distributed pursuant to this paragraph (d)(i) of this definition of "REMIC II Distribution Amount" shall not cause a reduction in the Uncertificated Principal Balances of any of the REMIC II Regular Interests; and (ii) second, to the Class R-II Certificates, any remaining amount. REMIC II Net WAC Rate: With respect to any Distribution Date, a per annum rate equal to the weighted average of (x) with respect to REMIC I Regular Interests ending with the designation "B," the weighted average of the Uncertificated REMIC I Pass-Through Rates for such REMIC I Regular Interests, weighted on the basis of the Uncertificated Principal Balance of such REMIC I Regular Interests for each such Distribution Date, (y) with respect to REMIC I Regular Interest A-I, the Uncertificated REMIC I Pass-Through Rate for such REMIC I Regular Interest, and (z) with respect to REMIC I Regular Interests ending with the designation "A," for each Distribution Date listed below, the weighted average of the rates listed below for each such REMIC I Regular Interest listed below, weighted on the basis of the Uncertificated Principal Balance of each such REMIC I Regular Interest for each such Distribution Date: DISTRIBUTION DATE REMIC I REGULAR INTEREST RATE 1 I-1-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate 2 I-2-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A Uncertificated REMIC I Pass-Through Rate 3 I-3-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A and I-2-A Uncertificated REMIC I Pass-Through Rate 4 I-4-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-3-A Uncertificated REMIC I Pass-Through Rate 5 I-5-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-4-A Uncertificated REMIC I Pass-Through Rate 6 I-6-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-5-A Uncertificated REMIC I Pass-Through Rate 7 I-7-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-6-A Uncertificated REMIC I Pass-Through Rate 8 I-8-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-7-A Uncertificated REMIC I Pass-Through Rate 9 I-9-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-8-A Uncertificated REMIC I Pass-Through Rate 10 I-10-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-9-A Uncertificated REMIC I Pass-Through Rate 11 I-11-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-10-A Uncertificated REMIC I Pass-Through Rate 12 I-12-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-11-A Uncertificated REMIC I Pass-Through Rate 13 I-13-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-12-A Uncertificated REMIC I Pass-Through Rate 14 I-14-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-13-A Uncertificated REMIC I Pass-Through Rate 15 I-15-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-14-A Uncertificated REMIC I Pass-Through Rate 16 I-16-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-15-A Uncertificated REMIC I Pass-Through Rate 17 I-17-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-16-A Uncertificated REMIC I Pass-Through Rate 18 I-18-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-17-A Uncertificated REMIC I Pass-Through Rate 19 I-19-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-18-A Uncertificated REMIC I Pass-Through Rate 20 I-20-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-19-A Uncertificated REMIC I Pass-Through Rate 21 I-21-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-20-A Uncertificated REMIC I Pass-Through Rate 22 I-22-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-21-A Uncertificated REMIC I Pass-Through Rate 23 I-23-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-22-A Uncertificated REMIC I Pass-Through Rate 24 I-24-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-23-A Uncertificated REMIC I Pass-Through Rate 25 I-25-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-24-A Uncertificated REMIC I Pass-Through Rate 26 I-26-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-25-A Uncertificated REMIC I Pass-Through Rate 27 I-27-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-26-A Uncertificated REMIC I Pass-Through Rate 28 I-28-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-27-A Uncertificated REMIC I Pass-Through Rate 29 I-29-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-28-A Uncertificated REMIC I Pass-Through Rate 30 I-30-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-29-A Uncertificated REMIC I Pass-Through Rate 31 I-31-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-30-A Uncertificated REMIC I Pass-Through Rate 32 I-32-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-31-A Uncertificated REMIC I Pass-Through Rate 33 I-33-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-32-A Uncertificated REMIC I Pass-Through Rate 34 I-34-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-33-A Uncertificated REMIC I Pass-Through Rate 35 I-35-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-34-A Uncertificated REMIC I Pass-Through Rate 36 I-36-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-35-A Uncertificated REMIC I Pass-Through Rate 37 I-37-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-36-A Uncertificated REMIC I Pass-Through Rate 38 I-38-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-37-A Uncertificated REMIC I Pass-Through Rate 39 I-39-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-38-A Uncertificated REMIC I Pass-Through Rate 40 I-40-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-39-A Uncertificated REMIC I Pass-Through Rate 41 I-41-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-40-A Uncertificated REMIC I Pass-Through Rate 42 I-42-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-41-A Uncertificated REMIC I Pass-Through Rate 43 I-43-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-42-A Uncertificated REMIC I Pass-Through Rate 44 I-44-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-43-A Uncertificated REMIC I Pass-Through Rate 45 I-45-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-29-A Uncertificated REMIC I Pass-Through Rate 46 I-46-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-45-A Uncertificated REMIC I Pass-Through Rate 47 I-47-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-46-A Uncertificated REMIC I Pass-Through Rate 48 I-48-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-47-A Uncertificated REMIC I Pass-Through Rate 49 I-49-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-48-A Uncertificated REMIC I Pass-Through Rate 50 I-50-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-49-A Uncertificated REMIC I Pass-Through Rate 51 I-51-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-50-A Uncertificated REMIC I Pass-Through Rate 52 I-52-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-51-A Uncertificated REMIC I Pass-Through Rate 53 I-52-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-51-A Uncertificated REMIC I Pass-Through Rate 54 I-54-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-53-A Uncertificated REMIC I Pass-Through Rate 55 I-55-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-54-A Uncertificated REMIC I Pass-Through Rate 56 I-56-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-55-A Uncertificated REMIC I Pass-Through Rate 57 I-57-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-56-A Uncertificated REMIC I Pass-Through Rate 58 I-58-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-57-A Uncertificated REMIC I Pass-Through Rate 59 I-59-A through I-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-58-A Uncertificated REMIC I Pass-Through Rate 60 1-60-A 2 multiplied by Swap LIBOR, subject to a maximum rate of Uncertificated REMIC I Pass-Through Rate I-1-A through I-59-A Uncertificated REMIC I Pass-Through Rate Thereafter I-1-A through I-60-A Uncertificated REMIC I Pass-Through Rate ------------------------------------------------------------------------------------------------ REMIC II Principal Reduction Amounts: For any Distribution Date, the amounts by which the principal balances of the REMIC II Regular Interests LT1, LT2, LT3 and LT4, respectively will be reduced on such Distribution Date by the allocation of Realized Losses and the distribution of principal, determined as follows: For purposes of the succeeding formulas the following symbols shall have the meanings set forth below: Y1 = the principal balance of the REMIC II Regular Interest LT1 after distributions on the prior Distribution Date. Y2 = the principal balance of the REMIC II Regular Interest LT2 after distributions on the prior Distribution Date. Y3 = the principal balance of the REMIC II Regular Interest LT3 after distributions on the prior Distribution Date. Y4 = the principal balance of the REMIC II Regular Interest LT4 after distributions on the prior Distribution Date (note: Y3 = Y4). (DELTA)Y1 = the REMIC II Regular Interest LT1 Principal Reduction Amount. (DELTA)Y2 = the REMIC II Regular Interest LT2 Principal Reduction Amount. (DELTA)Y3 = the REMIC II Regular Interest LT3 Principal Reduction Amount. (DELTA)Y4 = the REMIC II Regular Interest LT4 Principal Reduction Amount. P0 = the aggregate principal balance of REMIC II Regular Interests LT1, LT2, LT3 and LT4 after distributions and the allocation of Realized Losses on the prior Distribution Date. P1 = the aggregate principal balance of the REMIC II Regular Interests LT1, LT2, LT3 and LT4 after distributions and the allocation of Realized Losses to be made on such Distribution Date. (DELTA)P = P0 - P1 = the aggregate of the REMIC II Regular Interests LT1, LT2, LT3 and LT4 Principal Reduction Amounts. = the aggregate of the principal portions of Realized Losses to be allocated to, and the principal distributions to be made on, the Certificates on such Distribution Date (including distributions of accrued and unpaid interest on the Class SB Certificates for prior Distribution Dates). R0 = the REMIC II Net WAC Rate (stated as a monthly rate) after giving effect to amounts distributed and Realized Losses allocated on the prior Distribution Date. R1 = the REMIC II Net WAC Rate (stated as a monthly rate) after giving effect to amounts to be distributed and Realized Losses to be allocated on such Distribution Date. (alpha) = (Y2 + Y3)/P0. The initial value of (alpha) on the Closing Date for use on the first Distribution Date shall be 0.0001. (gamma)0 = the lesser of (A) the sum for all Classes of Certificates other than the Class SB Certificates and Class IO Certificates of the product for each Class of (i) the monthly interest rate (as limited by the REMIC II Net WAC Rate, if applicable) for such Class applicable for distributions to be made on such Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses on the prior Distribution Date and (B) R0*P0. (gamma)1 = the lesser of (A) the sum for all Classes of Certificates other than the Class SB Certificates and Class IO Certificates of the product for each Class of (i) the monthly interest rate (as limited by the REMIC II Net WAC Rate, if applicable) for such Class applicable for distributions to be made on the next succeeding Distribution Date and (ii) the aggregate Certificate Principal Balance for such Class after distributions and the allocation of Realized Losses to be made on such Distribution Date and (B) R1*P1. Then, based on the foregoing definitions: (DELTA)Y1 = (DELTA)P - (DELTA)Y2 - Y3 - Y4; (DELTA)Y2 = (a/2){(a0R1 - a1R0)/R0R1}; (DELTA)Y3 = (a(DELTA)P - (DELTA)Y2; and (DELTA)Y4 = (DELTA)Y3. if both (DELTA)Y2 and (DELTA)Y3, as so determined, are non-negative numbers. Otherwise: (1) If (DELTA)Y2, as so determined, is negative, then (DELTA)Y2 = 0 (DELTA)Y3 = a{a1R0P0 - a0R1P1}/{a1R0}; (DELTA)Y4 = (DELTA)Y3; and (DELTA)Y1 = (DELTA)P - (DELTA)Y2 - (DELTA)Y3 - (DELTA)Y4. (2) If (DELTA)Y3, as so determined, is negative, then (DELTA)Y3 = 0; (DELTA)Y2 = a{a0R1P1 - a1R0P0}/{2R1R0P1 - a1R0}; (DELTA)Y4 = (DELTA)Y3; and (DELTA)Y1 = (DELTA)P - (DELTA)Y2 - (DELTA)Y3 - (DELTA)Y4. REMIC II Realized Losses: Realized Losses on the Mortgage Loans shall be allocated to the REMIC II Regular Interests as follows. The interest portion of Realized Losses on the Mortgage Loans, if any, shall be allocated among REMIC II Regular Interests LT1, LT2 and LT4, pro rata according to the amount of interest accrued but unpaid thereon, in reduction thereof. Any interest portion of such Realized Losses in excess of the amount allocated pursuant to the preceding sentence shall be treated as a principal portion of Realized Losses not attributable to any specific Mortgage Loan and allocated pursuant to the succeeding sentences. The principal portion of Realized Losses with respect to Mortgage Loans shall be allocated to the REMIC II Regular Interests as follows: first, to REMIC II Regular Interests LT2, LT3 and LT4, pro-rata according to their respective REMIC II Principal Reduction Amounts to the extent thereof in reduction of the Uncertificated Principal Balance of such REMIC II Regular Interests and, second, the remainder, if any, of such principal portion of such Realized Losses shall be allocated to REMIC II Regular Interest LT1 in reduction of the Uncertificated Principal Balance thereof. REMIC II Regular Interests: REMIC II Regular Interest LT1, REMIC II Regular Interest LT2, REMIC II Regular Interest LT3, REMIC II Regular Interest LT4 and REMIC II Regular Interest LT-IO. REMIC II Regular Interest LT1: A regular interest in REMIC II that is held as an asset of REMIC III, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC II Pass-Through Rate, and that has such other terms as are described herein. REMIC II Regular Interest LT1 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest LT1 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC II Regular Interest LT1 on such Distribution Date. REMIC II Regular Interest LT2: A regular interest in REMIC II that is held as an asset of REMIC III, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC II Pass-Through Rate, and that has such other terms as are described herein. REMIC II Regular Interest LT2 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest LT2 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC II Regular Interest LT2 on such Distribution Date. REMIC II Regular Interest LT3: A regular interest in REMIC II that is held as an asset of REMIC III, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC II Pass-Through Rate, and that has such other terms as are described herein. REMIC II Regular Interest LT3 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest LT3 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC II Regular Interest LT3 on such Distribution Date. REMIC II Regular Interest LT4: A regular interest in REMIC II that is held as an asset of REMIC III, that has an initial principal balance equal to the related Uncertificated Principal Balance, that bears interest at the related Uncertificated REMIC II Pass-Through Rate, and that has such other terms as are described herein. REMIC II Regular Interest LT4 Principal Distribution Amount: For any Distribution Date, the excess, if any, of the REMIC II Regular Interest LT4 Principal Reduction Amount for such Distribution Date over the Realized Losses allocated to the REMIC II Regular Interest LT4 on such Distribution Date. REMIC II Regular Interest LT-IO: A regular interest in REMIC II that is held as an asset of REMIC III, that has no initial principal balance, that bears interest at the related Uncertificated REMIC II Pass-Through Rate on its Uncertificated Notional Amount, and that has such other terms as are described herein. REMIC III: The segregated pool of assets subject hereto, constituting a portion of the primary trust created hereby and to be administered hereunder, with respect to which a separate REMIC election is to be made, consisting of the REMIC II Regular Interests. REMIC III Available Distribution Amount: For any Distribution Date, the amount distributed from REMIC II to REMIC III on such Distribution Date in respect of the REMIC II Regular Interests. REMIC III Distribution Amount: For any Distribution Date, the REMIC III Available Distribution Amount shall be deemed distributed to Class A, Class M and Class SB Certificates in respect of the portion of such Certificates representing ownership of REMIC III Regular Interests and the Class R- III Certificates in the following amounts and priority: (i) to the Class SB Certificateholders in respect of REMIC III Regular Interest IO, the amount distributable with respect to such REMIC III Regular Interest as described in the Preliminary Statement, being paid from and in reduction of the REMIC III Available Distribution Amount for such Distribution Date; (ii) to the Class A Certificateholders, the Accrued Certificate Interest payable on the Class A Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (i) but remaining unpaid from any prior Distribution Date, being paid from and in reduction of the REMIC III Available Distribution Amount for such Distribution Date; (iii) to the Class M Certificateholders, from the amount, if any, of the Available Distribution Amount remaining after the foregoing distributions, Accrued Certificate Interest payable on the Class M Certificates with respect to such Distribution Date, plus any related amounts accrued pursuant to this clause (ii) but remaining unpaid from any prior Distribution Date, sequentially, to the Class M-1 Certificateholders, Class M-2 Certificateholders, Class M-3 Certificateholders, Class M-4 Certificateholders, Class M-5 Certificateholders, Class M-6 Certificateholders, Class M-7 Certificateholders, Class M-8 Certificateholders, Class M-9 Certificateholders and Class M-10 Certificateholders, in that order, being paid from and in reduction of the REMIC III Available Distribution Amount for such Distribution Date; (iv) the Principal Distribution Amount shall be distributed as follows, to be applied to reduce the principal balance of the REMIC III Regular Interest related to the applicable Certificates in each case to the extent of the remaining Principal Distribution Amount: (A) first, the Class A-Principal Distribution Amount shall be distributed to the Class A Certificateholders until the Certificate Principal Balance of the Class A Certificates has been reduced to zero; (B) second, to the Class M-1 Certificateholders, the Class M-1 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-1 Certificates has been reduced to zero; (C) third, to the Class M-2 Certificateholders, the Class M-2 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-2 Certificates has been reduced to zero; (D) fourth, to the Class M-3 Certificateholders, the Class M-3 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-3 Certificates has been reduced to zero; (E) fifth, to the Class M-4 Certificateholders, the Class M-4 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-4 Certificates has been reduced to zero; (F) sixth, to the Class M-5 Certificateholders, the Class M-5 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-5 Certificates has been reduced to zero; (G) seventh, to the Class M-6 Certificateholders, the Class M-6 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-6 Certificates has been reduced to zero; (H) eighth, to the Class M-7 Certificateholders, the Class M-7 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-7 Certificates has been reduced to zero; (I) ninth, to the Class M-8 Certificateholders, the Class M-8 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-8 Certificates has been reduced to zero; (J) tenth, to the Class M-9 Certificateholders, the Class M-9 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-9 Certificates has been reduced to zero; and (K) eleventh, to the Class M-10 Certificateholders, the Class M-10 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-10 Certificates has been reduced to zero; and (v) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto to the extent not offset by Eligible Master Servicing Compensation on such Distribution Date; (vi) to the Class A Certificateholders and Class M Certificateholders, the amount of any Prepayment Interest Shortfalls previously allocated thereto remaining unpaid from prior Distribution Dates together with interest thereon at the related Pass Through Rate, on a pro rata basis based on unpaid Prepayment Interest Shortfalls previously allocated thereto; (vii) to the Class SB Certificates, from the amount, if any, of the REMIC III Available Distribution Amount remaining after the foregoing distributions, the sum of (I) Accrued Certificate Interest thereon, (II) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (III) for any Distribution Date after the Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero, the Overcollateralization Amount; and (viii) to the Class R-III Certificateholders, the balance, if any, of the REMIC III Available Distribution Amount. REMIC III Regular Interest SB-PO: A separate non-certificated beneficial ownership interests in REMIC III issued hereunder and designated as a Regular Interest in REMIC III. REMIC III Regular Interest SB-PO shall have no entitlement to interest, and shall be entitled to distributions of principal subject to the terms and conditions hereof, in aggregate amount equal to the initial Certificate Principal Balance of the Class SB Certificates as set forth in the Preliminary Statement hereto. REMIC III Regular Interest SB-IO: A separate non-certificated beneficial ownership interests in REMIC III issued hereunder and designated as a Regular Interest in REMIC III. REMIC III Regular Interest SB-IO shall have no entitlement to principal, and shall be entitled to distributions of interest subject to the terms and conditions hereof, in aggregate amount equal to the interest distributable with respect to the Class SB Certificates pursuant to the terms and conditions hereof. REMIC III Regular Interest IO: A separate non-certificated beneficial ownership interests in REMIC III issued hereunder and designated as a Regular Interest in REMIC III. REMIC III Regular Interest IO shall have no entitlement to principal, and shall be entitled to distributions of interest subject to the terms and conditions hereof, in aggregate amount equal to the interest distributable with respect to REMIC II Regular Interest LT-IO. REMIC III Regular Interests: REMIC III Regular Interests SB-IO, SB-PO and IO, together with the Class A Certificates and Class M Certificates exclusive of their respective rights to receive the payment of Basis Risk Shortfalls and other amounts pursuant to the Swap Agreement and SB-AM Swap Agreement. Required Overcollateralization Amount: With respect to any Distribution Date (i) prior to the Stepdown Date, an amount equal to 0.65% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date; (ii) on or after the Stepdown Date, the greater of (x) 1.30% of the outstanding aggregate Stated Principal Balance of the Mortgage Loans after giving effect to distributions made on that Distribution Date and (y) the Overcollateralization Floor; and (iii) on or after the Stepdown Date if a Trigger Event is in effect, the Required Overcollateralization Amount for the immediately preceding Distribution Date; provided that the Required Overcollateralization Amount may be reduced so long as written confirmation is obtained from each rating agency that the reduction will not reduce the ratings assigned to the Class A Certificates and Class M Certificates by that rating agency below the lower of the then-current ratings or the ratings assigned to those certificates as of the closing date by that rating agency. Rule 144A: Rule 144A under the Securities Act of 1933, as in effect from time to time. Rule 144A Global Offered Certificate: Any one of the Class SB Certificates substantially in the form of Exhibit Eleven-A hereto, and, in both cases, more fully described in Section 5.02(g) hereof. SB-AM Swap Agreement: The interest rate swap agreement between the Trustee, on behalf of the Class A Certificateholders and Class M Certificateholders, and the Trustee, on behalf of the Class SB Certificateholders, evidenced by the confirmation attached hereto as Exhibit Five and incorporated herein by reference. Senior Certificate: Any one of the Class A Certificates. Senior Enhancement Percentage: With respect to any Distribution Date, the percentage obtained by dividing (x) the sum of (i) the aggregate Certificate Principal Balance of the Class M Certificates and (ii) the Overcollateralization Amount, in each case prior to the distribution of the Principal Distribution Amount on such Distribution Date, by (y) the aggregated Stated Principal Balance of the Mortgage Loans after giving effect to distributions to be made on that Distribution Date. Sharia Mortgage Loan: A declining balance co-ownership transaction, structured so as to comply with Islamic religious law. Sharia Mortgage Loan Co-Ownership Agreement: The agreement that defines the relationship between the consumer and co-owner and the parties' respective rights under a Sharia Mortgage Loan, including their respective rights with respect to the indicia of ownership of the related Mortgaged Property. Sharia Mortgage Loan Security Instrument: The mortgage, security instrument or other comparable instrument creating a first lien on an estate in fee simple or leasehold interest in real property securing an Obligation to Pay. Sixty-Plus Delinquency Percentage: With respect to any Distribution Date on or after the Stepdown date, the arithmetic average, for each of the three consecutive Distribution Dates ending with such Distribution Date, of the fraction, expressed as a percentage, equal to (x) the aggregate Stated Principal Balance of the Mortgage Loans that are 60 or more days delinquent in payment of principal and interest for that Distribution Date, including Mortgage Loans in foreclosure, and REO Properties over (y) the aggregate Stated Principal Balance of all of the Mortgage Loans immediately preceding that Distribution Date. Stated Principal Balance: With respect to any Mortgage Loan or related REO Property, as of any date of determination, (i) the sum of (a) the Cut-off Date Principal Balance of the Mortgage Loan plus (b) any amount by which the Stated Principal Balance of the Mortgage Loan has been increased pursuant to a Servicing Modification, minus (ii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending with the Due Period relating to the most recent Distribution Date which were received or with respect to which an Advance was made, (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.14 with respect to such Mortgage Loan or REO Property, in each case which were distributed pursuant to Section 4.02 on any previous Distribution Date, and (c) any Realized Loss incurred with respect to such Mortgage Loan allocated to Certificateholders with respect thereto for any previous Distribution Date. Stepdown Date: The later to occur of (x) the Distribution Date in June 2009 and (y) the first Distribution Date on which the Senior Enhancement Percentage (calculated for this purpose only after taking into account payments of principal on the Mortgage Loans due on the related Due Date or received during the related Prepayment Period but prior to distribution of the Principal Distribution Amount in respect of the Certificates then entitled to distributions of principal on such Distribution Date) is greater than or equal to approximately 13.00%. Subordination Percentage: With respect to each class of Class A Certificates and Class M Certificates, the respective approximate percentage set forth in the table below: Class Percentage A 87.00% M-1 90.30% M-2 92.00% M-3 93.30% M-4 94.00% M-5 94.70% M-6 95.40% M-7 96.10% M-8 96.80% M-9 97.70% M-10 98.70% Swap Account: The separate trust account created and maintained by the Trustee pursuant to Section 4.09(a). ------------------------------------------------------------------------------------------------ Swap Agreement: The interest rate swap agreement between the Swap Counterparty and the Trustee, on behalf of the Trust, which agreement provides for Net Swap Payments and Swap Termination Payments to be paid, as provided therein, together with any schedules, confirmations or other agreements relating thereto, attached hereto as Exhibit 4. Swap Agreement Notional Balance: As to the Swap Agreement and each Floating Rate Payer Payment Date and Fixed Rate Payer Payment Date (each as defined in the Swap Agreement) the amount set forth on Schedule I to the Swap Agreement for such Floating Rate Payer Payment Date and Fixed Rate Payer Payment Date. Swap Counterparty: The swap counterparty under the Swap Agreement either (a) entitled to receive payments from the Trustee from amounts payable by the Trust Fund under this Agreement or (b) required to make payments to the Trustee for payment to the Trust Fund, in either case pursuant to the terms of the Swap Agreement, and any successor in interest or assign. Initially, the Swap Counterparty shall be Deutsche Bank AG, New York Branch. Swap Counterparty Trigger Event: With respect to any Distribution Date, (i) an Event of Default under the Swap Agreement with respect to which the Swap Counterparty is a Defaulting Party, (ii) a Termination Event under the Swap Agreement with respect to which the Swap Counterparty is the sole Affected Party, or (iii) an additional termination event under the Swap Agreement with respect to which the Swap Counterparty is the sole Affected Party. Swap LIBOR: LIBOR as determined pursuant to the Swap Agreement. Swap Termination Payment: Upon the occurrence of an Early Termination Date, the payment to be made by the Trustee on behalf of the Trust to the Swap Counterparty from payments from the Trust Fund, or by the Swap Counterparty to the Trustee for payment to the Trust Fund, as applicable, pursuant to the terms of the Swap Agreement. Temporary Regulation S Global Offered Certificate: Any one of the Class SB Certificates substantially in the form of Exhibit Eleven -C hereto, and, in both cases, more fully described in Section 5.02(g) hereof. Trigger Event: A Trigger Event is in effect with respect to any Distribution Date on or after the Stepdown Date if either (a) the Sixty-Plus Delinquency Percentage, as determined on that Distribution Date exceeds 40.00% of the Senior Enhancement Percentage for that Distribution Date or (b) the aggregate amount of Realized Losses on the Mortgage Loans as a percentage of the initial aggregate Stated Principal Balance as of the Cut-off Date exceeds the applicable amount set forth below: o June 2009 to May 2010: 0.45% with respect to June 2009, plus an additional 1/12th of 0.35% for each month through May 2010. o June 2010 to May 2011: 0.80% with respect to June 2010, plus an additional 1/12th of 0.35% for each month through May 2011. o June 2011 to May 2012: 1.15% with respect to June 2011, plus an additional 1/12th of 0.20% for each month through May 2012. o June 2012 and thereafter: 1.35%. Uncertificated Accrued Interest: With respect to any Uncertificated REMIC Regular Interest for any Distribution Date, one month's interest at the related Uncertificated Pass-Through Rate for such Distribution Date, accrued on the Uncertificated Principal Balance or Uncertificated Notional Amount, as applicable, immediately prior to such Distribution Date. Uncertificated Accrued Interest for the Uncertificated REMIC Regular Interests shall accrue on the basis of a 360-day year consisting of twelve 30-day months. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC I Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) shall be allocated among REMIC I Regular Interests, pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. For purposes of calculating the amount of Uncertificated Accrued Interest for the REMIC II Regular Interests for any Distribution Date, any Prepayment Interest Shortfalls and Relief Act Shortfalls (to the extent not covered by Compensating Interest) shall be allocated among the REMIC II Regular Interests, pro rata, based on, and to the extent of, Uncertificated Accrued Interest, as calculated without application of this sentence. Uncertificated Interest on REMIC III Regular Interest SB-PO shall be zero. Uncertificated Accrued Interest on the REMIC III Regular Interest SB-IO for each Distribution Date shall equal Accrued Certificate Interest for the Class SB Certificates. Uncertificated Notional Amount: With respect to the Class SB Certificates or REMIC III Regular Interest SB-IO, immediately prior to any Distribution Date, the aggregate of the Uncertificated Principal Balances of the REMIC II Regular Interests. With respect to REMIC II Regular Interest LT-IO and each Distribution Date listed below, the aggregate Uncertificated Principal Balance of the REMIC I Regular Interests ending with the designation "A" listed below: DISTRIBUTION DATE REMIC I REGULAR INTERESTS 1 I-1-A through I-60-A 2 I-2-A through I-60-A 3 I-3-A through I-60-A 4 I-4-A through I-60-A 5 I-5-A through I-45A 6 I-6-A through I-60-A 7 I-7-A through I-60-A 8 I-8-A through I-60-A 9 I-9-A through I-60-A 10 I-10-A through I-60-A 11 I-11-A through I-60-A 12 I-12-A through I-60-A 13 I-13-A through I-60-A 14 I-14-A through I-60-A 15 I-15-A through I-60-A 16 I-16-A through I-60-A 17 I-17-A through I-60-A 18 I-18-A through I-60-A 19 I-19-A through I-60-A 20 I-20-A through I-60-A 21 I-21-A through I-60-A 22 I-22-A through I-60-A 23 I-23-A through I-60-A 24 I-24-A through I-60-A 25 I-25-A through I-60-A 26 I-26-A through I-60-A 27 I-27-A through I-60-A 28 I-28-A through I-60-A 29 I-29-A through I-60-A 30 I-30-A through I-60-A 31 I-31-A through I-60-A 32 I-32-A through I-60-A 33 I-33-A through I-60-A 34 I-34-A through I-60-A 35 I-35-A through I-60-A 36 I-36-A through I-60-A 37 I-37-A through I-60-A 38 I-38-A through I-60-A 39 I-39-A through I-60-A 40 I-40-A through I-60-A 41 I-41-A through I-60-A 42 I-42-A through I-60-A 43 I-43-A through I-60-A 44 I-44-A through I-60-A 45 I-60-A through I-60-A 46 I-46-A through I-60-A 47 I-47-A through I-60-A 48 I-48-A through I-60-A 49 I-49-A through I-60-A 50 I-50-A through I-60-A 51 I-51-A through I-60-A 52 I-52-A through I-60-A 53 I-53-A through I-60-A 54 I-54-A through I-60-A 55 I-55-A through I-60-A 56 I-56-A through I-60-A 57 I-57-A through I-60-A 58 I-58-A through I-60-A 59 I-59-A through I-60-A 60 I-60-A thereafter $0.00 With respect to REMIC III Regular Interest IO, immediately prior to any Distribution Date, an amount equal to the Uncertificated Notional Amount of REMIC II Regular Interest LT-IO. ------------------------------------------------------------------------------------------------ Uncertificated Pass-Through Rate: The Uncertificated REMIC I Pass-Through Rate or the Uncertificated REMIC II Pass-Through Rate, as applicable Uncertificated Principal Balance: The principal amount of any Uncertificated Regular Interest outstanding as of any date of determination. The Uncertificated Principal Balance of each Uncertificated Regular Interest shall be reduced first by Realized Losses allocated thereto by the definition of REMIC I Realized Losses or REMIC II Realized Losses, as applicable, and by all distributions of principal deemed made on such Uncertificated Regular Interest on such Distribution Date. The Uncertificated Principal Balance of each Uncertificated Regular Interest shall never be less than zero. With respect to REMIC III Regular Interest SB-PO the initial amount set forth with respect thereto in the Preliminary Statement as reduced by distributions deemed made in respect thereof pursuant to Section 4.02 and Realized Losses allocated thereto pursuant to Section 4.05. Uncertificated REMIC Regular Interests: The REMIC I Regular Interests and the REMIC II Regular Interests. Uncertificated REMIC I Pass-Through Rate: With respect to each REMIC I Regular Interest ending with the designation "A", a per annum rate equal to the weighted average Net Mortgage Rate of the Mortgage Loans multiplied by two (2), subject to a maximum rate of 10.8000%. With respect to each REMIC I Regular Interest ending with the designation "B", the greater of (x) a per annum rate equal to the excess, if any, of (i) 2 multiplied by the weighted average Net Mortgage Rate of the Mortgage Loans over (ii) 10.8000% and (y) 0.00000%. With respect to REMIC I Regular Interest A-I, the weighted average Net Mortgage Rate of the Mortgage Loans. Uncertificated REMIC II Pass-Through Rate: With respect to any Distribution Date and (i) REMIC II Regular Interests LT1 and LT2, the REMIC II Net WAC Rate, (ii) REMIC II Regular Interest LT3, zero (0.00%), (iii) REMIC II Regular Interest LT4, twice the REMIC II Net WAC Rate, and (iv) REMIC II Regular Interest LT-IO, the excess of (i) the weighted average of the Uncertificated REMIC I Pass-Through Rates for REMIC I Regular Interests ending with the designation "A", over (ii) 2 multiplied by Swap LIBOR. Underwriter: Residential Funding Securities Corporation Section 1.02. DETERMINATION OF LIBOR. LIBOR applicable to the calculation of the Pass-Through Rate on the LIBOR Certificates for any Interest Accrual Period will be determined as of each LIBOR Rate Adjustment Date. On each LIBOR Rate Adjustment Date, or if such LIBOR Rate Adjustment Date is not a Business Day, then on the next succeeding Business Day, LIBOR shall be established by the Trustee and, as to any Interest Accrual Period, will equal the rate for one month United States dollar deposits that appears on the Dow Jones Telerate Screen Page 3750 as of 11:00 a.m., London time, on such LIBOR Rate Adjustment Date. "Dow Jones Telerate Screen Page 3750" means the display designated as page 3750 on the Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). If such rate does not appear on such page (or such other page as may replace that page on that service, or if such service is no longer offered, LIBOR shall be so established by use of such other service for displaying LIBOR or comparable rates as may be selected by the Trustee after consultation with the Master Servicer), the rate will be the Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by the reference banks (which shall be any three major banks that are engaged in transactions in the London interbank market, selected by the Trustee after consultation with the Master Servicer) as of 11:00 a.m., London time, on the LIBOR Rate Adjustment Date to prime banks in the London interbank market for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. The Trustee will request the principal London office of each of the reference banks to provide a quotation of its rate. If at least two such quotations are provided, the rate will be the arithmetic mean of the quotations rounded up to the next multiple of 1/16%. If on such date fewer than two quotations are provided as requested, the rate will be the arithmetic mean of the rates quoted by one or more major banks in New York City, selected by the Trustee after consultation with the Master Servicer, as of 11:00 a.m., New York City time, on such date for loans in U.S. Dollars to leading European banks for a period of one month in amounts approximately equal to the aggregate Certificate Principal Balance of the LIBOR Certificates then outstanding. If no such quotations can be obtained, the rate will be LIBOR for the prior Distribution Date; provided however, if, under the priorities described above, LIBOR for a Distribution Date would be based on LIBOR for the previous Distribution Date for the third consecutive Distribution Date, the Trustee, after consultation with the Master Servicer, shall select an alternative comparable index (over which the Trustee has no control), used for determining one-month Eurodollar lending rates that is calculated and published (or otherwise made available) by an independent party. The establishment of LIBOR by the Trustee and the Master Servicer on any LIBOR Rate Adjustment Date and the Master Servicer's subsequent calculation of the Pass-Through Rate applicable to the LIBOR Certificates for the relevant Interest Accrual Period, in the absence of manifest error, will be final and binding. Promptly following each LIBOR Rate Adjustment Date the Trustee shall supply the Master Servicer with the results of its determination of LIBOR on such date. Furthermore, the Trustee will supply to any Certificateholder so requesting by telephone by calling (800) 735-7777 the Pass-Through Rate on the LIBOR Certificates for the current and the immediately preceding Interest Accrual Period. Section 1.03. USE OF WORDS AND PHRASES. "Herein," "hereby," "hereunder," "hereof," "hereinbefore," "hereinafter" and other equivalent words refer to the Pooling and Servicing Agreement as a whole. All references herein to Articles, Sections or Subsections shall mean the corresponding Articles, Sections and Subsections in the Pooling and Servicing Agreement. The definitions set forth herein include both the singular and the plural. References in the Pooling and Servicing Agreement to "interest" on and "principal" of the Mortgage Loans shall mean, with respect to the Sharia Mortgage Loans, amounts in respect profit payments and acquisition payments, respectively. ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. CONVEYANCE OF MORTGAGE LOANS. (See Section 2.01 of the Standard Terms) (a) (See Section 2.01(a) of the Standard Terms). (b) In connection with such assignment, except as set forth in Section 2.01(c) and subject to Section 2.01(d) below, the Company does hereby deliver to, and deposit with, the Trustee, or to and with one or more Custodians, as the duly appointed agent or agents of the Trustee for such purpose, the following documents or instruments (or copies thereof as permitted by this Section) (I) with respect to each Mortgage Loan so assigned (other than a Cooperative Loan or a Sharia Mortgage Loan): (i) The original Mortgage Note, endorsed without recourse in blank or to the order of the Trustee, and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) The original Mortgage, noting the presence of the MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with evidence of recording indicated thereon or a copy of the Mortgage with evidence of recording indicated thereon; (iii) Unless the Mortgage Loan is registered on the MERS(R)System, an original Assignment of the Mortgage to the Trustee with evidence of recording indicated thereon or a copy of such assignment with evidence of recording indicated thereon; (iv) The original recorded assignment or assignments of the Mortgage showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS(R)System and noting the presence of a MIN) with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Mortgage with evidence of recording indicated thereon; and (v) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Mortgage Loan or a copy of each modification, assumption agreement or preferred loan agreement. (II) with respect to each Cooperative Loan so assigned: (i) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) A counterpart of the Cooperative Lease and the Assignment of Proprietary Lease to the originator of the Cooperative Loan with intervening assignments showing an unbroken chain of title from such originator to the Trustee; (iii) The related Cooperative Stock Certificate, representing the related Cooperative Stock pledged with respect to such Cooperative Loan, together with an undated stock power (or other similar instrument) executed in blank; (iv) The original recognition agreement by the Cooperative of the interests of the mortgagee with respect to the related Cooperative Loan; (v) The Security Agreement; (vi) Copies of the original UCC-1 financing statement, and any continuation statements, filed by the originator of such Cooperative Loan as secured party, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (vii) Copies of the filed UCC-3 assignments of the security interest referenced in clause (vi) above showing an unbroken chain of title from the originator to the Trustee, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (viii) An executed assignment of the interest of the originator in the Security Agreement, Assignment of Proprietary Lease and the recognition agreement referenced in clause (iv) above, showing an unbroken chain of title from the originator to the Trustee; (ix) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Cooperative Loan; and (x) A duly completed UCC-1 financing statement showing the Master Servicer as debtor, the Company as secured party and the Trustee as assignee and a duly completed UCC-1 financing statement showing the Company as debtor and the Trustee as secured party, each in a form sufficient for filing, evidencing the interest of such debtors in the Cooperative Loans. (III) with respect to each Sharia Mortgage Loan so assigned: (i) The original Obligation to Pay, endorsed without recourse in blank or to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Obligation to Pay, an original affidavit from the related Seller or Residential Funding stating that the original Obligation to Pay was lost, misplaced or destroyed, together with a copy of the related Obligation to Pay; (ii) The original Sharia Mortgage Loan Security Instrument, with evidence of recording indicated thereon or a copy of the Sharia Mortgage Loan Security Instrument with evidence of recording indicated thereon; (iii) An original Assignment and Amendment of Security Instrument, assigned to the Trustee with evidence of recording indicated thereon or a copy of such Assignment and Amendment of Security Instrument with evidence of recording indicated thereon; (iv) The original recorded assignment or assignments of the Sharia Mortgage Loan Security Instrument showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Sharia Mortgage Loan Security Instrument with evidence of recording indicated thereon; (v) The original Sharia Mortgage Loan Co-Ownership Agreement with respect to the related Sharia Mortgage Loan; and (vi) The original of each modification or assumption agreement, if any, relating to such Sharia Mortgage Loan or a copy of each modification or assumption agreement. (c) The Company may, in lieu of delivering the original of the documents set forth in Sections 2.01(b)(I)(ii), (iii), (iv) and (v), Sections 2.01(b)(II)(ii), (iv), (vii), (ix) and (x) and Sections 2.01(b)(III)(ii), (iii), (iv), (v) and (vi) (or copies thereof as permitted by Section 2.01(b)) to the Trustee or the Custodian or Custodians, deliver such documents to the Master Servicer, and the Master Servicer shall hold such documents in trust for the use and benefit of all present and future Certificateholders until such time as is set forth in the next sentence. Within thirty Business Days following the earlier of (i) the receipt of the original of all of the documents or instruments set forth in Sections 2.01(b)(I)(ii), (iii), (iv) and (v), Sections 2.01(b)(II)(ii), (iv), (vii), (ix) and (x) and Sections 2.01(b)(III) (ii), (iii), (iv), (v) and (vi) (or copies thereof as permitted by such Section) for any Mortgage Loan and (ii) a written request by the Trustee to deliver those documents with respect to any or all of the Mortgage Loans then being held by the Master Servicer, the Master Servicer shall deliver a complete set of such documents to the Trustee or the Custodian or Custodians that are the duly appointed agent or agents of the Trustee. The parties hereto agree that it is not intended that any Mortgage Loan be included in the Trust Fund that is either (i) a "High-Cost Home Loan" as defined in the New Jersey Home Ownership Act effective November 27, 2003, (ii) a "High-Cost Home Loan" as defined in the New Mexico Home Loan Protection Act effective January 1, 2004, (iii) a "High Cost Home Mortgage Loan" as defined in the Massachusetts Predatory Home Loan Practices Act effective November 7, 2004 or (iv) a "High-Cost Home Loan" as defined in the Indiana House Enrolled Act No. 1229, effective as of January 1, 2005. (d) Notwithstanding the provisions of Section 2.01(c), in connection with any Mortgage Loan, if the Company cannot deliver the original of the Mortgage, any assignment, modification, assumption agreement or preferred loan agreement (or copy thereof as permitted by Section 2.01(b)) with evidence of recording thereon concurrently with the execution and delivery of this Agreement because of (i) a delay caused by the public recording office where such Mortgage, assignment, modification, assumption agreement or preferred loan agreement as the case may be, has been delivered for recordation, or (ii) a delay in the receipt of certain information necessary to prepare the related assignments, the Company shall deliver or cause to be delivered to the Trustee or the respective Custodian a copy of such Mortgage, assignment, modification, assumption agreement or preferred loan agreement. The Company (i) shall promptly cause to be recorded in the appropriate public office for real property records the Assignment referred to in clause (I)(iii) of Section 2.01(b), except (a) in states where, in the opinion of counsel acceptable to the Trustee and the Master Servicer, such recording is not required to protect the Trustee's interests in the Mortgage Loan against the claim of any subsequent transferee or any successor to or creditor of the Company or the originator of such Mortgage Loan or (b) if MERS is identified on the Mortgage or on a properly recorded assignment of the Mortgage as the mortgagee of record solely as nominee for the Seller and its successors and assigns, (ii) shall promptly cause to be filed the Form UCC-3 assignment and UCC-1 financing statement referred to in clauses (II)(vii) and (x), respectively, of Section 2.01(b) and (iii) shall promptly cause to be recorded in the appropriate public recording office for real property records the Assignment Agreement and Amendment of Security Instrument referred to in clause (III)(iii) of Section 2.01(b). If any Assignment, Assignment Agreement and Amendment of Security Instrument, Form UCC-3 or Form UCC-1, as applicable, is lost or returned unrecorded to the Company because of any defect therein, the Company shall prepare a substitute Assignment, Assignment Agreement and Amendment of Security Instrument, Form UCC-3 or Form UCC-1, as applicable, or cure such defect, as the case may be, and cause such Assignment or Assignment Agreement and Amendment of Security Instrument to be recorded in accordance with this paragraph. The Company shall promptly deliver or cause to be delivered to the Trustee or the respective Custodian such Mortgage or Assignment or Assignment Agreement and Amendment of Security Instrument or Form UCC-3 or Form UCC-1, as applicable, (or copy thereof as permitted by Section 2.01(b)) with evidence of recording indicated thereon at the time specified in Section 2.01(c). In connection with its servicing of Cooperative Loans, the Master Servicer will use its best efforts to file timely continuation statements with regard to each financing statement and assignment relating to Cooperative Loans as to which the related Cooperative Apartment is located outside of the State of New York. If the Company delivers to the Trustee or Custodian any Mortgage Note, Obligation to Pay, Assignment Agreement and Amendment of Security Instrument or Assignment of Mortgage in blank, the Company shall, or shall cause the Custodian to, complete the endorsement of the Mortgage Note, Obligation to Pay, Assignment Agreement and Amendment of Security Instrument and Assignment of Mortgage in the name of the Trustee in conjunction with the Interim Certification issued by the Custodian, as contemplated by Section 2.02. Any of the items set forth in Sections 2.01(b)(I)(ii), (iii), (iv) and (v), Sections 2.01(b)(II)(vi) and (vii) and Sections 2.01(b)(III)(ii), (iii) and (iv) that may be delivered as a copy rather than the original may be delivered to the Trustee or the Custodian. In connection with the assignment of any Mortgage Loan registered on the MERS(R)System, the Company further agrees that it will cause, at the Company's own expense, within 30 Business Days after the Closing Date, the MERS(R)System to indicate that such Mortgage Loans have been assigned by the Company to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in accordance with this Agreement) in such computer files (a) the code in the field which identifies the specific Trustee and (b) the code in the field "Pool Field" which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Company further agrees that it will not, and will not permit the Master Servicer to, and the Master Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement. (e) (See Section 2.01(e) of the Standard Terms). (f) It is intended that the conveyance by the Company to the Trustee of the Mortgage Loans as provided for in this Section 2.01 be and the Uncertificated REMIC Regular Interests, if any (as provided for in Section 2.06), be construed as a sale by the Company to the Trustee of the Mortgage Loans and any Uncertificated REMIC Regular Interests for the benefit of the Certificateholders. Further, it is not intended that such conveyance be deemed to be a pledge of the Mortgage Loans and any Uncertificated REMIC Regular Interests by the Company to the Trustee to secure a debt or other obligation of the Company. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in Section 2.01 shall be deemed to be, and hereby is, (1) a grant by the Company to the Trustee of a security interest in all of the Company's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property and other property of whatever kind or description now existing or hereafter acquired consisting of, arising from or relating to any of the following: (A) the Mortgage Loans, including (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate and Cooperative Lease, (ii) with respect to each Sharia Mortgage Loan, the related Sharia Mortgage Loan Security Instrument, Sharia Mortgage Loan Co-Ownership Agreement, Obligation to Pay and Assignment Agreement and Amendment of Security Instrument, (iii) with respect to each Mortgage Loan other than a Cooperative Loan or a Sharia Mortgage Loan, the related Mortgage Note and Mortgage, and (iv) any insurance policies and all other documents in the related Mortgage File, (B) all amounts payable pursuant to the Mortgage Loans in accordance with the terms thereof, (C) any Uncertificated REMIC Regular Interests and (D) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Company to the Trustee of any security interest in any and all of Residential Funding's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted by Residential Funding to the Company pursuant to the Assignment Agreement; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property, certificated securities or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction as in effect (including, without limitation, Sections 8-106, 9-313, 9-314 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. The Company and, at the Company's direction, Residential Funding and the Trustee shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were determined to create a security interest in the Mortgage Loans, any Uncertificated REMIC Regular Interests and the other property described above, such security interest would be determined to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, the Company shall prepare and deliver to the Trustee not less than 15 days prior to any filing date and, the Trustee shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Company, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Trustee's security interest in or lien on the Mortgage Loans and any Uncertificated REMIC Regular Interests, as evidenced by an Officers' Certificate of the Company, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of Residential Funding, the Company or the Trustee (such preparation and filing shall be at the expense of the Trustee, if occasioned by a change in the Trustee's name), (2) any change of type or jurisdiction of organization of Residential Funding or the Company, (3) any transfer of any interest of Residential Funding or the Company in any Mortgage Loan or (4) any transfer of any interest of Residential Funding or the Company in any Uncertificated REMIC Regular Interest. (g) (See Section 2.01(g) of the Standard Terms). (h) (See Section 2.01(h) of the Standard Terms). Section 2.02. ACCEPTANCE BY TRUSTEE. (See Section 2.02 of the Standard Terms.) Section 2.03. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MASTER SERVICER AND THE Company. (a) For representations, warranties and covenants of the Master Servicer, see Section 2.03(a) of the Standard Terms. (b) The Company hereby represents and warrants to the Trustee for the benefit of Certificateholders that as of the Closing Date (or, if otherwise specified below, as of the date so specified): (i) No Mortgage Loan is 30 or more days Delinquent in payment of principal and interest as of the Cut-off Date and no Mortgage Loan has been so Delinquent more than once in the 12-month period prior to the Cut-off Date; (ii) The information set forth in Exhibit One hereto with respect to each Mortgage Loan or the Mortgage Loans, as the case may be, is true and correct in all material respects at the date or dates respecting which such information is furnished; (iii) The Mortgage Loans are adjustable-rate mortgage loans with Monthly Payments due, with respect to a majority of the Mortgage Loans, on the first day of each month and terms to maturity at origination or modification of not more than 30 years; (iv) To the best of the Company's knowledge, if a Mortgage Loan is secured by a Mortgaged Property with a Loan-to-Value Ratio at origination in excess of 80%, such Mortgage Loan is the subject of a Primary Insurance Policy that insures (a) at least 35% of the Stated Principal Balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 100.00% and 95.01%, (b) at least 30% of the Stated Principal Balance of the Mortgage Loan at origination if the Loan-to-Value Ratio is between 95.00% and 90.01%, (c) at least 25% of such balance if the Loan-to-Value Ratio is between 90.00% and 85.01% and (d) at least 12% of such balance if the Loan-to-Value Ratio is between 85.00% and 80.01%. To the best of the Company's knowledge, each such Primary Insurance Policy is in full force and effect and the Trustee is entitled to the benefits thereunder; (v) The issuers of the Primary Insurance Policies are insurance companies whose claims-paying abilities are currently acceptable to each Rating Agency; (vi) No more than 0.8% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date are secured by Mortgaged Properties located in any one zip code area in California, and no more than 0.7% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date are secured by Mortgaged Properties located in any one zip code area outside California; (vii) The improvements upon the Mortgaged Properties are insured against loss by fire and other hazards as required by the Program Guide, including flood insurance if required under the National Flood Insurance Act of 1968, as amended. The Mortgage requires the Mortgagor to maintain such casualty insurance at the Mortgagor's expense, and on the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's expense and to seek reimbursement therefor from the Mortgagor; (viii) Immediately prior to the assignment of the Mortgage Loans to the Trustee, the Company had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such assignment validly transfers ownership of the Mortgage Loans to the Trustee free and clear of any pledge, lien, encumbrance or security interest; (ix) No more than 57.15% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date were underwritten under a reduced loan documentation program, no more than 14.65% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date were underwritten under a no-stated income program, and no more than 7.91% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date were underwritten under a no income/no asset program; (x) Except with respect to no more than 16.06% of the Mortgage Loans by aggregate Stated Principal Balance as of the Cut-off Date, the Mortgagor represented in its loan application with respect to the related Mortgage Loan that the Mortgaged Property would be owner-occupied; (xi) None of the Mortgage Loans is a Buy-Down Mortgage Loan; (xii) Each Mortgage Loan constitutes a qualified mortgage under Section 860G(a)(3)(A) of the Code and Treasury Regulation Section 1.860G-2(a)(1), (2), (4), (5), (6), (7) and (9) without reliance on the provisions of Treasury Regulation Section 1.860G-2(a)(3) or Treasury Regulation Section 1.860G-2(f)(2) or any other provision that would allow a Mortgage Loan to be treated as a "qualified mortgage" notwithstanding its failure to meet the requirements of Section 860G(a)(3)(A) of the Code and Treasury Regulation Section 1.860G-2(a)(1), (2), (4), (5), (6), (7) and (9); (xiii) A policy of title insurance was effective as of the closing of each Mortgage Loan and is valid and binding and remains in full force and effect, unless the Mortgaged Properties are located in the State of Iowa and an attorney's certificate has been provided as described in the Program Guide; (xiv) No Mortgage Loan is a Cooperative Loan; (xv) With respect to each Mortgage Loan originated under a "streamlined" Mortgage Loan program (through which no new or updated appraisals of Mortgaged Properties are obtained in connection with the refinancing thereof), the related Seller has represented that either (a) the value of the related Mortgaged Property as of the date the Mortgage Loan was originated was not less than the appraised value of such property at the time of origination of the refinanced Mortgage Loan or (b) the Loan-to-Value Ratio of the Mortgage Loan as of the date of origination of the Mortgage Loan generally meets the Company's underwriting guidelines; (xvi) Interest on each Mortgage Loan is calculated on the basis of a 360-day year consisting of twelve 30-day months; (xvii) None of the Mortgage Loans contain in the related Mortgage File a Destroyed Mortgage Note; (xviii) None of the Mortgage Loans has been made to International Borrowers; (xix) No Mortgage Loan provides for payments that are subject to reduction by withholding taxes levied by any foreign (non-United States) sovereign government; and (xx) None of the Mortgage Loans are Additional Collateral Loans and none of the Mortgage Loans are Pledged Asset Loans. It is understood and agreed that the representations and warranties set forth in this Section 2.03(b) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by any of the Company, the Master Servicer, the Trustee or any Custodian of a breach of any of the representations and warranties set forth in this Section 2.03(b) that materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement); provided, however, that in the event of a breach of the representation and warranty set forth in Section 2.03(b)(xii), the party discovering such breach shall give such notice within five days of discovery. Within 90 days of its discovery or its receipt of notice of breach, the Company shall either (i) cure such breach in all material respects or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that the Company shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. Any such substitution shall be effected by the Company under the same terms and conditions as provided in Section 2.04 for substitutions by Residential Funding. It is understood and agreed that the obligation of the Company to cure such breach or to so purchase or substitute for any Mortgage Loan as to which such a breach has occurred and is continuing shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of the Certificateholders. Section 2.04. REPRESENTATIONS AND WARRANTIES OF SELLERS.(See Section 2.04 of the Standard Terms) Section 2.05. EXECUTION AND AUTHENTICATION OF CERTIFICATES/ISSUANCE OF CERTIFICATES EVIDENCING INTERESTS IN REMICS. The Trustee acknowledges the assignment to it of the Mortgage Loans and the delivery of the Mortgage Files to it, or any Custodian on its behalf, subject to any exceptions noted, together with the assignment to it of all other assets included in the Trust Fund and/or the applicable REMIC, receipt of which is hereby acknowledged. Concurrently with such delivery and in exchange therefor, the Trustee, pursuant to the written request of the Company executed by an officer of the Company, has executed and caused to be authenticated and delivered to or upon the order of the Company the Class R-I Certificates in authorized denominations which, together with the REMIC I Regular Interests, evidence the beneficial interest in REMIC I, and the Class R-II Certificates in authorized denominations which, together with the REMIC II Regular Interests, evidence the beneficial interest in REMIC II. Section 2.06. CONVEYANCE OF UNCERTIFICATED REMIC REGULAR INTERESTS; ACCEPTANCE BY THE TRUSTEE. The Company, as of the Closing Date, and concurrently with the execution and delivery hereof, does hereby assign without recourse all the right, title and interest of the Company in and to the Uncertificated REMIC Regular Interests to the Trustee for the benefit of the Holders of each Class of Certificates (other than the Class R-I and Class R-II Certificates). The Trustee acknowledges receipt of the Uncertificated REMIC 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 each Class of Certificates (other than the Class R-I and Class R-II Certificates). The rights of the Holders of each Class of Certificates (other than the Class R-I and Class R-II Certificates) to receive distributions from the proceeds of REMIC III in respect of such Classes, and all ownership interests of the Holders of such Classes in such distributions, shall be as set forth in this Agreement. Section 2.07. ISSUANCE OF CERTIFICATES EVIDENCING INTEREST IN REMIC III. The Trustee acknowledges the assignment to it of the Uncertificated REMIC Regular Interests and the Uncertificated REMIC II Regular Interests, and, concurrently therewith and in exchange therefor, pursuant to the written request of the Company executed by an officer of the Company, the Trustee has executed and caused to be authenticated and delivered to or upon the order of the Company, all Classes of Certificates (other than the Class R-I and Class R-II Certificates) in authorized denominations, which evidence the beneficial interest in the entire REMIC III. Section 2.08. PURPOSES AND POWERS OF THE TRUST. (See Section 2.08 of the Standard Terms.) Section 2.09. AGREEMENT REGARDING ABILITY TO DISCLOSE. The Company, the Master Servicer and the Trustee hereby agree, notwithstanding any other express or implied agreement to the contrary, that any and all Persons, and any of their respective employees, representatives, and other agents may disclose, immediately upon commencement of discussions, to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to any of them relating to such tax treatment and tax structure. For purposes of this paragraph, the terms "tax treatment" and "tax structure" are defined under Treasury Regulationss.1.6011-4(c). -------------------------------------------------------------------------------- ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01 Master Servicer to Act as Servicer. (See Section 3.01 of the Standard Terms) Section 3.02 Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations. (See Section 3.02 of the Standard Terms) Section 3.03 Successor Subservicers. (See Section 3.03 of the Standard Terms) Section 3.04 Liability of the Master Servicer. (See Section 3.04 of the Standard Terms) Section 3.05 No Contractual Relationship Between Subservicer and Trustee or Certificateholders. (See Section 3.05 of the Standard Terms) Section 3.06 Assumption or Termination of Subservicing Agreements by Trustee. (See Section 3.06 of the Standard Terms) Section 3.07 Collection of Certain Mortgage Loan Payments; Deposit to Custodial Account. (a) (See Section 3.07(a) of the Standard Terms) (b) The Master Servicer shall establish and maintain a Custodial Account in which the Master Servicer shall deposit or cause to be deposited on a daily basis, except as otherwise specifically provided herein, the following payments and collections remitted by Subservicers or received by it in respect of the Mortgage Loans subsequent to the Cut-off Date (other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date): (i) All payments on account of principal, including Principal Prepayments made by Mortgagors on the Mortgage Loans and the principal component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (ii) All payments on account of interest at the Adjusted Mortgage Rate on the Mortgage Loans, including Buydown Funds, if any, and the interest component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (iii) Insurance Proceeds, Subsequent Recoveries and Liquidation Proceeds (net of any related expenses of the Subservicer); (iv) All proceeds of any Mortgage Loans purchased pursuant to Section 2.02, 2.03, 2.04 or 4.07 (including amounts received from Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the Compliance With Laws Representation and all amounts required to be deposited in connection with the substitution of a Qualified Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; (v) Any amounts required to be deposited pursuant to Section 3.07(c) or 3.21; (vi) All amounts transferred from the Certificate Account to the Custodial Account in accordance with Section 4.02(a); (vii) Any amounts realized by the Subservicer and received by the Master Servicer in respect of any Additional Collateral; (viii) Any amounts received by the Master Servicer in respect of Pledged Assets; and (ix) Any amounts received by the Master Servicer in connection with any Prepayment Charges on the Prepayment Charge 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 on the Mortgage Loans which are not part of the Trust Fund (consisting of payments in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date) and payments or collections in the nature of late payment charges or assumption fees may but need not be deposited by the Master Servicer in the Custodial Account. In the event any amount not required to be deposited in the Custodial Account is so deposited, the Master Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. Amounts received by the Master Servicer in connection with Prepayment Charges on the Prepayment Charge Loans shall be remitted by the Master Servicer on the Certificate Account Deposit Date to the Trustee and shall be deposited by the Trustee, upon the receipt thereof and written direction with respect thereto, into the Certificate Account. The Custodial Account may contain funds that belong to one or more trust funds created for mortgage pass-through certificates of other series and may contain other funds respecting payments on Mortgage Loans belonging to the Master Servicer or serviced or master serviced by it on behalf of others. Notwithstanding such commingling of funds, the Master Servicer shall keep records that accurately reflect the funds on deposit in the Custodial Account that have been identified by it as being attributable to the Mortgage Loans. With respect to Insurance Proceeds, Liquidation Proceeds, REO Proceeds and the proceeds of the purchase of any Mortgage Loan pursuant to Sections 2.02, 2.03, 2.04 and 4.07 received in any calendar month, the Master Servicer may elect to treat such amounts as included in the Available Distribution Amount for the Distribution Date in the month of receipt, but is not obligated to do so. If the Master Servicer so elects, such amounts will be deemed to have been received (and any related Realized Loss shall be deemed to have occurred) on the last day of the month prior to the receipt thereof. (c) (See Section 3.07(c) of the Standard Terms) (d) (See Section 3.07(d) of the Standard Terms) (e) Notwithstanding Section 3.07(a), The Master Servicer shall not waive (or permit a Subservicer to waive) any Prepayment Charge unless: (i) the enforceability thereof shall have been limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally, (ii) the enforcement thereof is illegal, or any local, state or federal agency has threatened legal action if the prepayment penalty is enforced, (iii) the collectability thereof shall have been limited due to acceleration in connection with a foreclosure or other involuntary payment or (iv) such waiver is standard and customary in servicing similar Mortgage Loans and relates to a default or a reasonably foreseeable default and would, in the reasonable judgment of the Master Servicer, maximize recovery of total proceeds taking into account the value of such Prepayment Charge and the related Mortgage Loan. In no event will the Master Servicer waive a Prepayment Charge in connection with a refinancing of a Mortgage Loan that is not related to a default or a reasonably foreseeable default. If a Prepayment Charge is waived, but does not meet the standards described above, then the Master Servicer is required to remit the amount of such waived Prepayment Charge to the Trustee at the time that the amount prepaid on the related Mortgage Loan is required to be deposited into the Custodial Account, and upon receipt thereof and written direction with respect thereto, the Trustee shall deposit such amount into the Certificate Account. Notwithstanding any other provisions of this Agreement, any payments made by the Master Servicer in respect of any waived Prepayment Charges pursuant to this Section shall be deemed to be paid outside of the Trust Fund and not part of any REMIC. Section 3.08. Subservicing Accounts; Servicing Accounts (See Section 3.08 of the Standard Terms) Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans (See Section 3.09 of the Standard Terms) Section 3.10. Permitted Withdrawals from the Custodial Account (See Section 3.10 of the Standard Terms) Section 3.11. Maintenance of the Primary Insurance Policies; Collections Thereunder (See Section 3.011 of the Standard Terms) Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage (See Section 3.12 of the Standard Terms) Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments (See Section 3.13 of the Standard Terms) Section 3.14. Realization Upon Defaulted Mortgage Loans (See Section 3.14 of the Standard Terms) Section 3.15. Trustee to Cooperate; Release of Mortgage Files (See Section 3.15 of the Standard Terms) Section 3.16. Servicing and Other Compensation; Compensating Interest (a) (See Section 3.16(a) of the Standard Terms) (b) Additional servicing compensation in the form of assumption fees, late payment charges, investment income on amounts in the Custodial Account or the Certificate Account or otherwise (but not including Prepayment Charges) shall be retained by the Master Servicer or the Subservicer to the extent provided herein, subject to clause (e) below. Prepayment charges shall be deposited into the Certificate Account and shall be paid on each Distribution Date to the holders of the Class SB Certificates. (c) (See Section 3.16(c) of the Standard Terms) (d) (See Section 3.16(d) of the Standard Terms) (e) (See Section 3.16(e) of the Standard Terms) Section 3.17. Reports to the Trustee and the Company (See Section 3.17 of the Standard Terms) Section 3.18. Annual Statement as to Compliance (See Section 3.18 of the Standard Terms) Section 3.19. Annual Independent Public Accountants' Servicing Report (See Section 3.19 of the Standard Terms) Section 3.20. Rights of the Company in Respect of the Master Servicer (See Section 3.20 of the Standard Terms) Section 3.21. Administration of Buydown Funds (See Section 3.21 of the Standard Terms) Section 3.22 Advance Facility (See Section 3.22 of the Standard Terms) -------------------------------------------------------------------------------- ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01. CERTIFICATE ACCOUNT. (a) The Master Servicer on behalf of the Trustee shall establish and maintain a Certificate Account in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. New York time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Section 3.12(a), (iii) any amount required to be deposited in the Certificate Account pursuant to Section 3.16(e) or Section 4.07, (iv) any amount required to be paid pursuant to Section 9.01 and (v) all other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date. On or prior to the Business Day immediately following each Determination Date, the Master Servicer shall determine any amounts owed by the Swap Counterparty under the Swap Agreement and inform the Trustee in writing of the amount so calculated. (b) (See Section 4.01(b) of the Standard Terms) Section 4.02. DISTRIBUTIONS. (a) On each Distribution Date, the Trustee (or the Paying Agent on behalf of the Trustee) shall allocate and distribute the Available Distribution Amount to the extent on deposit in the Certificate Account for such date to the interests issued in respect of REMIC I, REMIC II and REMIC III as specified in this Section. (b) (1) On each Distribution Date, the REMIC I Distribution Amount shall be distributed by REMIC I to REMIC II on account of the REMIC I Regular Interests in the amounts and with the priorities set forth in the definition thereof. (2) On each Distribution Date, the REMIC II Distribution Amount shall be distributed by REMIC II to REMIC III on account of the REMIC II Regular Interests in the amounts and with the priorities set forth in the definition thereof. (3) On each Distribution Date, the REMIC III Distribution Amount shall be deemed to have been distributed by REMIC III to the Certificateholders on account of the REMIC III Regular Interests represented thereby in the amounts and with the priorities set forth in the definition thereof. (4) On each Distribution Date, the amount, if any, deemed received by the Class SB Certificate in respect of the REMIC III Regular Interest IO and under the SB-AM Swap Agreement shall be deemed to have been paid on behalf of the Class SB Certificate by the Trustee pursuant to Section 4.09 in respect of the Net Swap Payment owed to the Swap Counterparty. On each Distribution Date, the amount, if any, received by the Trustee from the Swap Counterparty in respect of the Swap Agreement shall be deemed to have been received by the Trustee on behalf of the Class SB Certificates. On each Distribution Date, amounts paid to the Class A and Class M Certificates pursuant to Section 4.02(c)(v) in respect of Basis Risk Shortfall shall be deemed to have been paid by the Class SB Certificateholder pursuant to the SB-AM Swap Agreement. (5) Notwithstanding the distributions described in this Section 4.02(b), distribution of funds from the Certificate Account shall be made only in accordance with Section 4.02(c). (c) On each Distribution Date (x) the Master Servicer on behalf of the Trustee or (y) the Paying Agent appointed by the Trustee, shall distribute to each Certificateholder of record on the next preceding Record Date (other than as provided in Section 9.01 of the Standard Terms respecting the final distribution) either in immediately available funds (by wire transfer or otherwise) to the account of such Certificateholder at a bank or other entity having appropriate facilities therefor, if such Certificateholder has so notified the Master Servicer or the Paying Agent, as the case may be, or, if such Certificateholder has not so notified the Master Servicer or the Paying Agent by the Record Date, by check mailed to such Certificateholder at the address of such Holder appearing in the Certificate Register such Certificateholder's share (which share with respect to each Class of Certificates, shall be based on the aggregate of the Percentage Interests represented by Certificates of the applicable Class held by such Holder of the following amounts), in the following order of priority, in each case to the extent of the Available Distribution Amount on deposit in the Certificate Account and the Swap Account pursuant to Section 4.09(c): (i) The Interest Distribution Amount, sequentially: (A) first, to the Class A Certificates, Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (B) second, to the Class M-1 Certificates, Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (C) third, to the Class M-2 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (D) fourth, to the Class M-3 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any related Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (E) fifth, to the Class M-4 Certificates, Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (F) sixth, to the Class M-5 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (G) seventh, to the Class M-6 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any related Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (H) eighth, to the Class M-7 Certificates, Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (I) ninth, to the Class M-8 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (J) tenth, to the Class M-9 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; and (K) eleventh, to the Class M-10 Certificates Accrued Certificate Interest due thereon for such Distribution Date plus any Accrued Certificate Interest due thereon remaining unpaid from any prior Distribution Date, together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date; (ii) to the Class A Certificateholders and the Class M Certificateholders from the amount, if any, of Available Distribution Amount remaining after the foregoing distributions, the Principal Distribution Amount, which amount shall be allocated in the manner and priority set forth in Section 4.02(d), until the aggregate Certificate Principal Balance of each Class of Class A Certificates and Class M Certificates has been reduced to zero; (iii) to the Class A Certificateholders and Class M Certificateholders from the amount, if any, of Excess Cash Flow remaining after the foregoing distributions, the amount of any related Prepayment Interest Shortfalls with respect to the Mortgage Loans for that Distribution Date, to the extent not covered by Compensating Interest on such Distribution Date, which amount shall be allocated to the Class A Certificateholders and Class M Certificateholders on a pro rata basis, based on the amount of Prepayment Interest Shortfalls allocated thereto for such Distribution Date; (iv) to the Class A Certificateholders and Class M Certificateholders from the amount, if any, of Excess Cash Flow remaining after the foregoing distributions, the amount of any Prepayment Interest Shortfalls allocated thereto remaining unpaid from prior Distribution Dates together with interest thereon at the related Pass-Through Rate in effect for such Distribution Date, which amount shall be allocated to the Class A Certificateholders and Class M Certificateholders on a pro rata basis, based on the amount of Prepayment Interest Shortfalls remaining unpaid; (v) to the Class A Certificates and Class M Certificates from the amount, if any, of Excess Cash Flow remaining after the foregoing distributions the amount of any Basis Risk Shortfall on such Certificates, which amount shall be allocated first, to the Class A Certificates on a pro rata basis, based on their respective Basis Risk Shortfall for such Distribution Date, and then, sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificateholders, in that order; (vi) to pay the holders of the Class A Certificates and Class M Certificates, on a pro rata basis, based on Relief Act Shortfalls allocated thereto for such Distribution Date, the amount of any Relief Act Shortfalls allocated thereto with respect to the Mortgage Loans for such Distribution Date, (vii) first, to the Class A Certificateholders, the principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, on a pro rata basis based on their respective principal portion of any Realized Losses previously allocated to those Certificates and remaining unreimbursed, and then, sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificateholders, in that order, the principal portion of any Realized Losses previously allocated to such Class and remaining unreimbursed; (viii) to the Swap Account for payment to the Swap Counterparty, any Swap Termination Payments due to a Swap Counterparty Trigger Event; (ix) to the Class SB Certificates, (A) from the amount, if any, of the Available Distribution Amount remaining after the foregoing distributions, the sum of (I) Accrued Certificate Interest thereon, (II) the amount of any Overcollateralization Reduction Amount for such Distribution Date and (III) for any Distribution Date after the Certificate Principal Balance of each Class A Certificate and Class M Certificate has been reduced to zero, the Overcollateralization Amount, (B) from prepayment charges on deposit in the Certificate Account, any prepayment charges received on the Mortgage Loans during the related Prepayment Period, and (C) from the Net Swap Payments owed by the Swap Counterparty, if any, the amount of such Net Swap Payments remaining after the foregoing distributions; and (x) to the Class R-III Certificateholders, the balance, if any, of the Available Distribution Amount. All payments of amounts in respect of Basis Risk Shortfall made pursuant to Section 4.02(c)(v) shall, for federal income tax purposes, be deemed to have been distributed from REMIC III to the holder of the Class SB Certificates and then paid outside of any REMIC to the recipients thereof pursuant to an interest rate cap contract. By accepting their Certificates the holders of the Certificates agree to treat such payments in the manner described in the preceding sentence for purposes of filing their income tax returns. (d) The Principal Distribution Amount payable to the Class A Certificateholders and the Class M Certificateholders shall be distributed as follows: (i) first, the Class A Principal Distribution Amount shall be distributed to the Class A Certificates until the Certificate Principal Balance thereof has been reduced to zero; (ii) second, the Class M-1 Principal Distribution Amount shall be distributed to the Class M-1 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (iii) third, the Class M-2 Principal Distribution Amount shall be distributed to the Class M-2 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (iv) fourth, the Class M-3 Principal Distribution Amount shall be distributed to the Class M-3 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (v) fifth, the Class M-4 Principal Distribution Amount shall be distributed to the Class M-4 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (vi) sixth, the Class M-5 Principal Distribution Amount shall be distributed to the Class M-5 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (vii) seventh, the Class M-6 Principal Distribution Amount shall be distributed to the Class M-6 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (viii) eighth, the Class M-7 Principal Distribution Amount shall be distributed to the Class M-7 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (ix) ninth, the Class M-8 Principal Distribution Amount shall be distributed to the Class M-8 Certificates until the Certificate Principal Balance thereof has been reduced to zero; (x) tenth, the Class M-9 Principal Distribution Amount shall be distributed to the Class M-9 Certificates until the Certificate Principal Balance thereof has been reduced to zero; and (xi) eleventh, the Class M-10 Principal Distribution Amount shall be distributed to the Class M-10 Certificates until the Certificate Principal Balance thereof has been reduced to zero. (e) Notwithstanding the foregoing clauses (c) and (d), upon the reduction of the Certificate Principal Balance of a Class of Class A Certificates or Class M Certificates to zero, such Class of Certificates will not be entitled to further distributions pursuant to Section 4.02, including, without limitation, the payment of current and unreimbursed Prepayment Interest Shortfalls pursuant to clauses (c)(iii) and (iv) and Basis Risk Shortfall pursuant to clause (c)(v). (f) Each distribution with respect to a Book-Entry Certificate shall be paid to the Depository, as Holder thereof, and the Depository shall be solely 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") for which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate Owners that it represents. None of the Trustee, the Certificate Registrar, the Company or the Master Servicer shall have any responsibility therefor. (g) Except as otherwise provided in Section 9.01 of the Standard Terms, if the Master Servicer anticipates that a final distribution with respect to any Class of Certificates will be made on a future Distribution Date, the Master Servicer shall, no later than 40 days prior to such final Distribution Date, notify the Trustee and the Trustee shall, not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution, distribute, or cause to be distributed, to each Holder of such Class of Certificates a notice to the effect that: (i) the Trustee anticipates that the final distribution with respect to such Class of Certificates will be made on such Distribution Date but only upon presentation and surrender of such Certificates at the office of the Trustee or as otherwise specified therein, and (ii) no interest shall accrue on such Certificates from and after the end of the related Interest Accrual Period. In the event that Certificateholders required to surrender their Certificates pursuant to Section 9.01(c) of the Standard Terms do not surrender their Certificates for final cancellation, the Trustee shall cause funds distributable with respect to such Certificates to be withdrawn from the Certificate Account and credited to a separate escrow account for the benefit of such Certificateholders as provided in Section 9.01(d) of the Standard Terms. Section 4.03. STATEMENTS TO CERTIFICATEHOLDERS; STATEMENTS TO THE RATING AGENCIES; EXCHANGE ACT REPORTING. (See Section 4.03 of the Standard Terms) Section 4.04. DISTRIBUTION OF REPORTS TO THE TRUSTEE AND THE COMPANY; ADVANCES BY THE MASTER SERVICER. (a) (See Section 4.04(a) of the Standard Terms). (b) On or before 2:00 P.M. New York time on each Certificate Account Deposit Date, the Master Servicer shall either (i) deposit in the Certificate Account from its own funds, or funds received therefor from the Subservicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date, which shall be in an aggregate amount equal to the aggregate amount of Monthly Payments (with each interest portion thereof adjusted to the Net Mortgage Rate), less the amount of any related Servicing Modifications, Debt Service Reductions or reductions in the amount of interest collectable from the Mortgagor pursuant to the Servicemembers Civil Relief Act, as amended, or similar legislation or regulations then in effect, on the Outstanding Mortgage Loans as of the related Due Date, which Monthly Payments were not received as of the close of business as of the related Determination Date; provided that no Advance shall be made if it would be a Nonrecoverable Advance; and provided, further, that the Monthly Payment for purposes of this Section 4.04 shall mean the minimum monthly payment due under the Mortgage Note, net of the Servicing Fee and Subservicing Fee, (ii) withdraw from amounts on deposit in the Custodial Account and deposit in the Certificate Account all or a portion of the Amount Held for Future Distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of (i) and (ii) aggregating the amount of such Advance. Any portion of the Amount Held for Future Distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. New York time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The Master Servicer shall be entitled to use any Advance made by a Subservicer as described in Section 3.07(b) that has been deposited in the Custodial Account on or before such Distribution Date as part of the Advance made by the Master Servicer pursuant to this Section 4.04. The amount of any reimbursement pursuant to Section 4.02(a) in respect of outstanding Advances on any Distribution Date shall be allocated to specific Monthly Payments due but delinquent for previous Due Periods, which allocation shall be made, to the extent practicable, to Monthly Payments which have been delinquent for the longest period of time. Such allocations shall be conclusive for purposes of reimbursement to the Master Servicer from recoveries on related Mortgage Loans pursuant to Section 3.10. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate of the Master Servicer delivered to the Company and the Trustee. If the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., New York time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the Trustee shall, unless by 12:00 Noon, New York time, on such day the Trustee shall have been notified in writing (by telecopy) that the Master Servicer shall have directly or indirectly deposited in the Certificate Account such portion of the amount of the Advance as to which the Master Servicer shall have given notice pursuant to the preceding sentence, pursuant to Section 7.01, (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date. The Trustee shall deposit all funds it receives pursuant to this Section 4.04 into the Certificate Account. Section 4.05. ALLOCATION OF REALIZED LOSSES. (a) Prior to each Distribution Date, the Master Servicer shall determine the total amount of Realized Losses, if any, that resulted from any Cash Liquidation, Servicing Modifications, Debt Service Reduction, Deficient Valuation or REO Disposition that occurred during the related Prepayment Period or, in the case of a Servicing Modification that constitutes a reduction of the interest rate on a Mortgage Loan, the amount of the reduction in the interest portion of the Monthly Payment due in the month in which such Distribution Date occurs. The amount of each Realized Loss shall be evidenced by an Officers' Certificate. All Realized Losses on the Mortgage Loans shall be allocated as follows: first, to the Excess Cash Flow as part of the Principal Distribution Amount as provided in Section 4.02(c), to the extent of the Excess Cash Flow for such Distribution Date, second, in reduction of the Overcollateralization Amount, until such amount 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 thereof has been reduced to zero; eleventh, to the Class M-2 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; and twelfth, to the Class M-1 Certificates, until the Certificate Principal Balance thereof has been reduced to zero; and thirteenth, to the Class A Certificates, until the Certificate Principal Balance thereof has been reduced to zero. (b) Any allocation of the principal portion of Realized Losses (other than Debt Service Reductions) to the Class A Certificates or Class M Certificates on any Distribution Date shall be made by reducing the Certificate Principal Balance thereof by the amount so allocated, which allocation shall be deemed to have occurred on such Distribution Date, until the Certificate Principal Balance thereof has been reduced to zero; provided, that no such reduction shall reduce the aggregate Certificate Principal Balance of the Certificates below the aggregate Stated Principal Balance of the Mortgage Loans. Allocations of the interest portions of Realized Losses (other than any interest rate reduction resulting from a Servicing Modification) to any Class of Class A Certificates or Class M Certificates on any Distribution Date shall be made by operation of the definition of "Accrued Certificate Interest" for each Class for such Distribution Date. Allocations of the interest portion of a Realized Loss resulting from an interest rate reduction in connection with a Servicing Modification shall be made by operation of the priority of payment provisions of Section 4.02(c). 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) Realized Losses shall be allocated among the REMIC I Regular Interests pursuant to the definition of REMIC I Realized Losses and the REMIC II Regular Interests pursuant to the definition of REMIC II Realized Losses. (d) Realized Losses allocated to the Excess Cash Flow or the Overcollateralization Amount pursuant to paragraphs (a), (b) or (c) of this Section, the definition of Accrued Certificate Interest and the operation of Section 4.02(c) shall be deemed allocated to the Class SB Certificates. Realized Losses allocated to the Class SB Certificates shall, to the extent such Realized Losses represent Realized Losses on an interest portion, be allocated to REMIC III Regular Interest SB-IO. Realized Losses allocated to the Excess Cash Flow pursuant to paragraph (b) of this Section shall be deemed to reduce Accrued Certificate Interest on REMIC III Regular Interest SB-IO. Realized Losses allocated to the Overcollateralization Amount pursuant to paragraph (b) of this Section shall be deemed first to reduce the principal balance of REMIC III Regular Interest SB-PO until such principal balance shall have been reduced to zero and thereafter to reduce accrued and unpaid interest on REMIC III Regular Interest SB-IO. Section 4.06. REPORTS OF FORECLOSURES AND ABANDONMENT OF MORTGAGED PROPERTY. (See Section 4.06 of the Standard Terms.) Section 4.07. OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS. (See Section 4.07 of the Standard Terms.) Section 4.08. SURETY BOND. (See Section 4.08 of the Standard Terms.) Section 4.09. SWAP AGREEMENT. (a) On the Closing Date, the Trustee shall (i) establish and maintain in its name, in trust for the benefit of the Certificateholders, the Swap Account and (ii) for the benefit of the Certificateholders, cause the Trust to enter into the Swap Agreement. (b) The Trustee shall deposit in the Swap Account all payments that are payable to the Trust Fund under the Swap Agreement. Net Swap Payments and Swap Termination Payments (other than Swap Termination Payments resulting from a Swap Counterparty Trigger Event) payable by the Trust Fund to the Swap Counterparty pursuant to the Swap Agreement shall be excluded from the Available Distribution Amount and payable to the Swap Counterparty prior to any distributions to the Certificateholders. On each Distribution Date, such amounts will be remitted by the Trustee to the Swap Account for payment to the Swap Counterparty, first to make any Net Swap Payment owed to the Swap Counterparty pursuant to the Swap Agreement for such Distribution Date, and second to make any Swap Termination Payment (not due to a Swap Counterparty Trigger Event) owed to the Swap Counterparty pursuant to the Swap Agreement for such Distribution Date. For federal income tax purposes, such amounts paid to the Swap Account on each Distribution Date shall first be deemed paid to the Swap Account in respect of REMIC III Regular Interest IO to the extent of the amount distributable on such REMIC III Regular Interest IO on such Distribution Date, and any remaining amount shall be deemed paid to the Swap Account in respect of the SB-AM Swap Agreement. Any Swap Termination Payment triggered by a Swap Counterparty Trigger Event owed to the Swap Counterparty pursuant to the Swap Agreement will be subordinated to distributions to the Holders of the Class A Certificates and Class M Certificates and shall be paid as set forth under Section 4.02. (c) Net Swap Payments payable by the Swap Counterparty to the Trustee on behalf of the Trust Fund pursuant to the Swap Agreement shall be deposited by the Trustee into the Swap Account and shall be applied in accordance with Section 4.02. (d) Subject to Sections 8.01 and 8.02 of the Standard Terms, the Trustee agrees to comply with the terms of the Swap Agreement and to enforce the terms and provisions thereof against the Swap Counterparty at the written direction of the Holders of Certificates entitled to at least 51% of the Voting Rights, or if the Trustee does not receive such direction from such Certificateholders, then at the written direction of Residential Funding. (e) The Swap Account shall be an Eligible Account. Amounts held in the Swap Account from time to time shall continue to constitute assets of the Trust Fund, but not of the REMICs, until released from the Swap Account pursuant to this Section 4.09. The Swap Account constitutes an "outside reserve fund" within the meaning of Treasury Regulation Section 1.860G-2(h) and is not an asset of the REMICs. The Class SB Certificateholders shall be the owners of the Swap Account. The Trustee shall keep records that accurately reflect the funds on deposit in the Swap Account. The Trustee shall, at the written direction of the Master Servicer, invest amounts on deposit in the Swap Account in Permitted Investments. In the absence of written direction to the Trustee from the Master Servicer, all funds in the Swap Account shall remain uninvested. (f) The Trustee shall enter into the SB-AM Swap Agreement on behalf of the holders of the Class A Certificates and Class M Certificates on the one hand, and on behalf of the holders of the Class SB Certificates on the other hand. Pursuant to the SB-AM Swap Agreement, all holders of Certificates (other than the Class SB Certificates and Class R Certificates) shall be treated as having agreed to pay, on each Distribution Date, to the holder of the Class SB Certificates an aggregate amount equal to the excess, if any, of (i) the amount payable on such Distribution Date on the REMIC III Regular Interest corresponding to such Class of Certificates over (ii) the amount payable on such Class of Certificates on such Distribution Date (such excess, a "Class IO Distribution Amount"). In addition, pursuant to the SB-AM Swap Agreement, the holders of the Class SB Certificates shall be treated as having agreed to pay the related Basis Risk Shortfalls to the holders of the Certificates (other than the Class SB and Class R Certificates) in accordance with the terms of this Agreement. Any payments to the Certificates from amounts deemed received in respect of the SB-AM Swap Agreement shall not be payments with respect to a "regular interest" in a REMIC within the meaning of Code Section 860G(a)(1). However, any payment from the Certificates (other than the Class SB Certificates and Class R Certificates) of a Class IO Distribution Amount shall be treated for tax purposes as having been received by the holders of such Certificates in respect of the REMIC III Regular Interest corresponding to such Class of Certificates and as having been paid by such holders to the Swap Account pursuant to the SB-AM Swap Agreement. Thus, each Certificate (other than the Class R Certificates) shall be treated as representing not only ownership of regular interests in REMIC III, but also ownership of an interest in, and obligations with respect to, a notional principal contract. (g) Upon the occurrence of an Early Termination Date, the Trustee shall use reasonable efforts to appoint a successor swap counterparty. To the extent that the Trustee receives a Swap Termination Payment from the Swap Counterparty, the Trustee shall apply such Swap Termination Payment to appoint a successor swap counterparty. In the event that the trust receives a Swap Termination Payment from the Swap Counterparty and a replacement swap agreement or similar agreement cannot be obtained within 30 days after receipt by the Trustee of such Swap Termination Payment, then the Trustee shall deposit such Swap Termination Payment into a separate, non interest bearing account and will, on each subsequent Distribution Date, withdraw from the amount then remaining on deposit in such reserve account an amount equal to the Net Swap Payment, if any, that would have been paid to the Trust by the original Swap Counterparty calculated in accordance with the terms of the original Swap Agreement, and deposit such amount into the Swap Account for distribution on such Distribution Date pursuant to Section 4.02(c). To the extent that the Trust is required to pay a Swap Termination Payment to the Swap Counterparty, any upfront payment received from the counterparty to a replacement swap agreement will be used to pay such Swap Termination Payment prior to using any portion of the Available Distribution Amount for such Distribution Date. -------------------------------------------------------------------------------- ARTICLE V THE CERTIFICATES Section 5.01. The Certificates. (See Section 5.01of the Standard Terms) Section 5.02. Registration of Transfer and Exchange of Certificates (a) (See Section 5.02(a) of the Standard Terms) (b) (See Section 5.02(b) of the Standard Terms) (c) (See Section 5.02(c) of the Standard Terms) (d) No transfer, sale, pledge or other disposition of a Class SB Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that a transfer of a Class SB Certificate is to be made either (i)(A) the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Company or the Master Servicer (except that, if such transfer is made by the Company or the Master Servicer or any Affiliate thereof, the Company or the Master Servicer shall provide such Opinion of Counsel at their own expense); provided that such Opinion of Counsel will not be required in connection with the initial transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company and (B) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit H to the Standard Terms, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit I to the Standard Terms, each acceptable to and in form and substance satisfactory to the Company and the Trustee certifying to the Company and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Company or the Master Servicer; provided, however, that such representation letters will not be required in connection with any transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company, 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 Company, of the status of such transferee as an Affiliate of the Company or (ii) the prospective transferee of such a Certificate shall be required to provide the Trustee, the Company and the Master Servicer with an investment letter substantially in the form of Exhibit J attached to the Standard Terms (or such other form as the Company in its sole discretion deems acceptable), which investment letter shall not be an expense of the Trustee, the Company or the Master Servicer, and which investment letter states that, among other things, such transferee (A) is a "qualified institutional buyer" as defined under Rule 144A, acting for its own account or the accounts of other "qualified institutional buyers" as defined under Rule 144A, and (B) is aware that the proposed transferor intends to rely on the exemption from registration requirements under the Securities Act of 1933, as amended, provided by Rule 144A. The Holder of any such Certificate desiring to effect any such transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with such federal and state laws. (e) (See Section 5.02(e) of the Standard Terms) (f) (See Section 5.02(f) of the Standard Terms) (g) Provisions Regarding Rule 144A and Regulation S Transfers. (i) Class SB Certificates sold to "qualified institutional buyers" as defined in and in reliance on Rule 144A under the 1933 Act shall be represented by one or more Rule 144A Global Offered Certificates. Class SB Certificates sold in offshore transactions in reliance on Regulation S under the Securities Act shall be represented initially by Temporary Regulation S Global Offered Certificates. (ii) The Temporary Regulation S Global Offered Certificates shall be exchanged on the later of (a) 40 days after the later of the Closing Date (b) the date on which the requisite certifications are due to and provided to the Trustee (the later of clauses (a) and (b), the "Exchange Date") for Permanent Regulation S Global Offered Certificates. Regulation S Global Offered Certificates shall be issued in registered form, without coupons, and deposited upon the order of the Transferor with the Trustee as custodian for and registered in the name of a nominee of the Depository for credit to the account of the depositaries for Euroclear and Clearstream. (iii) A Certificate Owner holding an interest in a Temporary Regulation S Global Offered Certificate may receive payments in respect of the Certificates on the Temporary Regulation S Global Offered Certificate only after the delivery, to Euroclear or Clearstream, as the case may be, of a written certification substantially in the form set forth in Exhibit Six, and upon delivery by Euroclear or Clearstream, as the case may be, to the Trustee and Certificate Registrar of a certification or certifications substantially in the form set forth in Exhibit Seven (the "Clearing System Certificate"). The delivery by a Certificate Owner of the certification referred to above shall constitute its irrevocable instruction to Euroclear or Clearstream, as the case may be, to arrange for the exchange of the Certificate Owner's interest in the Temporary Regulation S Global Offered Certificate for a beneficial interest in the Permanent Regulation S Global Offered Certificate after the Exchange Date in accordance with paragraph (iv) below. (iv) After (i) the Exchange Date and (ii) receipt by the Certificate Registrar of written instructions from Euroclear or Clearstream, as the case may be, directing the Certificate Registrar to credit or cause to be credited to either Euroclear's or Clearstream's, as the case may be, Depository's account a beneficial interest in the Permanent Regulation S Global Offered Certificate in a principal amount not greater than that of the beneficial interest in the Temporary Regulation S Global Offered Certificate, the Certificate Registrar shall instruct the Depository to reduce the principal amount of the Temporary Regulation S Global Offered Certificate and increase the principal amount of the Permanent Regulation S Global Offered Certificate, by the principal amount of the beneficial interest in the Temporary Regulation S Global Offered Certificate to be so transferred, and to credit or cause to be credited to the account of Euroclear, Clearstream or a Person who has an account with the Depository as the case may be, a beneficial interest in the Permanent Regulation S Global Offered Certificate having a Certificate Principal Balance of the Temporary Regulation S Global Class B that was reduced upon the transfer. Upon return of the entire principal amount of the Temporary Regulation S Global Offered Certificate to the Trustee in exchange for beneficial interests in the Permanent Regulation S Global Offered Certificate, Trustee shall cancel the Temporary Regulation S Global Offered Certificate by perforation and shall forthwith destroy it. (v) For transfer of an interest in a Permanent Regulation S Global Offered Certificate for an interest in the Rule 144A Global Offered Certificate, if the Certificateholder of a beneficial interest in a Permanent Regulation S Global Offered Certificate deposited with the Depository wishes at any time to exchange its interest in the Permanent Regulation S Global Offered Certificate, or to transfer its interest in the Permanent Regulation S Global Offered Certificate to a Person who wishes to take delivery thereof in the form of an interest in the Rule 144A Global Offered Certificate, the Certificateholder may, subject to the rules and procedures of Euroclear or Clearstream and the Depository, as the case may be, give directions for the Certificate Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the Rule 144A Global Offered Certificate. Upon receipt by the Certificate Registrar of instructions from Euroclear or Clearstream, from the Depository or from the Certificateholder, as the case may be, directing the Certificate Registrar to credit or cause to be credited a beneficial interest in the Rule 144A Global Offered Certificate equal to the Percentage Interest in the Permanent Regulation S Global Offered Certificate to be exchanged or transferred (such instructions to contain information regarding the Depository Participant account to be credited with the increase, and, with respect to an exchange or transfer of an interest in the Permanent Regulation S Global Offered Certificate, information regarding the Depository Participant account to be debited with the decrease), the Certificate Registrar shall instruct the Depository to reduce the Permanent Regulation S Global Offered Certificate by the aggregate principal amount of the beneficial interest in the Permanent Regulation S Global Offered Certificate to be so exchanged or transferred, and the Certificate Registrar shall instruct the Depository, concurrently with the reduction, to increase the principal amount of the Rule 144A Global Offered Certificate by the aggregate Certificate Principal Balance of the beneficial interest in the Permanent Regulation S Global Offered Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest in the Rule 144A Global Offered Certificate equal to the reduction in the Certificate Principal Balance of the Permanent Regulation S Global Offered Certificate. (vi) For transfers of an interest in the Rule 144A Global Offered Certificate for an interest in a Regulation S Global Offered Certificate, if a Certificate Owner holding a beneficial interest in the Rule 144A Global Offered Certificate wishes at any time to exchange its interest in the Rule 144A Global Offered Certificate for an interest in a Regulation S Global Offered Certificate, or to transfer its interest in the 144A Book-Entry Certificate to a Person who wishes to take delivery thereof in the form of an interest in the Regulation S Global Offered Certificate, the Certificateholder may, subject to the rules and procedures of the Depository, give directions for the Certificate Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the Regulation S Global Offered Certificate. Upon receipt by the Certificate Registrar of (A) instructions given in accordance with the Depository's procedures from a Depository Participant or from the Certificateholder, as the case may be, directing the Certificate Registrar to credit or cause to be credited a beneficial interest in the Regulation S Global Offered Certificate in an amount equal to the beneficial interest in the Rule 144A Global Offered Certificate to be exchanged or transferred, (B) a written order given in accordance with the Depository's procedures containing information regarding the account of the depositaries for Euroclear or Clearstream or another Depository Participant, as the case may be, to be credited with the increase and the name of the account and (C) certificates in the forms of Exhibits Eight and Nine, respectively, given by the proposed transferee and the Certificate Owner of the interest, the Certificate Registrar shall instruct the Depository to reduce the Rule 144A Global Offered Certificate by the aggregate principal amount of the beneficial interest in the Rule 144A Global Offered Certificate to be so exchanged or transferred and the Certificate Registrar shall instruct the Depository, concurrently with the reduction, to increase the principal amount of the Regulation S Global Offered Certificate by the aggregate Certificate Principal Balance of the beneficial interest in the Rule 144A Global Offered Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest in the Regulation S Global Offered Certificate equal to the reduction in the Certificate Principal Balance of the Rule 144A Global Offered Certificate. (vii) Notwithstanding any other provisions of this Section 5.02(g), the Underwriter may exchange beneficial interests in the Temporary Regulation S Global Offered Certificates held by it for interests in the Rule 144A Global Offered Certificates only after delivery by the Underwriter of instructions for the exchange substantially in the form of Exhibit Ten. Upon receipt of the instructions provided in the preceding sentence, the Certificate Registrar shall instruct the Depository to reduce the principal amount of the Temporary Regulation S Global Offered Certificate to be so transferred and shall instruct the Depository to increase the principal amount of the Rule 144A Global Offered Certificate and credit or cause to be credited to the account of the placement agent a beneficial interest in the Rule 144A Global Offered Certificate having a principal amount equal to the amount by which the principal amount of the Temporary Regulation S Global Offered Certificate was reduced upon the transfer pursuant to the instructions provided in the first sentence of this clause (vii). (viii) If a transfer of a Class SB Certificate which is a Definitive Certificate is to be made, the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to the 1933 Act, which Opinion of Counsel shall not be an expense of the Trustee, the Trust Fund, the Company or the Master Servicer. (ix) The Holder of a Class SB Certificate desiring to effect any transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with the provisions of this Agreement. Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates(See Section 5.03 of the Standard Terms) Section 5.04. Persons Deemed Owners (See Section 5.04 of the Standard Terms) Section 5.05. Appointment of Paying Agent (See Section 5.04 of the Standard Terms) Section 5.06. U.S.A. Patriot Act Compliance (See Section 5.05 of the Standard Terms) -------------------------------------------------------------------------------- ARTICLE VI THE COMPANY AND THE MASTER SERVICER Section 6.01. RESPECTIVE LIABILITIES OF THE COMPANY AND MASTER SERVICER. (See Section 6.01 of the Standard Terms.) Section 6.02. MERGER OR CONSOLIDATION OF THE COMPANY OR MASTER SERVICER; ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES BY THE MASTER SERVICER. ( (a) (See Section 6.08(a) of the Standard Terms.). (b) (See Section 6.08(b) of the Standard Terms). (c) (See Section 6.08(c) of the Standard Terms). (d) The conversion of Residential Funding Corporation's or Residential Accredit Loans, Inc.'s organizational structure from a Delaware corporation to a limited liability company shall not require the consent of any party or notice to any party and shall not in any way affect the rights or obligations of Residential Funding Corporation or Residential Accredit Loans, Inc. hereunder. Section 6.03. LIMITATION ON LIABILITY OF THE COMPANY, MASTER SERVICER AND OTHERS. (See Section 6.03 of the Standard Terms.) Section 6.04. COMPANY AND MASTER SERVICER NOT TO RESIGN. (See Section 6.04 of the Standard Terms.) -------------------------------------------------------------------------------- ARTICLE VII DEFAULT (See Article VII of the Standard Terms.) -------------------------------------------------------------------------------- ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of the Trustee. (See Section 8.01 of the Standard Terms). Section 8.02. Certain Matters Affecting the Trustee. (See Section 8.02 of the Standard Terms). Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans. (See Section 8.03 of the Standard Terms). Section 8.04. Trustee May Own Certificates. (See Section 8.04 of the Standard Terms). Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification. (a) (See Section 8.05 of the Standard Terms). (b) The Master Servicer agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense incurred without negligence or willful misconduct on the Trustee's part, arising out of, or in connection with, the acceptance and administration of the Trust Fund, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under this Agreement, the Swap Agreement and the Custodial Agreement, and the Master Servicer further agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense arising out of, or in connection with, the provisions set forth in the second paragraph of Section 2.01(c) hereof, including, without limitation, all costs, liabilities and expenses (including reasonable legal fees and expenses) of investigating and defending itself against any claim, action or proceeding, pending or threatened, relating to the provisions of this paragraph, provided that: (i) with respect to any such claim, the Trustee shall have given the Master Servicer written notice thereof promptly after the Trustee shall have actual knowledge thereof; (ii) while maintaining control over its own defense, the Trustee shall cooperate and consult fully with the Master Servicer in preparing such defense; and (iii) notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not be liable for settlement of any claim by the Trustee entered into without the prior consent of the Master Servicer which consent shall not be unreasonably withheld. No termination of this Agreement shall affect the obligations created by this Section 8.05(b) of the Master Servicer to indemnify the Trustee under the conditions and to the extent set forth herein. Notwithstanding the foregoing, the indemnification provided by the Master Servicer in this Section 8.05(b) shall not be available (A) for any loss, liability or expense of the Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee at the direction of the Certificateholders pursuant to the terms of this Agreement or (B) where the Trustee is required to indemnify the Master Servicer pursuant to Section 12.05(a). Section 8.06. Eligibility Requirements for Trustee. (See Section 8.06 of the Standard Terms). Section 8.07 Resignation and Removal of the Trustee. (See Section 8.07 of the Standard Terms). Section 8.08 Successor Trustee. (See Section 8.08 of the Standard Terms). Section 8.09 Merger or Consolidation of Trustee. (See Section 8.09 of the Standard Terms). Section 8.10 Appointment of Co-Trustee or Separate Trustee. (See Section 8.10 of the Standard Terms). Section 8.11 Appointment of Custodians. (See Section 8.11 of the Standard Terms). Section 8.12 Appointment of Office or Agency. (See Section 8.12 of the Standard Terms). Section 8.12 Swap Agreement. The Trustee is hereby authorized and directed to, and agrees that it shall, enter into the Swap Agreement on behalf of the Trust Fund. -------------------------------------------------------------------------------- ARTICLE IX TERMINATION Section 9.01. Optional Purchase by the Master Servicer of All Certificates; Termination Upon Purchase by the Master Servicer or Liquidation of All Mortgage Loans (a) Subject to Section 9.02, the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee created hereby in respect of the Certificates (other than the obligation of the Trustee to make certain payments after the Final Distribution Date to Certificateholders and the obligation of the Company to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the Final Distribution Date pursuant to this Article IX following the earlier of: (i) the later of the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, or (ii) at the option of the Master Servicer, the purchase of all Mortgage Loans and all property acquired in respect of any Mortgage Loan remaining in the Trust Fund, at a price equal to the sum of (A) 100% of the unpaid principal balance of each Mortgage Loan (or, if less than such unpaid principal balance, the fair market value of the related underlying property of such Mortgage Loan with respect to Mortgage Loans as to which title has been acquired if such fair market value is less than such unpaid principal balance) on the day of repurchase, plus accrued interest thereon at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of any Modified Mortgage Loan), to, but not including, the first day of the month in which such repurchase price is distributed, and (B) any unpaid Swap Termination Payment payable to the Swap Counterparty (or any Swap Termination Payment payable to the Swap Counterparty as a result of the exercise of the option provided for in this Section 9.01(a)(ii))); provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof; and provided further, that the purchase price set forth above shall be increased as is necessary, as determined by the Master Servicer, to avoid disqualification of any REMIC created hereunder as a REMIC. The purchase price paid by the Master Servicer, pursuant to Section 9.01(a)(ii) shall also include any amounts owed by Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the representation and warranty set forth in clause (xlvii) of Section 4 of the Assignment Agreement that remain unpaid on the date of such purchase. The right of the Master Servicer to purchase all of the Mortgage Loans pursuant to clause (ii) above is conditioned upon the Pool Stated Principal Balance as of the Final Distribution Date, prior to giving effect to distributions to be made on such Distribution Date, being less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. If such right is exercised by the Master Servicer, the Master Servicer shall be deemed to have been reimbursed for the full amount of any unreimbursed Advances theretofore made by it with respect to the Mortgage Loans. In addition, the Master Servicer shall provide to the Trustee the certification required by Section 3.15 and the Trustee and any Custodian shall, promptly following payment of the purchase price, release to the Master Servicer the Mortgage Files pertaining to the Mortgage Loans being purchased. In addition to the foregoing, on any Distribution Date on which the Pool Stated Principal Balance, prior to giving effect to distributions to be made on such Distribution Date, is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans, the Master Servicer shall have the right, at its option, to purchase the Class A Certificates, Class M Certificates and Class SB Certificates in whole, but not in part, at a price equal to the outstanding Certificate Principal Balance of such Certificates plus the sum of Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest, and any unpaid Prepayment Interest Shortfalls previously allocated thereto and, in the case of Prepayment Interest Shortfalls, accrued interest thereon at the applicable Pass-Through Rate. If the Master Servicer exercises this right to purchase the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, the Master Servicer will promptly terminate the respective obligations and responsibilities created hereby in respect of these Certificates pursuant to this Article IX. (b) The Master Servicer shall give the Trustee not less than 40 days prior notice of the Distribution Date on which (1) the Master Servicer anticipates that the final distribution will be made to Certificateholders as a result of the exercise by the Master Servicer of its right to purchase the Mortgage Loans or on which (2) the Master Servicer anticipates that the Certificates will be purchased as a result of the exercise by the Master Servicer to purchase the outstanding Certificates. Notice of any termination, specifying the anticipated Final Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates to the Trustee (if so required by the terms hereof) for payment of the final distribution and cancellation or notice of any purchase of the outstanding Certificates, specifying the Distribution Date upon which the Holders may surrender their Certificates to the Trustee for payment, shall be given promptly by the Master Servicer, or by the Trustee (in any other case) by letter to the Certificateholders (with a copy to the Certificate Registrar) mailed (or distributed through the Depository with respect to any Book-Entry Certificates) not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying: (i) the anticipated Final Distribution Date upon which final payment of the Certificates is anticipated to be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein designated where required pursuant to this Agreement or, in the case of the purchase by the Master Servicer of the outstanding Certificates, the Distribution Date on which such purchase is to be made, (ii) the amount of any such final payment, or in the case of the purchase of the outstanding Certificates, the purchase price, in either case, if known, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, and in the case of the Senior Certificates, or in the case of all of the Certificates in connection with the exercise by the Master Servicer of its right to purchase the Certificates, that payment will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. If the Master Servicer or the Trustee is obligated to give notice to Certificateholders as required above, it shall give such notice to the Certificate Registrar at the time such notice is given to Certificateholders and, if the Master Servicer is exercising its rights to purchase the outstanding Certificates, it shall give such notice to each Rating Agency at the time such notice is given to Certificateholders. In the event of a purchase of the Mortgage Loans by the Master Servicer, the Master Servicer shall deposit in the Certificate Account before the Final Distribution Date in immediately available funds an amount equal to the purchase price computed as provided above. As a result of the exercise by the Master Servicer of its right to purchase the outstanding Certificates, the Master Servicer shall deposit in the Certificate Account before the Distribution Date on which such purchase is to occur in immediately available funds an amount equal to the purchase price for the Certificates, computed as above provided, and provide notice of such deposit to the Trustee. The Trustee will withdraw from such account the amount specified in subsection (c) below and distribute such amount to the Certificateholders as specified in subsection (c) below. The Master Servicer shall provide to the Trustee written notification of any change to the anticipated Final Distribution Date as soon as practicable. If the Trust Fund is not terminated on the anticipated Final Distribution Date, for any reason, the Trustee shall promptly mail notice thereof to each affected Certificateholder. (c) In the case of the Senior Certificates, upon presentation and surrender of the Certificates by the Certificateholders thereof, and in the case of the Class M and Class SB Certificates, upon presentation and surrender of the Certificates by the Certificateholders thereof in connection with the exercise by the Master Servicer of its right to purchase the Certificates, and otherwise in accordance with Section 4.01(a), the Trustee shall distribute to the Certificateholders (i) the amount otherwise distributable on such Distribution Date, if not in connection with the Master Servicer's election to repurchase the assets of the Trust Fund or the outstanding Certificates, or (ii) if the Master Servicer elected to so repurchase the Mortgage Loans or the outstanding Class A Certificates, Class M Certificates and Class SB Certificates, an amount equal to the price paid pursuant to Section 9.01(a) as follows: (A) with respect to each Certificate the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest for the related Interest Accrual Period thereon and any previously unpaid Accrued Certificate Interest, subject to the priority set forth in Section 4.02(a), (B) with respect to the Class A Certificates and Class M Certificates, the amount of any Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates and accrued interest thereon at the applicable Pass Through Rate, on a pro rata basis based on Prepayment Interest Shortfalls allocated thereto for such Distribution Date or remaining unpaid from prior Distribution Dates, (C) to the Swap Counterparty (without duplication of amounts payable to the Swap Counterparty on such date in accordance with Section 4.02) any Swap Termination Payment payable to the Swap Counterparty then remaining unpaid or which is due to the exercise of any early termination of the Trust Fund pursuant to this Section 9.01, and (D) to the Class SB Certificates, all remaining amounts. Notwithstanding the reduction of the Certificate Principal Balance of any Class of Subordinate Certificates to zero, such Class will be outstanding hereunder until the termination of the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee hereunder in accordance with Article IX. (d) In the event that any Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date, the Master Servicer (if it exercised its right to purchase the Mortgage Loans) or the Trustee (in any other case), shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the remaining Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation, the Trustee shall pay to the Master Servicer all amounts distributable to the holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 9.01 and the Certificateholders shall look only to the Master Servicer for such payment. (e) If any Certificateholders do not surrender their Certificates on or before the Distribution Date on which a purchase of the outstanding Certificates is to be made, the Master Servicer shall give a second written notice to such Certificateholders to surrender their Certificates for payment of the purchase price therefor. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the Holders of such Certificates concerning surrender of their Certificates. The costs and expenses of maintaining the Certificate Account and of contacting Certificateholders shall be paid out of the assets which remain in the Certificate Account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation in accordance with this Section 9.01, the Trustee shall pay to the Master Servicer all amounts distributable to the Holders thereof and shall have no further obligation or liability therefor and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the Certificate Account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for payment in accordance with this Section 9.01. Any Certificate that is not surrendered on the Distribution Date on which a purchase pursuant to this Section 9.01 occurs as provided above will be deemed to have been purchased and the Holder as of such date will have no rights with respect thereto except to receive the purchase price therefor minus any costs and expenses associated with such Certificate Account and notices allocated thereto. Any Certificates so purchased or deemed to have been purchased on such Distribution Date shall remain outstanding hereunder. The Master Servicer shall be for all purposes the Holder thereof as of such date. -------------------------------------------------------------------------------- ARTICLE X REMIC PROVISIONS Section 10.01. REMIC ADMINISTRATION. (See Section 10.01 of the Standard Terms.) Section 10.02. MASTER SERVICER; REMIC ADMINISTRATOR AND TRUSTEE INDEMNIFICATION. (See Section 10.02 of the Standard Terms.) Section 10.03. DESIGNATION OF REMICS. The REMIC Administrator will make an election to treat the segregated pool of assets described in the definition of REMIC I (as defined herein) (including the Mortgage Loans but excluding the Swap Account, the Swap Agreement and the SB-AM Swap Agreement), and subject to this Agreement, as a REMIC (REMIC I) for federal income tax purposes. The REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC (REMIC II) for federal income tax purposes. The REMIC Administrator will make an election to treat the segregated pool of assets consisting of the REMIC II Regular Interests as a REMIC (REMIC III) for federal income tax purposes. The REMIC I Regular Interests will be "regular interests" in REMIC I and the Class R-I Certificates will be the sole class of "residual interests" in REMIC I for purposes of the REMIC Provisions (as defined herein) under the federal income tax law. The REMIC II Regular Interests will be "regular interests" in REMIC II and the Class R-II Certificates will be the sole class of "residual interests" in REMIC II for purposes of the REMIC Provisions (as defined herein) under the federal income tax law. The REMIC III Regular Interests will be the "regular interests" in REMIC III, ownership of which will be represented by the Class A Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates, Class M-10 Certificates and Class SB Certificates, and the Class R-III Certificates will represent the sole class of "residual interests" in REMIC III for purposes of the REMIC Provisions (as defined herein) under federal income tax law. Section 10.04. DISTRIBUTIONS ON THE UNCERTIFICATED REMIC REGULAR INTERESTS. (See Section 4.02(c) of this Series Supplement.) Section 10.05. COMPLIANCE WITH WITHHOLDING REQUIREMENTS. Notwithstanding any other provision of this Agreement, the Trustee or any Paying Agent, as applicable, shall comply with all federal withholding requirements respecting payments to Certificateholders, including interest or original issue discount payments or advances thereof that the Trustee or any Paying Agent, as applicable, reasonably believes are applicable under the Code. The consent of Certificateholders shall not be required for such withholding. In the event the Trustee or any Paying Agent, as applicable, does withhold any amount from interest or original issue discount payments or advances thereof to any Certificateholder pursuant to federal withholding requirements, the Trustee or any Paying Agent, as applicable, shall indicate the amount withheld to such Certificateholder pursuant to the terms of such requirements. -------------------------------------------------------------------------------- ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. AMENDMENT. (a) (See Section 11.01(a) of the Standard Terms.) (b) (See Section 11.01(b) of the Standard Terms.) (c) (See Section 11.01(c) of the Standard Terms.) (d) (See Section 11.01(d) of the Standard Terms.) (e) (See Section 11.01(e) of the Standard Terms.) (f) Notwithstanding anything to the contrary set forth in Sections 11.01 (b), (c), (d), and (e), any amendment of Sections 4.02(c)(vi), 4.09 and 11.10 of this Agreement shall require the consent of the Swap Counterparty as a third-party beneficiary of Sections 4.02(c)(x) and 4.10 of this Agreement. Section 11.02. RECORDATION OF AGREEMENT; COUNTERPARTS. (See Section 11.02 of the Standard Terms.) Section 11.03. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (See Section 11.03 of the Standard Terms.) Section 11.04. GOVERNING LAW. (See Section 11.04 of the Standard Terms.) Section 11.05. NOTICES. All demands and notices hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, postage prepaid (except for notices to the Trustee which shall be deemed to have been duly given only when received), to the appropriate address for each recipient listed in the table below or, in each case, such other address as may hereafter be furnished in writing to the Master Servicer, the Trustee and the Company, as applicable: ------------------------------------- ----------------------------------------------------------- RECIPIENT ADDRESS ------------------------------------- ----------------------------------------------------------- ------------------------------------- ----------------------------------------------------------- Company 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 Attention: President ------------------------------------- ----------------------------------------------------------- ------------------------------------- ----------------------------------------------------------- Master Servicer 2255 N. Ontario Street, Suite 400 Burbank, California 91504-2130 Attention: Managing Director/Master Servicing ------------------------------------- ----------------------------------------------------------- ------------------------------------- ----------------------------------------------------------- Trustee Corporate Trust Office 1761 East St. Andrew Place Santa Ana, California 92705-4934, Attention: Residential Accredit Loans, Inc. Series 2006-QA4 The Trustee designates its offices located at DB Services Tennessee, 648 Grassmere Park Road, Nashville, TN 37211-3658, Attn: Transfer Unit, for the purposes of Section 8.12 of the Standard Terms ------------------------------------- ----------------------------------------------------------- ------------------------------------- ----------------------------------------------------------- Moody's Investors Service, Inc. 99 Church Street, 4th Floor New York, New York 10004 ------------------------------------- ----------------------------------------------------------- ------------------------------------- ----------------------------------------------------------- Standard & Poor's Ratings Services, 55 Water Street a division of The McGraw-Hill 41st Floor Companies, Inc. New York, New York 10041 ------------------------------------- ----------------------------------------------------------- Any notice required or permitted to be mailed to a Certificateholder shall be given by first class mail, postage prepaid, at the address of such holder as shown in the Certificate Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. Section 11.06. REQUIRED NOTICES TO RATING AGENCY AND SUBSERVICER. (See Section 11.06 of the Standard Terms.) Section 11.07. SEVERABILITY OF PROVISIONS. (See Section 11.07 of the Standard Terms.) Section 11.08. SUPPLEMENTAL PROVISIONS FOR RESECURITIZATION. (See Section 11.08 of the Standard Terms.) Section 11.09. ALLOCATION OF VOTING RIGHTS. 98.0% of all of the Voting Rights shall be allocated among Holders of the Class A Certificates and Class M Certificates, in proportion to the outstanding Certificate Principal Balances of their respective Certificates; 1.0% of all Voting Rights shall be allocated among the Holders of Class SB Certificates; 0.34% of all Voting Rights shall be allocated among the Holders of the Class R-I Certificates, in accordance with their respective Percentage Interests; 0.33% of all Voting Rights shall be allocated among the Holders of the Class R-II Certificates, in accordance with their respective Percentage Interests; and 0.33% of all Voting Rights shall be allocated among the Holders of the Class R-III Certificates, in accordance with their respective Percentage Interests. Section 11.10. NO PETITION. The Depositor, Master Servicer and the Trustee, by entering into this Agreement, and each Certificateholder, by accepting a Certificate, hereby covenant and agree that they will not at any time institute against the Trust Fund, or join in any institution against the Trust Fund of, any bankruptcy proceedings under any United States federal or state bankruptcy or similar law in connection with any obligation with respect to the Certificates or this Agreement. -------------------------------------------------------------------------------- ARTICLE XII COMPLIANCE WITH REGULATION AB (See Article XII of the Standard Terms) -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Company, the Master Servicer and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized and their respective seals, duly attested, to be hereunto affixed, all as of the day and year first above written. RESIDENTIAL ACCREDIT LOANS, INC. [Seal] By: /s/Heather Anderson Name: Heather Anderson Title: Vice President Attest: /s/Tim Jacobson Name: Tim Jacobson Title: Vice President RESIDENTIAL FUNDING CORPORATION [Seal] By: /s/Tim Jacobson Name: Tim Jacobson Title: Associate Attest: /s/Heather Anderson Name: Heather Anderson Title: Associate DEUTSCHE BANK TRUST COMPANY AMERICAS, as [Seal] Trustee By: /s/Karlene Benvenuto Name: Karlene Benvenuto Title: Authorized Signer By: /s/Katherine M. Wannenmacher Name: Katherine M. Wannenmacher Title: Vice President Attest: /s/Marion Hogan Name: Marion Hogan Title: Associate -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the 30th day of May, 2006 before me, a notary public in and for said State, personally appeared Heather Anderson known to me to be a Vice President of Residential Accredit Loans, Inc., 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/Amy Sue Olson Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF MINNESOTA ) ) ss.: COUNTY OF HENNEPIN ) On the 30th day of May, 2006 before me, a notary public in and for said State, personally appeared Tim Jacobson known to me to be a(n) Associate of Residential Funding Corporation, one of the corporations that executed the within instrument, and also known to me to be the person who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/Amy Sue Olson Notary Public [Notarial Seal] -------------------------------------------------------------------------------- STATE OF CALIFORNIA ) ) ss.: COUNTY OF ORANGE ) On the 30th day of May, 2006 before me, a notary public in and for said State, personally appeared Karlene Benvenuto known to me to be a(n) Authorized Signer of DEUTSCHE BANK TRUST COMPANY AMERICAS, the national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/Alexander Paez Notary Public [Notarial Seal] STATE OF CALIFORNIA ) ) ss.: COUNTY OF ORANGE ) On the 30th day of May, 2006 before me, a notary public in and for said State, personally appeared Katherine M. Wannenmacher known to me to be a(n) Vice President of DEUTSCHE BANK TRUST COMPANY AMERICAS, the national banking association that executed the within instrument, and also known to me to be the person who executed it on behalf of said national banking association and acknowledged to me that such national banking association executed the within instrument. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. /s/Alexander Paez Notary Public [Notarial Seal] -------------------------------------------------------------------------------- EXHIBIT ONE MORTGAGE LOAN SCHEDULE [ATTACHED AS EXHIBIT 99.1] -------------------------------------------------------------------------------- EXHIBIT TWO INFORMATION TO BE INCLUDED IN MONTHLY DISTRIBUTION DATE STATEMENT (i) the applicable Record Date, Determination Date and Distribution Date, and the date on which the applicable interest accrual period commenced; (ii) the aggregate amount of payments received with respect to the Mortgage Loans, including prepayment amounts; (iii) the Servicing Fee and Subservicing Fee payable to the Master Servicer and the Subservicer; (iv) the amount of any other fees or expenses paid, and the identity of the party receiving such fees or expenses; (v) (a) the amount of such distribution to the Certificateholders of such Class applied to reduce the Certificate Principal Balance thereof, and (b) the aggregate amount included therein representing Principal Prepayments; (vi) the amount of such distribution to Holders of such Class of Certificates allocable to interest; (vii) if the distribution to the Holders of such Class of Certificates is less than the full amount that would be distributable to such Holders if there were sufficient funds available therefor, the amount of the shortfall; (viii) the aggregate Certificate Principal Balance of each Class of Certificates, before and after giving effect to the amounts distributed on such Distribution Date, separately identifying any reduction thereof due to Realized Losses other than pursuant to an actual distribution of principal; (ix) the aggregate Certificate Principal Balance of each of the Class A, Class M and Class SB Certificates as of the Closing Date. (x) the weighted average remaining term to maturity of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (xi) the weighted average Mortgage Rates of the Mortgage Loans after giving effect to the amounts distributed on such Distribution Date; (xii) the number and Pool Stated Principal Balance of the Mortgage Loans after giving effect to the distribution of principal on such Distribution Date and the number of Mortgage Loans at the beginning and end of the related Due Period; (xiii) on the basis of the most recent reports furnished to it by Sub-Servicers, the number and Stated Principal Balances of Mortgage Loans that are Delinquent (A) 30-59 days, (B) 60-89 days and (C) 90 or more days and the number and Stated Principal Balances of Mortgage Loans that are in foreclosure; (xiv) the aggregate amount of Realized Losses for such Distribution Date; (xv) the amount, terms and general purpose of any Advance by the Master Servicer pursuant to Section 4.04 and the amount of all Advances that have been reimbursed during the related Due Period; (xvi) any material modifications, extensions or waivers to the terms of the Mortgage Loans during the Due Period or that have cumulatively become material over time; (xvii) any material breaches of Mortgage Loan representations or warranties or covenants in the Agreement. (xviii) the number, stated and aggregate principal balance of any REO Properties; (xix) the aggregate Accrued Certificate Interest remaining unpaid, if any, for each Class of Certificates, after giving effect to the distribution made on such Distribution Date; (xx) the Pass-Through Rates on each Class of Certificates and the Net WAC Cap Rate for such Distribution Date, separately identifying LIBOR for such Distribution Date; (xxi) the Basis Risk Shortfall and Prepayment Interest Shortfalls; (xxii) the related Senior Enhancement Percentage for such Distribution Date; (xxiii) the Overcollateralization Amount and Required Overcollateralization Amount following such Distribution Date; (xxiv) the occurrence of the Stepdown Date, and the aggregate amount of Realized Losses since the Cut-off Date for the Mortgage Loans; (xxv) the occurrence of the Credit Support Depletion Date; (xxvi) the aggregate amount of any recoveries on previously foreclosed loans from Sellers; and (xxvii) the amount of any Net Swap Payment payable to the Trustee on behalf of the Trust, any Net Swap Payment payable to the Swap Counterparty, any Swap Termination Payment payable to the Trustee on behalf of the Trust and any Swap Termination Payment payable to the Swap Counterparty. In the case of information furnished pursuant to clauses (v)(a) and (vi) above, the amounts shall be expressed as a dollar amount per Certificate with a $1,000 denomination. The Trustee's internet website will initially be located at www.tss.db.com/invr. To receive this statement via first class mail, telephone the trustee at (800) 735-7777. -------------------------------------------------------------------------------- EXHIBIT THREE =============================================================================================================== STANDARD TERMS OF POOLING AND SERVICING AGREEMENT Dated as of March 1, 2006 Residential Accredit Loans, Inc. Mortgage Asset-Backed Pass-Through Certificates =============================================================================================================== TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS...............................................................2 Section 1.01. Definitions...........................................................2 Section 1.02. Use of Words and Phrases.............................................34 ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES..........35 Section 2.01. Conveyance of Mortgage Loans.........................................35 Section 2.02. Acceptance by Trustee................................................41 Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company 42 Section 2.04. Representations and Warranties of Residential Funding................44 Section 2.05. Execution and Authentication of Certificates/Issuance of Certificates Evidencing Interests in REMIC I Certificates................................46 Section 2.06. Conveyance of Uncertificated REMIC I and REMIC II Regular Interests; Acceptance by the Trustee...................................................46 Section 2.07. Issuance of Certificates Evidencing Interests in REMIC II............46 Section 2.08. Purposes and Powers of the Trust.....................................46 ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS...........................46 Section 3.01. Master Servicer to Act as Servicer...................................46 Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations...........................48 Section 3.03. Successor Subservicers...............................................49 Section 3.04. Liability of the Master Servicer.....................................49 Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders 50 Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee......50 Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account 50 Section 3.08. Subservicing Accounts; Servicing Accounts............................53 Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans 55 Section 3.10. Permitted Withdrawals from the Custodial Account.....................55 Section 3.11. Maintenance of the Primary Insurance Policies; Collections Thereunder57 Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage...58 Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments..............................................59 Section 3.14. Realization Upon Defaulted Mortgage Loans............................61 Section 3.15. Trustee to Cooperate; Release of Mortgage Files......................65 Section 3.16. Servicing and Other Compensation; Compensating Interest..............66 Section 3.17. Reports to the Trustee and the Company...............................67 Section 3.18. Annual Statement as to Compliance and Servicing Assessment...........67 Section 3.19. Annual Independent Public Accountants' Servicing Report..............68 Section 3.20. Rights of the Company in Respect of the Master Servicer..............68 Section 3.21. Administration of Buydown Funds......................................68 Section 3.22. Advance Facility.....................................................69 ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS...........................................73 Section 4.01. Certificate Account..................................................73 Section 4.02. Distributions. As provided in Section 4.02 of the Series Supplement74 Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting........................................................74 Section 4.04. Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer.........................................................76 Section 4.05. Allocation of Realized Losses........................................78 Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property........78 Section 4.07. Optional Purchase of Defaulted Mortgage Loans........................78 Section 4.08. Surety Bond..........................................................79 ARTICLE V THE CERTIFICATES.........................................................79 Section 5.01. The Certificates.....................................................79 Section 5.02. Registration of Transfer and Exchange of Certificates................81 Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates....................87 Section 5.04. Persons Deemed Owners................................................88 Section 5.05. Appointment of Paying Agent..........................................88 Section 5.06. U.S.A. Patriot Act Compliance........................................88 ARTICLE VI THE COMPANY AND THE MASTER SERVICER......................................89 Section 6.01. Respective Liabilities of the Company and the Master Servicer........89 Section 6.02. Merger or Consolidation of the Company or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer...............89 Section 6.03. Limitation on Liability of the Company, the Master Servicer and Others90 Section 6.04. Company and Master Servicer Not to Resign............................91 ARTICLE VII DEFAULT..................................................................92 Section 7.01. Events of Default....................................................92 Section 7.02. Trustee or Company to Act; Appointment of Successor..................94 Section 7.03. Notification to Certificateholders...................................95 Section 7.04. Waiver of Events of Default..........................................95 ARTICLE VIII CONCERNING THE TRUSTEE...................................................96 Section 8.01. Duties of Trustee....................................................96 Section 8.02. Certain Matters Affecting the Trustee................................97 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans................99 Section 8.04. Trustee May Own Certificates.........................................99 Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification.99 Section 8.06. Eligibility Requirements for Trustee................................100 Section 8.07. Resignation and Removal of the Trustee..............................101 Section 8.08. Successor Trustee...................................................102 Section 8.09. Merger or Consolidation of Trustee..................................102 Section 8.10. Appointment of Co-Trustee or Separate Trustee.......................102 Section 8.11. Appointment of Custodians...........................................103 Section 8.12. Appointment of Office or Agency.....................................104 ARTICLE IX TERMINATION OR OPTIONAL PURCHASE OF ALL CERTIFICATES....................105 Section 9.01. Optional Purchase by the Master Servicer of All Certificates; Termination Upon Purchase by the Master Servicer or Liquidation of All Mortgage Loans105 Section 9.02. Additional Termination Requirements.................................108 Section 9.03. Termination of Multiple REMICs......................................109 ARTICLE X REMIC PROVISIONS........................................................110 Section 10.01.REMIC Administration................................................110 Section 10.02.Master Servicer, REMIC Administrator and Trustee Indemnification....113 Section 10.03.Designation of REMIC(s). As provided in Section 10.03 of the Series Supplement 114 Section 10.04.Distributions on the Uncertificated REMIC I and REMIC II Regular Interests. As provided in Section 10.04 of the Series Supplement..............114 Section 10.05.Compliance with Withholding Requirements. As provided in Section 10.05 of the Series Supplement...............................................114 ARTICLE XI MISCELLANEOUS PROVISIONS................................................115 Section 11.01.Amendment...........................................................115 Section 11.02.Recordation of Agreement; Counterparts..............................117 Section 11.03.Limitation on Rights of Certificateholders..........................118 Section 11.04.Governing Law.......................................................118 Section 11.05.Notices. As provided in Section 11.05 of the Series Supplement......119 Section 11.06.Required Notices to Rating Agency and Subservicer...................119 Section 11.07.Severability of Provisions..........................................120 Section 11.08.Supplemental Provisions for Resecuritization........................120 Section 11.09.Allocation of Voting Rights.........................................120 Section 11.10.No Petition.........................................................120 ARTICLE XII COMPLIANCE WITH REGULATION AB...........................................121 Section 12.01.Intent of the Parties; Reasonableness...............................121 Section 12.02.Additional Representations and Warranties of the Trustee............121 Section 12.03.Information to Be Provided by the Trustee...........................122 Section 12.04.Report on Assessment of Compliance and Attestation..................122 Section 12.05.Indemnification; Remedies...........................................123 -------------------------------------------------------------------------------- EXHIBITS Exhibit A: Form of Class A Certificate Exhibit A-I: Form of Class X Certificate Exhibit B: Form of Class M Certificate Exhibit C: Form of Class B Certificate Exhibit C-I: Form of Class P Certificate Exhibit D: Form of Class R Certificate Exhibit E: Form of Seller/Servicer Contract Exhibit F: Forms of Request for Release Exhibit G-1: Form of Transfer Affidavit and Agreement Exhibit G-2: Form of Transferor Certificate Exhibit H: Form of Investor Representation Letter Exhibit I: Form of Transferor Representation Letter Exhibit J: Form of Rule 144A Investment Representation Letter Exhibit K: Text of Amendment to Pooling and Servicing Agreement Pursuant to Section 11.01(e) for a Limited Guaranty Exhibit L: Form of Limited Guaranty Exhibit M: Form of Lender Certification for Assignment of Mortgage Loan Exhibit N: Request for Exchange Form Exhibit O: Form of Form 10-K Certification Exhibit P: Form of Back-Up Certification to Form 10-K Certificate Exhibit Q: .......Information to be Provided by the Master Servicer to the Rating Agencies Relating to Reportable Modified Mortgage Loans Exhibit R: .......Servicing Criteria -------------------------------------------------------------------------------- This is the Standard Terms of Pooling and Servicing Agreement, dated as of March 1, 2006 (the "Standard Terms", and as incorporated by reference into a Series Supplement dated as of the Cut-off Date, the "Pooling and Servicing Agreement" or "Agreement"), among RESIDENTIAL ACCREDIT LOANS, INC., as the company (together with its permitted successors and assigns, the "Company"), RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted successors and assigns, the "Master Servicer"), and the trustee named in the applicable Series Supplement (together with its permitted successors and assigns, the "Trustee"). PRELIMINARY STATEMENT: The Company intends to sell certain mortgage asset-backed pass-through certificates (collectively, the "Certificates"), to be issued under the Agreement in multiple classes, which in the aggregate will evidence the entire beneficial ownership interest in the Mortgage Loans. In consideration of the mutual agreements herein contained, the Company, the Master Servicer and the Trustee agree as follows: -------------------------------------------------------------------------------- ARTICLE I DEFINITIONS Section 1.01. Definitions. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the meanings specified in this Article. Accretion Termination Date: As defined in the Series Supplement. Accrual Certificates: As defined in the Series Supplement. Accrued Certificate Interest: With respect to each Distribution Date, as to any Class or Subclass of Certificates (other than any Principal Only Certificates), interest accrued during the related Interest Accrual Period at the related Pass-Through Rate on the Certificate Principal Balance or Notional Amount thereof immediately prior to such Distribution Date. Accrued Certificate Interest will be calculated on the basis of a 360-day year, consisting of twelve 30-day months. In each case Accrued Certificate Interest on any Class or Subclass of Certificates will be reduced by the amount of: (i) Prepayment Interest Shortfalls on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group (to the extent not offset by the Master Servicer with a payment of Compensating Interest as provided in Section 4.01), (ii) the interest portion (adjusted to the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) of Realized Losses on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group (including Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses) not allocated solely to one or more specific Classes of Certificates pursuant to Section 4.05, (iii) the interest portion of Advances that were (A) previously made with respect to a Mortgage Loan or REO Property on all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group, which remained unreimbursed following the Cash Liquidation or REO Disposition of such Mortgage Loan or REO Property and (B) made with respect to delinquencies that were ultimately determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, and (iv) any other interest shortfalls not covered by the subordination provided by the Class M Certificates and Class B Certificates, including interest that is not collectible from the Mortgagor pursuant to the Servicemembers Civil Relief Act of 1940, as amended, or similar legislation or regulations as in effect from time to time, with all such reductions allocated (A) among all of the Certificates in proportion to their respective amounts of Accrued Certificate Interest payable on such Distribution Date absent such reductions or (B) if the Mortgage Pool is comprised of two or more Loan Groups, the related Senior Percentage of such reductions among the related Senior Certificates in proportion to the amounts of Accrued Certificate Interest payable from the related Loan Group on such Distribution Date absent such reductions, with the remainder of such reductions allocated among the holders of the Class M Certificates and Class B Certificates in proportion to their respective amounts of Accrued Certificate Interest payable on such Distribution Date absent such reductions. In addition to that portion of the reductions described in the preceding sentence that are allocated to any Class of Class B Certificates or any Class of Class M Certificates, Accrued Certificate Interest on such Class of Class B Certificates or such Class of Class M Certificates will be reduced by the interest portion (adjusted to the Net Mortgage Rate) of Realized Losses that are allocated solely to such Class of Class B Certificates or such Class of Class M Certificates pursuant to Section 4.05. Addendum and Assignment Agreement: The Addendum and Assignment Agreement, dated as of January 31, 1995, between MLCC and the Master Servicer. Additional Collateral: Any of the following held, in addition to the related Mortgaged Property, as security for a Mortgage Loan: (i) all money, securities, security entitlements, accounts, general intangibles, payment rights, instruments, documents, deposit accounts, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description now existing or hereafter acquired which is pledged as security for the repayment of such Mortgage Loan, (ii) third-party guarantees, and (A) all money, securities, security entitlements, accounts, general intangibles, payment rights, instruments, documents, deposit accounts, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description now existing or hereafter acquired which is pledged as collateral for such guarantee or (B) any mortgaged property securing the performance of such guarantee, or (iii) such other collateral as may be set forth in the Series Supplement. Additional Collateral Loan: Each Mortgage Loan that is supported by Additional Collateral. Adjusted Mortgage Rate: With respect to any Mortgage Loan and any date of determination, the Mortgage Rate borne by the related Mortgage Note, less the rate at which the related Subservicing Fee accrues. Advance: As to any Mortgage Loan, any advance made by the Master Servicer, pursuant to Section 4.04. Advance Facility: As defined in Section 3.22. Advance Facility Notice: As defined in Section 3.22. Advance Facility Trustee: As defined in Section 3.22. Advancing Person: As defined in Section 3.22. Advance Reimbursement Amounts: As defined in Section 3.22. Affiliate: With respect to any Person, any other Person controlling, controlled by or under common control with such first Person. For the purposes of this definition, "control" means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Ambac: Ambac Assurance Corporation (formerly known as AMBAC Indemnity Corporation). Amount Held for Future Distribution: As to any Distribution Date and, with respect to any Mortgage Pool that is comprised of two or more Loan Groups, each Loan Group, the total of the amounts held in the Custodial Account at the close of business on the preceding Determination Date on account of (i) Liquidation Proceeds, Subsequent Recoveries, Insurance Proceeds, Curtailments, Mortgage Loan purchases made pursuant to Section 2.02, 2.03, 2.04 or 4.07 and Mortgage Loan substitutions made pursuant to Section 2.03 or 2.04 received or made in the month of such Distribution Date (other than such Liquidation Proceeds, Insurance Proceeds and purchases of Mortgage Loans that the Master Servicer has deemed to have been received in the preceding month in accordance with Section 3.07(b)), and Principal Prepayments in Full made after the related Prepayment Period, and (ii) payments which represent early receipt of scheduled payments of principal and interest due on a date or dates subsequent to the related Due Date. Appraised Value: As to any Mortgaged Property, the lesser of (i) the appraised value of such Mortgaged Property based upon the appraisal made at the time of the origination of the related Mortgage Loan, and (ii) the sales price of the Mortgaged Property at such time of origination, except in the case of a Mortgaged Property securing a refinanced or modified Mortgage Loan as to which it is either the appraised value determined above or the appraised value determined in an appraisal at the time of refinancing or modification, as the case may be. Assigned Contracts: With respect to any Pledged Asset Loan: the Credit Support Pledge Agreement; the Funding and Pledge Agreement, among GMAC Mortgage Corporation, National Financial Services Corporation and the Mortgagor or other person pledging the related Pledged Assets; the Additional Collateral Agreement, between GMAC Mortgage Corporation and the Mortgagor or other person pledging the related Pledged Assets; or such other contracts as may be set forth in the Series Supplement. Assignment: An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Trustee for the benefit of Certificateholders, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering Mortgages secured by Mortgaged Properties located in the same county, if permitted by law and accompanied by an Opinion of Counsel to that effect. Assignment Agreement: The Assignment and Assumption Agreement, dated the Closing Date, between Residential Funding and the Company relating to the transfer and assignment of the Mortgage Loans. Assignment of Proprietary Lease: With respect to a Cooperative Loan, the assignment of the related Cooperative Lease from the Mortgagor to the originator of the Cooperative Loan. Available Distribution Amount: As to any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, an amount equal to (a) the sum of (i) the amount relating to the Mortgage Loans on deposit in the Custodial Account as of the close of business on the immediately preceding Determination Date, including any Subsequent Recoveries, and amounts deposited in the Custodial Account in connection with the substitution of Qualified Substitute Mortgage Loans, (ii) the amount of any Advance made on the immediately preceding Certificate Account Deposit Date, (iii) any amount deposited in the Certificate Account on the related Certificate Account Deposit Date pursuant to the second paragraph of Section 3.12(a), (iv) any amount deposited in the Certificate Account pursuant to Section 4.07 or Section 9.01, (v) any amount that the Master Servicer is not permitted to withdraw from the Custodial Account or the Certificate Account pursuant to Section 3.16(e), (vi) any amount received by the Trustee pursuant to the Surety Bond in respect of such Distribution Date and (vii) the proceeds of any Pledged Assets received by the Master Servicer, reduced by (b) the sum as of the close of business on the immediately preceding Determination Date of (w) aggregate Foreclosure Profits, (x) the Amount Held for Future Distribution, and (y) amounts permitted to be withdrawn by the Master Servicer from the Custodial Account in respect of the Mortgage Loans pursuant to clauses (ii)-(x), inclusive, of Section 3.10(a). Such amount shall be determined separately for each Loan Group. Additionally, with respect to any Mortgage Pool that is comprised of two or more Loan Groups, if on any Distribution Date Compensating Interest provided pursuant to this Section 3.16(e) is less than Prepayment Interest Shortfalls incurred on the Mortgage Loans in connection with Principal Prepayments in Full and Curtailments made in the prior calendar month, such Compensating Interest shall be allocated on such Distribution Date to the Available Distribution Amount for each Loan Group on a pro rata basis in accordance with the respective amounts of such Prepayment Interest Shortfalls incurred on the Mortgage Loans in such Loan Group in respect of such Distribution Date. Bankruptcy Code: The Bankruptcy Code of 1978, as amended. Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient Valuation or Debt Service Reduction; provided, however, that neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Bankruptcy Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. Book-Entry Certificate: Any Certificate registered in the name of the Depository or its nominee, and designated as such in the Preliminary Statement to the Series Supplement. Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of New York, the State of Michigan, the State of California, the State of Illinois or the State of Minnesota (and such other state or states in which the Custodial Account or the Certificate Account are at the time located) are required or authorized by law or executive order to be closed. Buydown Funds: Any amount contributed by the seller of a Mortgaged Property, the Company or other source in order to enable the Mortgagor to reduce the payments required to be made from the Mortgagor's funds in the early years of a Mortgage Loan. Buydown Funds are not part of the Trust Fund prior to deposit into the Custodial or Certificate Account. Buydown Mortgage Loan: Any Mortgage Loan as to which a specified amount of interest is paid out of related Buydown Funds in accordance with a related buydown agreement. Calendar Quarter: A Calendar Quarter shall consist of one of the following time periods in any given year: January 1 through March 31, April 1 through June 30, July 1 through September 30, and October 1 through December 31. Capitalization Reimbursement Amount: With respect to any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of all Mortgage Loans or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group, during the prior calendar month and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date pursuant to Section 3.10(a)(vii), plus the Capitalization Reimbursement Shortfall Amount remaining unreimbursed from any prior Distribution Date and reimbursed to the Master Servicer or Subservicer on or prior to such Distribution Date. Capitalization Reimbursement Shortfall Amount: With respect to any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, the amount, if any, by which the amount of Advances or Servicing Advances that were added to the Stated Principal Balance of all Mortgage Loans (or, if the Mortgage Pool is comprised of two or more Loan Groups, on the Mortgage Loans in the related Loan Group) during the preceding calendar month exceeds the amount of principal payments on the Mortgage Loans included in the Available Distribution Amount (or, if the Mortgage Pool is comprised of two or more Loan Groups, Available Distribution Amount for the related Loan Group) for that Distribution Date. Cash Liquidation: As to any defaulted Mortgage Loan other than a Mortgage Loan as to which an REO Acquisition occurred, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds and other payments or cash recoveries which the Master Servicer reasonably and in good faith expects to be finally recoverable with respect to such Mortgage Loan. Certificate Account Deposit Date: As to any Distribution Date, the Business Day prior thereto. Certificateholder or Holder: The Person in whose name a Certificate is registered in the Certificate Register, and, in respect of any Insured Certificates, the Certificate Insurer to the extent of Cumulative Insurance Payments, except that neither a Disqualified Organization nor a Non-United States Person shall be a holder of a Class R Certificate for purposes hereof and, solely for the purpose of giving any consent or direction pursuant to this Agreement, any Certificate, other than a Class R Certificate, registered in the name of the Company, the Master Servicer or any Subservicer or any Affiliate thereof shall be deemed not to be outstanding and the Percentage Interest or Voting Rights evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests or Voting Rights necessary to effect any such consent or direction has been obtained. All references herein to "Holders" or "Certificateholders" shall reflect the rights of Certificate Owners as they may indirectly exercise such rights through the Depository and participating members thereof, except as otherwise specified herein; provided, however, that the Trustee shall be required to recognize as a "Holder" or "Certificateholder" only the Person in whose name a Certificate is registered in the Certificate Register. Certificate Insurer: As defined in the Series Supplement. Certificate Owner: With respect to a Book-Entry Certificate, the Person who is the beneficial owner of such Certificate, as reflected on the books of an indirect participating brokerage firm for which a Depository Participant acts as agent, if any, and otherwise on the books of a Depository Participant, if any, and otherwise on the books of the Depository. Certificate Principal Balance: With respect to each Certificate (other than any Interest Only Certificate), on any date of determination, an amount equal to: (i) the Initial Certificate Principal Balance of such Certificate as specified on the face thereof, plus (ii) any Subsequent Recoveries added to the Certificate Principal Balance of such Certificate pursuant to Section 4.02, plus (iii) in the case of each Accrual Certificate, an amount equal to the aggregate Accrued Certificate Interest added to the Certificate Principal Balance thereof prior to such date of determination, minus (iv) the sum of (x) the aggregate of all amounts previously distributed with respect to such Certificate (or any predecessor Certificate) and applied to reduce the Certificate Principal Balance thereof pursuant to Section 4.02(a) and (y) the aggregate of all reductions in Certificate Principal Balance deemed to have occurred in connection with Realized Losses which were previously allocated to such Certificate (or any predecessor Certificate) pursuant to Section 4.05; provided, that the Certificate Principal Balance of each Certificate of the Class of Subordinate Certificates with the Lowest Priority at any given time shall be further reduced by an amount equal to the Percentage Interest represented by such Certificate multiplied by the excess, if any, of (A) the then aggregate Certificate Principal Balance of all Classes of Certificates then outstanding over (B) the then aggregate Stated Principal Balance of the Mortgage Loans. Certificate Register and Certificate Registrar: The register maintained and the registrar appointed pursuant to Section 5.02. Class: Collectively, all of the Certificates bearing the same designation. The initial Class A-V Certificates and any Subclass thereof issued pursuant to Section 5.01(c) shall be a single Class for purposes of this Agreement. Class A-P Certificate: Any one of the Certificates designated as a Class A-P Certificate. Class A-P Collection Shortfall: With respect to the Cash Liquidation or REO Disposition of a Discount Mortgage Loan, any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, the excess of the amount described in clause (C)(1) of the definition of Class A-P Principal Distribution Amount (for the related Loan Group, if applicable) over the amount described in clause (C)(2) of such definition. Class A-P Principal Distribution Amount: With respect to any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Loan Group, an amount equal to the aggregate of: (A) the related Discount Fraction of the principal portion of each Monthly Payment on each Discount Mortgage Loan (or, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Discount Mortgage Loan in the related Loan Group) due during the related Due Period, whether or not received on or prior to the related Determination Date, minus the Discount Fraction of the principal portion of any related Debt Service Reduction which together with other Bankruptcy Losses exceeds the Bankruptcy Amount; (B) the related Discount Fraction of the principal portion of all unscheduled collections on each Discount Mortgage Loan (or, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Discount Mortgage Loan in the related Loan Group) received during the preceding calendar month or, in the case of Principal Prepayments in Full, during the related Prepayment Period (other than amounts received in connection with a Cash Liquidation or REO Disposition of a Discount Mortgage Loan described in clause (C) below), including Principal Prepayments in Full, Curtailments, Subsequent Recoveries and repurchases (including deemed repurchases under Section 3.07(b)) of such Discount Mortgage Loans (or, in the case of a substitution of a Deleted Mortgage Loan, the Discount Fraction of the amount of any shortfall deposited in the Custodial Account in connection with such substitution); (C) in connection with the Cash Liquidation or REO Disposition of a Discount Mortgage Loan (or, with respect to any Mortgage Pool comprised of two or more Loan Groups, each Discount Mortgage Loan in the related Loan Group) that occurred during the preceding calendar month (or was deemed to have occurred during such period in accordance with Section 3.07(b)) that did not result in any Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses, an amount equal to the lesser of (1) the applicable Discount Fraction of the Stated Principal Balance of such Discount Mortgage Loan immediately prior to such Distribution Date and (2) the aggregate amount of the collections on such Mortgage Loan to the extent applied as recoveries of principal; (D) any amounts allocable to principal for any previous Distribution Date (calculated pursuant to clauses (A) through (C) above) that remain undistributed; and (E) the amount of any Class A-P Collection Shortfalls for such Distribution Date and the related Loan Group, if applicable, and the amount of any Class A-P Collection Shortfalls (for the related Loan Group, if applicable) remaining unpaid for all previous Distribution Dates, but only to the extent of the Eligible Funds for such Distribution Date; minus (F) the related Discount Fraction of the portion of the Capitalization Reimbursement Amount (for the related Loan Group, if applicable) for such Distribution Date, if any, related to each Discount Mortgage Loan (in the related Loan Group, if applicable). Notwithstanding the foregoing, with respect to any Distribution Date on and after the Credit Support Depletion Date, the Class A-P Principal Distribution Amount (for a Loan Group, if applicable) shall equal the excess of (i) the sum of (a) the related Discount Fraction of the principal portion of each Monthly Payment on each Discount Mortgage Loan (in the related Loan Group, if applicable) received or advanced prior to the related Determination Date and not previously distributed minus the Discount Fraction of the principal portion of any related Debt Service Reduction which together with other Bankruptcy Losses exceeds the Bankruptcy Amount and (b) the related Discount Fraction of the aggregate amount of unscheduled collections described in clauses (B) and (C) above over (ii) the amount calculated pursuant to clause (F) above. Class A-V Certificate: Any one of the Certificates designated as a Class A-V Certificate, including any Subclass thereof. Class B Certificate: Any one of the Certificates designated as a Class B-1 Certificate, Class B-2 Certificate or Class B-3 Certificate. Class M Certificate: Any one of the Certificates designated as a Class M-1 Certificate, Class M-2 Certificate or Class M-3 Certificate. Closing Date: As defined in the Series Supplement. Code: The Internal Revenue Code of 1986, as amended. Combined Collateral LLC: Combined Collateral LLC, a Delaware limited liability company. Commission: The Securities and Exchange Commission. Compensating Interest: With respect to any Distribution Date, an amount equal to Prepayment Interest Shortfalls resulting from Principal Prepayments in Full during the related Prepayment Period and Curtailments during the prior calendar month and included in the Available Distribution Amount for such Distribution Date, but not more than the lesser of (a) one-twelfth of 0.125% of the Stated Principal Balance of the Mortgage Loans immediately preceding such Distribution Date and (b) the sum of the Servicing Fee and all income and gain on amounts held in the Custodial Account and the Certificate Account and payable to the Certificateholders with respect to such Distribution Date; provided that for purposes of this definition the amount of the Servicing Fee will not be reduced pursuant to Section 7.02(a) except as may be required pursuant to the last sentence of such Section. Compliance With Laws Representation: The following representation and warranty (or any representation and warranty that is substantially similar) made by Residential Funding in Section 4 of Assignment Agreement: "Each Mortgage Loan at the time it was made complied in all material respects with applicable local, state, and federal laws, including, but not limited to, all applicable anti-predatory lending laws". Cooperative: A private, cooperative housing corporation which owns or leases land and all or part of a building or buildings, including apartments, spaces used for commercial purposes and common areas therein and whose board of directors authorizes, among other things, the sale of Cooperative Stock. Cooperative Apartment: A dwelling unit in a multi-dwelling building owned or leased by a Cooperative, which unit the Mortgagor has an exclusive right to occupy pursuant to the terms of a proprietary lease or occupancy agreement. Cooperative Lease: With respect to a Cooperative Loan, the proprietary lease or occupancy agreement with respect to the Cooperative Apartment occupied by the Mortgagor and relating to the related Cooperative Stock, which lease or agreement confers an exclusive right to the holder of such Cooperative Stock to occupy such apartment. Cooperative Loans: Any of the Mortgage Loans made in respect of a Cooperative Apartment, evidenced by a Mortgage Note and secured by (i) a Security Agreement, (ii) the related Cooperative Stock Certificate, (iii) an assignment of the Cooperative Lease, (iv) financing statements and (v) a stock power (or other similar instrument), and ancillary thereto, a recognition agreement between the Cooperative and the originator of the Cooperative Loan, each of which was transferred and assigned to the Trustee pursuant to Section 2.01 and are from time to time held as part of the Trust Fund. Cooperative Stock: With respect to a Cooperative Loan, the single outstanding class of stock, partnership interest or other ownership instrument in the related Cooperative. Cooperative Stock Certificate: With respect to a Cooperative Loan, the stock certificate or other instrument evidencing the related Cooperative Stock. Credit Repository: Equifax, Transunion and Experian, or their successors in interest. Credit Support Depletion Date: The first Distribution Date on which the Certificate Principal Balances of the Subordinate Certificates have been reduced to zero. Credit Support Pledge Agreement: The Credit Support Pledge Agreement, dated as of November 24, 1998, among the Master Servicer, GMAC Mortgage Corporation, Combined Collateral LLC and The First National Bank of Chicago (now known as Bank One, National Association), as custodian. Cumulative Insurance Payments: As defined in the Series Supplement. Curtailment: Any Principal Prepayment made by a Mortgagor which is not a Principal Prepayment in Full. Custodial Account: The custodial account or accounts created and maintained pursuant to Section 3.07 in the name of a depository institution, as custodian for the holders of the Certificates, for the holders of certain other interests in mortgage loans serviced or sold by the Master Servicer and for the Master Servicer, into which the amounts set forth in Section 3.07 shall be deposited directly. Any such account or accounts shall be an Eligible Account. Custodial Agreement: An agreement that may be entered into among the Company, the Master Servicer, the Trustee and a Custodian pursuant to which the Custodian will hold certain documents relating to the Mortgage Loans on behalf of the Trustee. Custodian: A custodian appointed pursuant to a Custodial Agreement. Cut-off Date Principal Balance: As to any Mortgage Loan, the unpaid principal balance thereof at the Cut-off Date after giving effect to all installments of principal due on or prior thereto (or due during the month of the Cut-off Date), whether or not received. Debt Service Reduction: With respect to any Mortgage Loan, a reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction constituting a Deficient Valuation or any reduction that results in a permanent forgiveness of principal. Deficient Valuation: With respect to any Mortgage Loan, a valuation by a court of competent jurisdiction of the Mortgaged Property in an amount less than the then outstanding indebtedness under the Mortgage Loan, or any reduction in the amount of principal to be paid in connection with any scheduled Monthly Payment that constitutes a permanent forgiveness of principal, which valuation or reduction results from a proceeding under the Bankruptcy Code. Definitive Certificate: Any Certificate other than a Book-Entry Certificate. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. Delinquent: As used herein, a Mortgage Loan is considered to be: "30 to 59 days" or "30 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the next following monthly scheduled due date; "60 to 89 days" or "60 or more days" delinquent when a payment due on any scheduled due date remains unpaid as of the close of business on the last business day immediately prior to the second following monthly scheduled due date; and so on. The determination as to whether a Mortgage Loan falls into these categories is made as of the close of business on the last business day of each month. For example, a Mortgage Loan with a payment due on July 1 that remained unpaid as of the close of business on July 31 would then be considered to be 30 to 59 days delinquent. Delinquency information as of the Cut-off Date is determined and prepared as of the close of business on the last business day immediately prior to the Cut-off Date. 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 Securities Exchange Act of 1934, as amended. Depository Participant: A broker, dealer, bank or other financial institution or other Person for whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with the Depository. Destroyed Mortgage Note: A Mortgage Note the original of which was permanently lost or destroyed and has not been replaced. Determination Date: As defined in the Series Supplement. Discount Fraction: With respect to each Discount Mortgage Loan, the fraction expressed as a percentage, the numerator of which is the Discount Net Mortgage Rate minus the Net Mortgage Rate (or the initial Net Mortgage Rate with respect to any Discount Mortgage Loans as to which the Mortgage Rate is modified pursuant to 3.07(a)) for such Mortgage Loan and the denominator of which is the Discount Net Mortgage Rate. The Discount Fraction with respect to each Discount Mortgage Loan is set forth as an exhibit attached to the Series Supplement. Discount Mortgage Loan: Any Mortgage Loan having a Net Mortgage Rate (or the initial Net Mortgage Rate) of less than the Discount Net Mortgage Rate per annum and any Mortgage Loan deemed to be a Discount Mortgage Loan pursuant to the definition of Qualified Substitute Mortgage Loan. Discount Net Mortgage Rate: As defined in the Series Supplement. Disqualified Organization: Any organization defined as a "disqualified organization" under Section 860E(e)(5) of the Code, and if not otherwise included, any of the following: (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing (other than an instrumentality which is a corporation if all of its activities are subject to tax and, except for Freddie Mac, a majority of its board of directors is not selected by such governmental unit), (ii) a foreign government, any international organization, or any agency or instrumentality of any of the foregoing, (iii) any organization (other than certain farmers' cooperatives described in Section 521 of the Code) which is exempt from the tax imposed by Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on unrelated business taxable income), (iv) rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of the Code, (v) any "electing large partnership," as defined in Section 775(a) of the Code and (vi) any other Person so designated by the Trustee based upon an Opinion of Counsel that the holding of an Ownership Interest in a Class R Certificate by such Person may cause the Trust Fund or any Person having an Ownership Interest in any Class of Certificates (other than such Person) to incur a liability for any federal tax imposed under the Code that would not otherwise be imposed but for the Transfer of an Ownership Interest in a Class R Certificate to such Person. The terms "United States", "State" and "international organization" shall have the meanings set forth in Section 7701 of the Code or successor provisions. Distribution Date: The 25th day of any month beginning in the month immediately following the month of the initial issuance of the Certificates or, if such 25th day is not a Business Day, the Business Day immediately following such 25th day. Due Date: With respect to any Distribution Date and any Mortgage Loan, the day during the related Due Period on which the Monthly Payment is due. Due Period: With respect to any Distribution Date, the one-month period set forth in the Series Supplement. Eligible Account: An account that is any of the following: (i) maintained with a depository institution the debt obligations of which have been rated by each Rating Agency in its highest rating available, or (ii) an account or accounts in a depository institution in which such accounts are fully insured to the limits established by the FDIC, provided that any deposits not so insured shall, to the extent acceptable to each Rating Agency, as evidenced in writing, be maintained such that (as evidenced by an Opinion of Counsel delivered to the Trustee and each Rating Agency) the registered Holders of Certificates have a claim with respect to the funds in such account or a perfected first security interest against any collateral (which shall be limited to Permitted Investments) securing such funds that is superior to claims of any other depositors or creditors of the depository institution with which such account is maintained, or (iii) in the case of the Custodial Account, a trust account or accounts maintained in the corporate trust department of the Trustee, or (iv) in the case of the Certificate Account, a trust account or accounts maintained in the corporate trust department of the Trustee, or (v) an account or accounts of a depository institution acceptable to each Rating Agency (as evidenced in writing by each Rating Agency that use of any such account as the Custodial Account or the Certificate Account will not reduce the rating assigned to any Class of Certificates by such Rating Agency below the then-current rating assigned to such Certificates). Event of Default: As defined in Section 7.01. Excess Bankruptcy Loss: Any Bankruptcy Loss, or portion thereof, which exceeds the then applicable Bankruptcy Amount. Excess Fraud Loss: Any Fraud Loss, or portion thereof, which exceeds the then applicable Fraud Loss Amount. Excess Special Hazard Loss: Any Special Hazard Loss, or portion thereof, that exceeds the then applicable Special Hazard Amount. Excess Subordinate Principal Amount: With respect to any Distribution Date on which the aggregate Certificate Principal Balance of the Class of Subordinate Certificates then outstanding with the Lowest Priority is to be reduced to zero and on which Realized Losses are to be allocated to such class or classes, the excess, if any, of (i) the amount that would otherwise be distributable in respect of principal on such class or classes of Certificates on such Distribution Date over (ii) the excess, if any, of the aggregate Certificate Principal Balance of such class or classes of Certificates immediately prior to such Distribution Date over the aggregate amount of Realized Losses to be allocated to such classes of Certificates on such Distribution Date as reduced by any amount calculated pursuant to clause (E) of the definition of Class A-P Principal Distribution Amount. With respect to any Mortgage Pool that is comprised of two or more Loan Groups, the Excess Subordinate Principal Amount will be allocated between each Loan Group on a pro rata basis in accordance with the amount of Realized Losses attributable to each Loan Group and allocated to the Certificates on such Distribution Date. Exchange Act: The Securities and Exchange Act of 1934, as amended. Extraordinary Events: Any of the following conditions with respect to a Mortgaged Property (or, with respect to a Cooperative Loan, the Cooperative Apartment) or Mortgage Loan causing or resulting in a loss which causes the liquidation of such Mortgage Loan: (a) losses that are of the type that would be covered by the fidelity bond and the errors and omissions insurance policy required to be maintained pursuant to Section 3.12(b) but are in excess of the coverage maintained thereunder; (b) nuclear reaction or nuclear radiation or radioactive contamination, all whether controlled or uncontrolled, and whether such loss be direct or indirect, proximate or remote or be in whole or in part caused by, contributed to or aggravated by a peril covered by the definition of the term "Special Hazard Loss"; (c) hostile or warlike action in time of peace or war, including action in hindering, combating or defending against an actual, impending or expected attack: 1. by any government or sovereign power, de jure or de facto, or by any authority maintaining or using military, naval or air forces; or 2. by military, naval or air forces; or 3. by an agent of any such government, power, authority or forces; (d) any weapon of war employing atomic fission or radioactive force whether in time of peace or war; or (e) insurrection, rebellion, revolution, civil war, usurped power or action taken by governmental authority in hindering, combating or defending against such an occurrence, seizure or destruction under quarantine or customs regulations, confiscation by order of any government or public authority; or risks of contraband or illegal transportation or trade. Extraordinary Losses: Any loss incurred on a Mortgage Loan caused by or resulting from an Extraordinary Event. Fannie Mae: Federal National Mortgage Association, a federally chartered and privately owned corporation organized and existing under the Federal National Mortgage Association Charter Act, or any successor thereto. FDIC: Federal Deposit Insurance Corporation or any successor thereto. Final Distribution Date: The Distribution Date on which the final distribution in respect of the Certificates will be made pursuant to Section 9.01, which Final Distribution Date shall in no event be later than the end of the 90-day liquidation period described in Section 9.02. Fitch: Fitch Ratings or its successor in interest. Foreclosure Profits: As to any Distribution Date or related Determination Date and any Mortgage Loan, the excess, if any, of Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of all amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of each Mortgage Loan or REO Property for which a Cash Liquidation or REO Disposition occurred in the related Prepayment Period over the sum of the unpaid principal balance of such Mortgage Loan or REO Property (determined, in the case of an REO Disposition, in accordance with Section 3.14) plus accrued and unpaid interest at the Mortgage Rate on such unpaid principal balance from the Due Date to which interest was last paid by the Mortgagor to the first day of the month following the month in which such Cash Liquidation or REO Disposition occurred. Form 10-K Certification: As defined in Section 4.03(e). Fraud Losses: Realized Losses on Mortgage Loans as to which there was fraud in the origination of such Mortgage Loan. Freddie Mac: Federal Home Loan Mortgage Corporation, 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. Highest Priority: As of any date of determination, the Class of Subordinate Certificates then outstanding with a Certificate Principal Balance greater than zero, with the earliest priority for payments pursuant to Section 4.02(a), in the following order: Class M-1, Class M-2, Class M-3, Class B-1, Class B-2 and Class B-3 Certificates. Independent: When used with respect to any specified Person, means such a Person who (i) is in fact independent of the Company, the Master Servicer and the Trustee, or any Affiliate thereof, (ii) does not have any direct financial interest or any material indirect financial interest in the Company, the Master Servicer or the Trustee or in an Affiliate thereof, and (iii) is not connected with the Company, the Master Servicer or the Trustee as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Initial Certificate Principal Balance: With respect to each Class of Certificates, the Certificate Principal Balance of such Class of Certificates as of the Cut-off Date, as set forth in the Series Supplement. Initial Monthly Payment Fund: An amount representing scheduled principal amortization and interest at the Net Mortgage Rate for the Due Date in the first Due Period commencing subsequent to the Cut-off Date for those Mortgage Loans for which the Trustee will not be entitled to receive such payment, and as more specifically defined in the Series Supplement. Initial Notional Amount: With respect to any Class or Subclass of Interest Only Certificates, the amount initially used as the principal basis for the calculation of any interest payment amount, as more specifically defined in the Series Supplement. Initial Subordinate Class Percentage: As defined in the Series Supplement. Insurance Proceeds: Proceeds paid in respect of the Mortgage Loans pursuant to any Primary Insurance Policy or any other related insurance policy covering a Mortgage Loan (excluding any Certificate Policy (as defined in the Series Supplement)), to the extent such proceeds are payable to the mortgagee under the Mortgage, any Subservicer, the Master Servicer or the Trustee and are not applied to the restoration of the related Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) or released to the Mortgagor in accordance with the procedures that the Master Servicer would follow in servicing mortgage loans held for its own account. Insurer: Any named insurer under any Primary Insurance Policy or any successor thereto or the named insurer in any replacement policy. Interest Accrual Period: As defined in the Series Supplement. Interest Only Certificates: A Class or Subclass of Certificates not entitled to payments of principal, and designated as such in the Series Supplement. The Interest Only Certificates will have no Certificate Principal Balance. Interim Certification: As defined in Section 2.02. International Borrower: In connection with any Mortgage Loan, a borrower who is (a) a United States citizen employed in a foreign country, (b) a non-permanent resident alien employed in the United States or (c) a citizen of a country other than the United States with income derived from sources outside the United States. Junior Certificateholder: The Holder of not less than 95% of the Percentage Interests of the Junior Class of Certificates. Junior Class of Certificates: The Class of Subordinate Certificates outstanding as of the date of the repurchase of a Mortgage Loan pursuant to Section 4.07 herein that has the Lowest Priority. Late Collections: With respect to any Mortgage Loan, all amounts received during any Due Period, whether as late payments of Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late payments or collections of Monthly Payments due but delinquent for a previous Due Period and not previously recovered. Liquidation Proceeds: Amounts (other than Insurance Proceeds) received by the Master Servicer in connection with the taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation or in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than REO Proceeds. Loan Group: Any group of Mortgage Loans designated as a separate loan group in the Series Supplement. The Certificates relating to each Loan Group will be designated in the Series Supplement. Loan-to-Value Ratio: As of any date, the fraction, expressed as a percentage, the numerator of which is the current principal balance of the related Mortgage Loan at the date of determination and the denominator of which is the Appraised Value of the related Mortgaged Property. Lower Priority: As of any date of determination and any Class of Subordinate Certificates, any other Class of Subordinate Certificates then outstanding with a later priority for payments pursuant to Section 4.02 (a). Lowest Priority: As of any date of determination, the Class of Subordinate Certificates then outstanding with a Certificate Principal Balance greater than zero, with the latest priority for payments pursuant to Section 4.02(a), in the following order: Class B-3, Class B-2, Class B-1, Class M-3, Class M-2 and Class M-1 Certificates. Maturity Date: The latest possible maturity date, solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury regulations, by which the Certificate Principal Balance of each Class of Certificates (other than the Interest Only Certificates which have no Certificate Principal Balance) and each Uncertificated REMIC Regular Interest would be reduced to zero, as designated in the Series Supplement. MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto. MERS(R)System: The system of recording transfers of Mortgages electronically maintained by MERS. MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the MERS(R)System. MLCC: Merrill Lynch Credit Corporation, or its successor in interest. Modified Mortgage Loan: Any Mortgage Loan that has been the subject of a Servicing Modification. Modified Net Mortgage Rate: As to any Mortgage Loan that is the subject of a Servicing Modification, the Net Mortgage Rate minus the rate per annum by which the Mortgage Rate on such Mortgage Loan was reduced. MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof. Monthly Payment: With respect to any Mortgage Loan (including any REO Property) and any Due Date, the payment of principal and interest due thereon in accordance with the amortization schedule at the time applicable thereto (after adjustment, if any, for Curtailments and for Deficient Valuations occurring prior to such Due Date but before any adjustment to such amortization schedule by reason of any bankruptcy, other than a Deficient Valuation, or similar proceeding or any moratorium or similar waiver or grace period and before any Servicing Modification that constitutes a reduction of the interest rate on such Mortgage Loan). Moody's: Moody's Investors Service, Inc., or its successor in interest. Mortgage: With respect to each Mortgage Note related to a Mortgage Loan which is not a Cooperative Loan, the mortgage, deed of trust or other comparable instrument creating a first lien on an estate in fee simple or leasehold interest in real property securing a Mortgage Note. Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement. Mortgage Loans: Such of the mortgage loans transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate, Cooperative Lease and Mortgage File and all rights appertaining thereto, and (ii) with respect to each Mortgage Loan other than a Cooperative Loan, each related Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. Mortgage Loan Schedule: As defined in the Series Supplement. Mortgage Note: The originally executed note or other evidence of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan, together with any modification thereto. Mortgage Pool: The pool of mortgage loans, including all Loan Groups, if any, consisting of the Mortgage Loans. Mortgage Rate: As to any Mortgage Loan, the interest rate borne by the related Mortgage Note, or any modification thereto other than a Servicing Modification. Mortgaged Property: The underlying real property securing a Mortgage Loan or, with respect to a Cooperative Loan, the related Cooperative Lease and Cooperative Stock. Mortgagor: The obligor on a Mortgage Note. Net Mortgage Rate: As to each Mortgage Loan, a per annum rate of interest equal to the Adjusted Mortgage Rate less the per annum rate at which the Servicing Fee is calculated. Non-Discount Mortgage Loan: A Mortgage Loan that is not a Discount Mortgage Loan. Non-Primary Residence Loans: The Mortgage Loans designated as secured by second or vacation residences, or by non-owner occupied residences, on the Mortgage Loan Schedule. Non-United States Person: Any Person other than a United States Person. Nonrecoverable Advance: Any Advance previously made or proposed to be made by the Master Servicer or Subservicer in respect of a Mortgage Loan (other than a Deleted Mortgage Loan) which, in the good faith judgment of the Master Servicer, will not, or, in the case of a proposed Advance, would not, be ultimately recoverable by the Master Servicer from related Late Collections, Insurance Proceeds, Liquidation Proceeds, REO Proceeds or amounts reimbursable to the Master Servicer pursuant to Section 4.02(a) hereof. To the extent that any Mortgagor is not obligated under the related Mortgage documents to pay or reimburse any portion of any Servicing Advances that are outstanding with respect to the related Mortgage Loan as a result of a modification of such Mortgage Loan by the Master Servicer, which forgives amounts which the Master Servicer or Subservicer had previously advanced, and the Master Servicer determines that no other source of payment or reimbursement for such advances is available to it, such Servicing Advances shall be deemed to be Nonrecoverable Advances. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate delivered to the Company, the Trustee and any Certificate Insurer. Nonsubserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is not subject to a Subservicing Agreement. Notional Amount: With respect to any Class or Subclass of Interest Only Certificates, an amount used as the principal basis for the calculation of any interest payment amount, as more specifically defined in the Series Supplement. Officers' Certificate: A certificate signed by the Chairman of the Board, the President or a Vice President or Assistant Vice President, or a Director or Managing Director, and by the Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant Secretaries of the Company or the Master Servicer, as the case may be, and delivered to the Trustee, as required by this Agreement. Opinion of Counsel: A written opinion of counsel acceptable to the Trustee and the Master Servicer, who may be counsel for the Company or the Master Servicer, provided that any opinion of counsel (i) referred to in the definition of "Disqualified Organization" or (ii) relating to the qualification of any REMIC formed under the Series Supplement or compliance with the REMIC Provisions must, unless otherwise specified, be an opinion of Independent counsel. Outstanding Mortgage Loan: As to any Due Date, a Mortgage Loan (including an REO Property) which was not the subject of a Principal Prepayment in Full, Cash Liquidation or REO Disposition and which was not purchased, deleted or substituted for prior to such Due Date pursuant to Section 2.02, 2.03, 2.04 or 4.07. 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: As defined in the Series Supplement. Paying Agent: The Trustee or any successor Paying Agent appointed by the Trustee. Percentage Interest: With respect to any Certificate (other than a Class R Certificate), the undivided percentage ownership interest in the related Class evidenced by such Certificate, which percentage ownership interest shall be equal to the Initial Certificate Principal Balance thereof or Initial Notional Amount (in the case of any Interest Only Certificate) thereof divided by the aggregate Initial Certificate Principal Balance or the aggregate of the Initial Notional Amounts, as applicable, of all the Certificates of the same Class. With respect to a Class R Certificate, the interest in distributions to be made with respect to such Class evidenced thereby, expressed as a percentage, as stated on the face of each such Certificate. Permitted Investments: One or more of the following: (i) obligations of or guaranteed as to timely payment of principal and interest by the United States or any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States; (ii) repurchase agreements on obligations specified in clause (i) maturing not more than one month from the date of acquisition thereof, provided that the unsecured short-term debt obligations of the party agreeing to repurchase such obligations are at the time rated by each Rating Agency in its highest short-term rating available; (iii) federal funds, certificates of deposit, demand deposits, time deposits and bankers' acceptances (which shall each have an original maturity of not more than 90 days and, in the case of bankers' acceptances, shall in no event have an original maturity of more than 365 days or a remaining maturity of more than 30 days) denominated in United States dollars of any U.S. depository institution or trust company incorporated under the laws of the United States or any state thereof or of any domestic branch of a foreign depository institution or trust company; provided that the debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated by each Rating Agency in its highest short-term rating available; and, provided further that, if the original maturity of such short-term obligations of a domestic branch of a foreign depository institution or trust company shall exceed 30 days, the short-term rating of such institution shall be A-1+ in the case of Standard & Poor's if Standard & Poor's is a Rating Agency; (iv) commercial paper and demand notes (having original maturities of not more than 365 days) of any corporation incorporated under the laws of the United States or any state thereof which on the date of acquisition has been rated by each Rating Agency in its highest short-term rating available; provided that such commercial paper shall have a remaining maturity of not more than 30 days; (v) any mutual fund, money market fund, common trust fund or other pooled investment vehicle, the assets of which are limited to instruments that otherwise would constitute Permitted Investments hereunder and have been rated by each Rating Agency in its highest short-term rating available (in the case of Standard & Poor's such rating shall be either AAAm or AAAm-G), including any such fund that is managed by the Trustee or any affiliate of the Trustee or for which the Trustee or any of its affiliates acts as an adviser; and (vi) other obligations or securities that are acceptable to each Rating Agency as a Permitted Investment hereunder and will not reduce the rating assigned to any Class of Certificates by such Rating Agency (without giving effect to any Certificate Policy (as defined in the Series Supplement) in the case of Insured Certificates (as defined in the Series Supplement) below the lower of the then-current rating assigned to such Certificates by such Rating Agency, as evidenced in writing; provided, however, no instrument shall be a Permitted Investment if it represents, either (1) the right to receive only interest payments with respect to the underlying debt instrument or (2) the right to receive both principal and interest payments derived from obligations underlying such instrument and the principal and interest payments with respect to such instrument provide a yield to maturity greater than 120% of the yield to maturity at par of such underlying obligations. References herein to the highest rating available on unsecured long-term debt shall mean AAA in the case of Standard & Poor's and Fitch and Aaa in the case of Moody's, and for purposes of this Agreement, any references herein to the highest rating available on unsecured commercial paper and short-term debt obligations shall mean the following: A-1 in the case of Standard & Poor's, P-1 in the case of Moody's and F-1 in the case of Fitch; provided, however, that any Permitted Investment that is a short-term debt obligation rated A-1 by Standard & Poor's must satisfy the following additional conditions: (i) the total amount of debt from A-1 issuers must be limited to the investment of monthly principal and interest payments (assuming fully amortizing collateral); (ii) the total amount of A-1 investments must not represent more than 20% of the aggregate outstanding Certificate Principal Balance of the Certificates and each investment must not mature beyond 30 days; (iii) the terms of the debt must have a predetermined fixed dollar amount of principal due at maturity that cannot vary; and (iv) if the investments may be liquidated prior to their maturity or are being relied on to meet a certain yield, interest must be tied to a single interest rate index plus a single fixed spread (if any) and must move proportionately with that index. Any Permitted Investment may be held by or through the Trustee or its Affiliates. Permitted Transferee: Any Transferee of a Class R Certificate, other than a Disqualified Organization or Non-United States Person. Person: Any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Pledged Amount: With respect to any Pledged Asset Loan, the amount of money remitted to Combined Collateral LLC, at the direction of or for the benefit of the related Mortgagor. Pledged Asset Loan: Any Mortgage Loan supported by Pledged Assets or such other collateral, other than the related Mortgaged Property, set forth in the Series Supplement. Pledged Assets: With respect to any Mortgage Loan, all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts and other investment property and other property of whatever kind or description pledged by Combined Collateral LLC as security in respect of any Realized Losses in connection with such Mortgage Loan up to the Pledged Amount for such Mortgage Loan, and any related collateral, or such other collateral as may be set forth in the Series Supplement. Pledged Asset Mortgage Servicing Agreement: The Pledged Asset Mortgage Servicing Agreement, dated as of February 28, 1996 between MLCC and the Master Servicer. Pooling and Servicing Agreement or Agreement: With respect to any Series, this Standard Terms together with the related Series Supplement. Pool Stated Principal Balance: As to any Distribution Date, the aggregate of the Stated Principal Balances of each Mortgage Loan. Pool Strip Rate: With respect to each Mortgage Loan, a per annum rate equal to the excess of (a) the Net Mortgage Rate of such Mortgage Loan over (b) the Discount Net Mortgage Rate (but not less than 0.00%) per annum. Prepayment Distribution Trigger: With respect to any Distribution Date and any Class of Subordinate Certificates (other than the Class M-1 Certificates), a test that shall be satisfied if the fraction (expressed as a percentage) equal to the sum of the Certificate Principal Balances of such Class and each Class of Subordinate Certificates with a Lower Priority than such Class immediately prior to such Distribution Date divided by the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) immediately prior to such Distribution Date is greater than or equal to the sum of the related Initial Subordinate Class Percentages of such Classes of Subordinate Certificates. Prepayment Interest Shortfall: As to any Distribution Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was the subject of (a) a Principal Prepayment in Full during the portion of the related Prepayment Period that falls during the prior calendar month, an amount equal to the excess of one month's interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the Stated Principal Balance of such Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) paid by the Mortgagor for such month to the date of such Principal Prepayment in Full or (b) a Curtailment during the prior calendar month, an amount equal to one month's interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount of such Curtailment. Prepayment Period: As to any Distribution Date and Principal Prepayment in Full, the period commencing on the 16th day of the month prior to the month in which that Distribution Date occurs and ending on the 15th day of the month in which such Distribution Date occurs. Primary Insurance Policy: Each primary policy of mortgage guaranty insurance or any replacement policy therefor referred to in Section 2.03(b)(iv) and (v). Principal Only Certificates: A Class of Certificates not entitled to payments of interest, and more specifically designated as such in the Series Supplement. Principal Prepayment: Any payment of principal or other recovery on a Mortgage Loan, including a recovery that takes the form of Liquidation Proceeds or Insurance Proceeds, which is received in advance of its scheduled Due Date and is not accompanied by an amount as to interest representing scheduled interest on such payment due on any date or dates in any month or months subsequent to the month of prepayment. Principal Prepayment in Full: Any Principal Prepayment of the entire principal balance of a Mortgage Loan that is made by the Mortgagor. Program Guide: Collectively, the Client Guide and the Servicer Guide for Residential Funding's Expanded Criteria Mortgage Program. Purchase Price: With respect to any Mortgage Loan (or REO Property) required to be or otherwise purchased on any date pursuant to Section 2.02, 2.03, 2.04 or 4.07, an amount equal to the sum of (i) 100% of the Stated Principal Balance thereof plus the principal portion of any related unreimbursed Advances and (ii) unpaid accrued interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee is calculated in the case of a Modified Mortgage Loan) (or at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) in the case of a purchase made by the Master Servicer) on the Stated Principal Balance thereof to the Due Date in the Due Period related to the Distribution Date occurring in the month following the month of purchase from the Due Date to which interest was last paid by the Mortgagor. Qualified Substitute Mortgage Loan: A Mortgage Loan substituted by Residential Funding or the Company for a Deleted Mortgage Loan which must, on the date of such substitution, as confirmed in an Officers' Certificate delivered to the Trustee, with a copy to the Custodian, (i) have an outstanding principal balance, after deduction of the principal portion of the monthly payment due in the month of substitution (or in the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal balance, after such deduction), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be deposited by Residential Funding in the Custodial Account in the month of substitution); (ii) have a Mortgage Rate and a Net Mortgage Rate no lower than and not more than 1% per annum higher than the Mortgage Rate and Net Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of substitution; (iii) have a Loan-to-Value Ratio at the time of substitution no higher than that of the Deleted Mortgage Loan at the time of substitution; (iv) have a remaining term to stated maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan; (v) comply with each representation and warranty set forth in Sections 2.03 and 2.04 hereof and Section 4 of the Assignment Agreement; and (vi) have a Pool Strip Rate equal to or greater than that of the Deleted Mortgage Loan. Notwithstanding any other provisions herein, (x) with respect to any Qualified Substitute Mortgage Loan substituted for a Deleted Mortgage Loan which was a Discount Mortgage Loan, such Qualified Substitute Mortgage Loan shall be deemed to be a Discount Mortgage Loan and to have a Discount Fraction equal to the Discount Fraction of the Deleted Mortgage Loan and (y) in the event that the "Pool Strip Rate" of any Qualified Substitute Mortgage Loan as calculated pursuant to the definition of "Pool Strip Rate" is greater than the Pool Strip Rate of the related Deleted Mortgage Loan (i) the Pool Strip Rate of such Qualified Substitute Mortgage Loan shall be equal to the Pool Strip Rate of the related Deleted Mortgage Loan for purposes of calculating the Pass-Through Rate on the Class A-V Certificates and (ii) the excess of the Pool Strip Rate on such Qualified Substitute Mortgage Loan as calculated pursuant to the definition of "Pool Strip Rate" over the Pool Strip Rate on the related Deleted Mortgage Loan shall be payable to the Class R Certificates pursuant to Section 4.02 hereof. Rating Agency: Each of the statistical credit rating agencies specified in the Preliminary Statement of the Series Supplement. If any agency or a successor is no longer in existence, "Rating Agency" shall be such statistical credit rating agency, or other comparable Person, designated by the Company, notice of which designation shall be given to the Trustee and the Master Servicer. Realized Loss: With respect to each Mortgage Loan (or REO Property): (a) as to which a Cash Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Stated Principal Balance of the Mortgage Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to which interest was last paid or advanced to Certificateholders up to the Due Date in the Due Period related to the Distribution Date on which such Realized Loss will be allocated pursuant to Section 4.05 on the Stated Principal Balance of such Mortgage Loan (or REO Property) outstanding during each Due Period that such interest was not paid or advanced, minus (iii) the proceeds, if any, received during the month in which such Cash Liquidation (or REO Disposition) occurred, to the extent applied as recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage Loan, net of the portion thereof reimbursable to the Master Servicer or any Subservicer with respect to related Advances, Servicing Advances or other expenses as to which the Master Servicer or Subservicer is entitled to reimbursement thereunder but which have not been previously reimbursed, (b) which is the subject of a Servicing Modification, (i) (1) the amount by which the interest portion of a Monthly Payment or the principal balance of such Mortgage Loan was reduced or (2) the sum of any other amounts owing under the Mortgage Loan that were forgiven and that constitute Servicing Advances that are reimbursable to the Master Servicer or a Subservicer, and (ii) any such amount with respect to a Monthly Payment that was or would have been due in the month immediately following the month in which a Principal Prepayment or the Purchase Price of such Mortgage Loan is received or is deemed to have been received, (c) 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, or (d) which has become the object of a Debt Service Reduction, the amount of such Debt Service Reduction. Notwithstanding the above, neither a Deficient Valuation nor a Debt Service Reduction shall be deemed a Realized Loss hereunder so long as the Master Servicer has notified the Trustee in writing that the Master Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and either (A) the related Mortgage Loan is not in default with regard to payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable primary hazard insurance policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by the Master Servicer or a Subservicer, in either case without giving effect to any Debt Service Reduction. To the extent the Master Servicer receives Subsequent Recoveries with respect to any Mortgage Loan, the amount of the Realized Loss with respect to that Mortgage Loan will be reduced to the extent such recoveries are applied to reduce the Certificate Principal Balance of any Class of Certificates on any Distribution Date. Record Date: With respect to each Distribution Date, the close of business on the last Business Day of the month next preceding the month in which the related Distribution Date occurs. Regular Certificate: Any of the Certificates other than a Class R Certificate. Regulation AB: Subpart 229.1100 - Asset Backed Securities (Regulation AB), 17 C.F.R. ss.ss.229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities, Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (January 7, 2005)) or by the staff of the Commission, or as may be provided by the Commission or its staff from time to time. Reimbursement Amounts: As defined in Section 3.22. REMIC: A "real estate mortgage investment conduit" within the meaning of Section 860D of the Code. REMIC Administrator: Residential Funding Corporation. If Residential Funding Corporation is found by a court of competent jurisdiction to no longer be able to fulfill its obligations as REMIC Administrator under this Agreement the Master Servicer or Trustee acting as Master Servicer shall appoint a successor REMIC Administrator, subject to assumption of the REMIC Administrator obligations under this Agreement. REMIC Provisions: Provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of Subchapter M of Chapter 1 of the Code, and related provisions, and temporary and final regulations (or, to the extent not inconsistent with such temporary or final regulations, proposed regulations) and published rulings, notices and announcements promulgated thereunder, as the foregoing may be in effect from time to time. REO Acquisition: The acquisition by the Master Servicer on behalf of the Trustee for the benefit of the Certificateholders of any REO Property pursuant to Section 3.14. REO Disposition: As to any REO Property, a determination by the Master Servicer that it has received all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and recoveries (including proceeds of a final sale) which the Master Servicer expects to be finally recoverable from the sale or other disposition of the REO Property. REO Imputed Interest: As to any REO Property, for any period, an amount equivalent to interest (at the Net Mortgage Rate that would have been applicable to the related Mortgage Loan had it been outstanding) on the unpaid principal balance of the Mortgage Loan as of the date of acquisition thereof for such period. REO Proceeds: Proceeds, net of expenses, received in respect of any REO Property (including, without limitation, proceeds from the rental of the related Mortgaged Property or, with respect to a Cooperative Loan, the related Cooperative Apartment) which proceeds are required to be deposited into the Custodial Account only upon the related REO Disposition. REO Property: A Mortgaged Property acquired by the Master Servicer through foreclosure or deed in lieu of foreclosure in connection with a defaulted Mortgage Loan. Reportable Modified Mortgage Loan: Any Mortgage Loan that (i) has been subject to an interest rate reduction, (ii) has been subject to a term extension or (iii) has had amounts owing on such Mortgage Loan capitalized by adding such amount to the Stated Principal Balance of such Mortgage Loan; provided, however, that a Mortgage Loan modified in accordance with clause (i) above for a temporary period shall not be a Reportable Modified Mortgage Loan if such Mortgage Loan has not been delinquent in payments of principal and interest for six months since the date of such modification if that interest rate reduction is not made permanent thereafter. Request for Release: A request for release, the forms of which are attached as Exhibit F hereto, or an electronic request in a form acceptable to the Custodian. Required Insurance Policy: With respect to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under this Agreement, the Program Guide or the related Subservicing Agreement in respect of such Mortgage Loan. Required Surety Payment: With respect to any Additional Collateral Loan that becomes a Liquidated Mortgage Loan, the lesser of (i) the principal portion of the Realized Loss with respect to such Mortgage Loan and (ii) the excess, if any, of (a) the amount of Additional Collateral required at origination with respect to such Mortgage Loan over (b) the net proceeds realized by the Subservicer from the related Additional Collateral. Residential Funding: Residential Funding Corporation, a Delaware corporation, in its capacity as seller of the Mortgage Loans to the Company and any successor thereto. Responsible Officer: When used with respect to the Trustee, any officer of the Corporate Trust Department of the Trustee, including any Senior Vice President, any Vice President, any Assistant Vice President, any Assistant Secretary, any Trust Officer or Assistant Trust Officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers to whom, with respect to a particular matter, such matter is referred, in each case with direct responsibility for the administration of the Agreement. Retail Certificates: A Senior Certificate, if any, offered in smaller minimum denominations than other Senior Certificates, and designated as such in the Series Supplement. Schedule of Discount Fractions: The schedule setting forth the Discount Fractions with respect to the Discount Mortgage Loans, attached as an exhibit to the Series Supplement. Securitization Transaction: Any transaction involving a sale or other transfer of mortgage loans directly or indirectly to an issuing entity in connection with an issuance of publicly offered or privately placed, rated or unrated mortgage-backed securities. Security Agreement: With respect to a Cooperative Loan, the agreement creating a security interest in favor of the originator in the related Cooperative Stock. Seller: As to any Mortgage Loan, a Person, including any Subservicer, that executed a Seller's Agreement applicable to such Mortgage Loan. Seller's Agreement: An agreement for the origination and sale of Mortgage Loans generally in the form of the Seller Contract referred to or contained in the Program Guide, or in such other form as has been approved by the Master Servicer and the Company, each containing representations and warranties in respect of one or more Mortgage Loans consistent in all material respects with those set forth in the Program Guide. Senior Accelerated Distribution Percentage: With respect to any Distribution Date occurring on or prior to the 60th Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, any Loan Group, 100%. With respect to any Distribution Date thereafter and any such Loan Group, if applicable, as follows: (i) for any Distribution Date after the 60th Distribution Date but on or prior to the 72nd Distribution Date, the related Senior Percentage for such Distribution Date plus 70% of the related Subordinate Percentage for such Distribution Date; (ii) for any Distribution Date after the 72nd Distribution Date but on or prior to the 84th Distribution Date, the related Senior Percentage for such Distribution Date plus 60% of the related Subordinate Percentage for such Distribution Date; (iii) for any Distribution Date after the 84th Distribution Date but on or prior to the 96th Distribution Date, the related Senior Percentage for such Distribution Date plus 40% of the related Subordinate Percentage for such Distribution Date; (iv) for any Distribution Date after the 96th Distribution Date but on or prior to the 108th Distribution Date, the related Senior Percentage for such Distribution Date plus 20% of the related Subordinate Percentage for such Distribution Date; and (v) for any Distribution Date thereafter, the Senior Percentage for such Distribution Date; provided, however, (i) that any scheduled reduction to the Senior Accelerated Distribution Percentage described above shall not occur as of any Distribution Date unless either (a)(1)(X) the outstanding principal balance of the Mortgage Loans delinquent 60 days or more (including Mortgage Loans which are in foreclosure, have been foreclosed or otherwise liquidated, or with respect to which the Mortgagor is in bankruptcy and any REO Property) averaged over the last six months, as a percentage of the aggregate outstanding Certificate Principal Balance of the Subordinate Certificates, is less than 50% or (Y) the outstanding principal balance of Mortgage Loans delinquent 60 days or more (including Mortgage Loans which are in foreclosure, have been foreclosed or otherwise liquidated, or with respect to which the Mortgagor is in bankruptcy and any REO Property) averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 2% and (2) Realized Losses on the Mortgage Loans to date for such Distribution Date if occurring during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after the Closing Date are less than 30%, 35%, 40%, 45% or 50%, respectively, of the sum of the Initial Certificate Principal Balances of the Subordinate Certificates or (b)(1) the outstanding principal balance of Mortgage Loans delinquent 60 days or more (including Mortgage Loans which are in foreclosure, have been foreclosed or otherwise liquidated, or with respect to which the Mortgagor is in bankruptcy and any REO Property) averaged over the last six months, as a percentage of the aggregate outstanding principal balance of all Mortgage Loans averaged over the last six months, does not exceed 4% and (2) Realized Losses on the Mortgage Loans to date for such Distribution Date, if occurring during the sixth, seventh, eighth, ninth or tenth year (or any year thereafter) after the Closing Date are less than 10%, 15%, 20%, 25% or 30%, respectively, of the sum of the Initial Certificate Principal Balances of the Subordinate Certificates, and (ii) that for any Distribution Date on which the Senior Percentage is greater than the Senior Percentage as of the Closing Date, the Senior Accelerated Distribution Percentage for such Distribution Date shall be 100%, or, if the Mortgage Pool is comprised of two or more Loan Groups, for any Distribution Date on which the weighted average of the Senior Percentages for each Loan Group, weighted on the basis of the Stated Principal Balances of the Mortgage Loans in the related Loan Group (excluding the Discount Fraction of the Discount Mortgage Loans in such Loan Group) exceeds the weighted average of the initial Senior Percentages (calculated on such basis) for each Loan Group, each of the Senior Accelerated Distribution Percentages for such Distribution Date will equal 100%. Notwithstanding the foregoing, upon the reduction of the Certificate Principal Balances of the related Senior Certificates (other than the Class A-P Certificates, if any) to zero, the related Senior Accelerated Distribution Percentage shall thereafter be 0%. Senior Certificate: As defined in the Series Supplement. Senior Percentage: As defined in the Series Supplement. Senior Support Certificate: A Senior Certificate that provides additional credit enhancement to certain other classes of Senior Certificates and designated as such in the Preliminary Statement of the Series Supplement. Series: All of the Certificates issued pursuant to a Pooling and Servicing Agreement and bearing the same series designation. Series Supplement: The agreement into which this Standard Terms is incorporated and pursuant to which, together with this Standard Terms, a Series of Certificates is issued. Servicing Accounts: The account or accounts created and maintained pursuant to Section 3.08. Servicing Criteria: The "servicing criteria" set forth in Item 1122(d) of Regulation AB, as such may be amended from time to time. Servicing Advances: All customary, reasonable and necessary "out of pocket" costs and expenses incurred in connection with a default, delinquency or other unanticipated event by the Master Servicer or a Subservicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of a Mortgaged Property or, with respect to a Cooperative Loan, the related Cooperative Apartment, (ii) any enforcement or judicial proceedings, including foreclosures, including any expenses incurred in relation to any such proceedings that result from the Mortgage Loan being registered on the MERS System, (iii) the management and liquidation of any REO Property, (iv) any mitigation procedures implemented in accordance with Section 3.07, and (v) compliance with the obligations under Sections 3.01, 3.08, 3.11, 3.12(a) and 3.14, including, if the Master Servicer or any Affiliate of the Master Servicer provides services such as appraisals and brokerage services that are customarily provided by Persons other than servicers of mortgage loans, reasonable compensation for such services. Servicing Advance Reimbursement Amounts: As defined in Section 3.22. Servicing Fee: With respect to any Mortgage Loan and Distribution Date, the fee payable monthly to the Master Servicer in respect of master servicing compensation that accrues at an annual rate designated on the Mortgage Loan Schedule as the "MSTR SERV FEE" for such Mortgage Loan, as may be adjusted with respect to successor Master Servicers as provided in Section 7.02. Servicing Modification: Any reduction of the interest rate on or the outstanding principal balance of a Mortgage Loan, any extension of the final maturity date of a Mortgage Loan, and any increase to the outstanding principal balance of a Mortgage Loan by adding to the Stated Principal Balance unpaid principal and interest and other amounts owing under the Mortgage Loan, in each case pursuant to a modification of a Mortgage Loan that is in default, or for which, in the judgment of the Master Servicer, default is reasonably foreseeable in accordance with Section 3.07(a). Servicing Officer: Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name and specimen signature appear on a list of servicing officers furnished to the Trustee by the Master Servicer, as such list may from time to time be amended. Special Hazard Loss: Any Realized Loss not in excess of the cost of the lesser of repair or replacement of a Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) suffered by such Mortgaged Property (or Cooperative Apartment) on account of direct physical loss, exclusive of (i) any loss of a type covered by a hazard policy or a flood insurance policy required to be maintained in respect of such Mortgaged Property pursuant to Section 3.12(a), except to the extent of the portion of such loss not covered as a result of any coinsurance provision and (ii) any Extraordinary Loss. Standard & Poor's: Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or its successor in interest. Stated Principal Balance: With respect to any Mortgage Loan or related REO Property, as of any Distribution Date, (i) the sum of (a) the Cut-off Date Principal Balance of the Mortgage Loan plus (b) any amount by which the Stated Principal Balance of the Mortgage Loan has been increased pursuant to a Servicing Modification, minus (ii) the sum of (a) the principal portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each Due Period ending with the Due Period related to the previous Distribution Date which were received or with respect to which an Advance was made, and (b) all Principal Prepayments with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied by the Master Servicer as recoveries of principal in accordance with Section 3.14 with respect to such Mortgage Loan or REO Property, in each case which were distributed pursuant to Section 4.02 on any previous Distribution Date, and (c) any Realized Loss allocated to Certificateholders with respect thereto for any previous Distribution Date. Subclass: With respect to the Class A-V Certificates, any Subclass thereof issued pursuant to Section 5.01(c). Any such Subclass will represent the Uncertificated Class A-V REMIC Regular Interest or Interests specified by the initial Holder of the Class A-V Certificates pursuant to Section 5.01(c). Subordinate Certificate: Any one of the Class M Certificates or Class B Certificates, executed by the Trustee and authenticated by the Certificate Registrar substantially in the form annexed hereto as Exhibit B and Exhibit C, respectively. Subordinate Class Percentage: With respect to any Distribution Date and any Class of Subordinate Certificates, a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Principal Balance of such Class of Subordinate Certificates immediately prior to such date and the denominator of which is the aggregate Stated Principal Balance of all of the Mortgage Loans (or related REO Properties) (other than the related Discount Fraction of each Discount Mortgage Loan) immediately prior to such Distribution Date. Subordinate Percentage: As of any Distribution Date and, with respect to any Mortgage Pool comprised of two or more Loan Groups, any Loan Group, 100% minus the related Senior Percentage as of such Distribution Date. Subsequent Recoveries: As of any Distribution Date, amounts received by the Master Servicer (net of any related expenses permitted to be reimbursed pursuant to Section 3.10) or surplus amounts held by the Master Servicer to cover estimated expenses (including, but not limited to, recoveries in respect of the representations and warranties made by the related Seller pursuant to the applicable Seller's Agreement and assigned to the Trustee pursuant to Section 2.04) specifically related to a Mortgage Loan that was the subject of a Cash Liquidation or an REO Disposition prior to the related Prepayment Period that resulted in a Realized Loss. Subserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference thereto, is subject to a Subservicing Agreement. Subservicer: Any Person with whom the Master Servicer has entered into a Subservicing Agreement and who generally satisfied the requirements set forth in the Program Guide in respect of the qualification of a Subservicer as of the date of its approval as a Subservicer by the Master Servicer. Subservicer Advance: Any delinquent installment of principal and interest on a Mortgage Loan which is advanced by the related Subservicer (net of its Subservicing Fee) pursuant to the Subservicing Agreement. Subservicing Account: An account established by a Subservicer in accordance with Section 3.08. Subservicing Agreement: The written contract between the Master Servicer and any Subservicer relating to servicing and administration of certain Mortgage Loans as provided in Section 3.02, generally in the form of the servicer contract referred to or contained in the Program Guide or in such other form as has been approved by the Master Servicer and the Company. With respect to Additional Collateral Loans subserviced by MLCC, the Subservicing Agreement shall also include the Addendum and Assignment Agreement and the Pledged Asset Mortgage Servicing Agreement. With respect to any Pledged Asset Loan subserviced by GMAC Mortgage Corporation, the Addendum and Assignment Agreement, dated as of November 24, 1998, between the Master Servicer and GMAC Mortgage Corporation, as such agreement may be amended from time to time. Subservicing Fee: As to any Mortgage Loan, the fee payable monthly to the related Subservicer (or, in the case of a Nonsubserviced Mortgage Loan, to the Master Servicer) in respect of subservicing and other compensation that accrues at an annual rate equal to the excess of the Mortgage Rate borne by the related Mortgage Note over the rate per annum designated on the Mortgage Loan Schedule as the "CURR NET" for such Mortgage Loan. Successor Master Servicer: As defined in Section 3.22. Surety: Ambac, or its successors in interest, or such other surety as may be identified in the Series Supplement. Surety Bond: The Limited Purpose Surety Bond (Policy No. AB0039BE), dated February 28, 1996 in respect to Mortgage Loans originated by MLCC, or the Surety Bond (Policy No. AB0240BE), dated March 17, 1999 in respect to Mortgage Loans originated by Novus Financial Corporation, in each case issued by Ambac for the benefit of certain beneficiaries, including the Trustee for the benefit of the Holders of the Certificates, but only to the extent that such Surety Bond covers any Additional Collateral Loans, or such other Surety Bond as may be identified in the Series Supplement. Tax Returns: The federal income tax return on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed on behalf of any REMIC formed under the Series Supplement and 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. Transaction Party: As defined in Section 12.02(a). 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. Trust Fund: The segregated pool of assets related to a Series, with respect to which one or more REMIC elections are to be made pursuant to this Agreement, consisting of: (i) the Mortgage Loans and the related Mortgage Files and collateral securing such Mortgage Loans, (ii) all payments on and collections in respect of the Mortgage Loans due after the Cut-off Date as shall be on deposit in the Custodial Account or in the Certificate Account and identified as belonging to the Trust Fund, including the proceeds from the liquidation of Additional Collateral for any Additional Collateral Loan or Pledged Assets for any Pledged Asset Loan, but not including amounts on deposit in the Initial Monthly Payment Fund, (iii) property that secured a Mortgage Loan and that has been acquired for the benefit of the Certificateholders by foreclosure or deed in lieu of foreclosure, (iv) the hazard insurance policies and Primary Insurance Policies, if any, the Pledged Assets with respect to each Pledged Asset Loan, and the interest in the Surety Bond transferred to the Trustee pursuant to Section 2.01, and (v) all proceeds of clauses (i) through (iv) above. Trustee Information: As specified in Section 12.05(a)(i)(A). Uninsured Cause: Any cause of damage to property subject to a Mortgage such that the complete restoration of such property is not fully reimbursable by the hazard insurance policies. United States Person or U.S. Person: (i) A citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or partnership for United States federal income tax purposes organized in or under the laws of the United States or any state thereof or the District of Columbia (unless, in the case of a partnership, Treasury regulations provide otherwise), provided that, for purposes solely of the restrictions on the transfer of residual interests, no partnership or other entity treated as a partnership for United States federal income tax purposes shall be treated as a United States Person or U.S. Person unless all persons that own an interest in such partnership either directly or indirectly through any chain of entities no one of which is a corporation for United States federal income tax purposes are required by the applicable operating agreement to be United States Persons, (iii) an estate the income of which is includible in gross income for United States tax purposes, regardless of its source, or (iv) 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. Notwithstanding the preceding sentence, to the extent provided in Treasury regulations, certain Trusts in existence on August 20, 1996, and treated as United States persons prior to such date, that elect to continue to be treated as United States persons will also be a U.S. Person. U.S.A. Patriot Act: Uniting and Strengthening America by Providing Appropriate Tools to Intercept and Obstruct Terrorism Act of 2001, as amended. Voting Rights: The portion of the voting rights of all of the Certificates which is allocated to any Certificate, and more specifically designated in Article XI of the Series Supplement. Section 1.02. Use of Words and Phrases. "Herein," "hereby," "hereunder," `hereof," "hereinbefore," "hereinafter" and other equivalent words refer to the Pooling and Servicing Agreement as a whole. All references herein to Articles, Sections or Subsections shall mean the corresponding Articles, Sections and Subsections in the Pooling and Servicing Agreement. The definitions set forth herein include both the singular and the plural. -------------------------------------------------------------------------------- ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES Section 2.01. Conveyance of Mortgage Loans. (a) The Company, concurrently with the execution and delivery hereof, does hereby assign to the Trustee for the benefit of the Certificateholders without recourse all the right, title and interest of the Company in and to the Mortgage Loans, including all interest and principal received on or with respect to the Mortgage Loans after the Cut-off Date (other than payments of principal and interest due on the Mortgage Loans in the month of the Cut-off Date). In connection with such transfer and assignment, the Company does hereby deliver to the Trustee the Certificate Policy (as defined in the Series Supplement), if any for the benefit of the Holders of the Insured Certificates (as defined in the Series Supplement). (b) In connection with such assignment, except as set forth in Section 2.01(c) and subject to Section 2.01(d) below, the Company does hereby deliver to, and deposit with, the Trustee, or to and with one or more Custodians, as the duly appointed agent or agents of the Trustee for such purpose, the following documents or instruments (or copies thereof as permitted by this Section) (I) with respect to each Mortgage Loan so assigned (other than a Cooperative Loan): (i) The original Mortgage Note, endorsed without recourse in blank or to the order of the Trustee, and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) The original Mortgage, noting the presence of the MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with evidence of recording indicated thereon or a copy of the Mortgage with evidence of recording indicated thereon; (iii) Unless the Mortgage Loan is registered on the MERS(R)System, an original Assignment of the Mortgage to the Trustee with evidence of recording indicated thereon or a copy of such assignment with evidence of recording indicated thereon; (iv) The original recorded assignment or assignments of the Mortgage showing an unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on the MERS(R)System and noting the presence of a MIN) with evidence of recordation noted thereon or attached thereto, or a copy of such assignment or assignments of the Mortgage with evidence of recording indicated thereon; and (v) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Mortgage Loan or a copy of each modification, assumption agreement or preferred loan agreement. and (II) with respect to each Cooperative Loan so assigned: (i) The original Mortgage Note, endorsed without recourse to the order of the Trustee and showing an unbroken chain of endorsements from the originator thereof to the Person endorsing it to the Trustee, or with respect to any Destroyed Mortgage Note, an original lost note affidavit from the related Seller or Residential Funding stating that the original Mortgage Note was lost, misplaced or destroyed, together with a copy of the related Mortgage Note; (ii) A counterpart of the Cooperative Lease and the Assignment of Proprietary Lease to the originator of the Cooperative Loan with intervening assignments showing an unbroken chain of title from such originator to the Trustee; (iii) The related Cooperative Stock Certificate, representing the related Cooperative Stock pledged with respect to such Cooperative Loan, together with an undated stock power (or other similar instrument) executed in blank; (iv) The original recognition agreement by the Cooperative of the interests of the mortgagee with respect to the related Cooperative Loan; (v) The Security Agreement; (vi) Copies of the original UCC-1 financing statement, and any continuation statements, filed by the originator of such Cooperative Loan as secured party, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (vii) Copies of the filed UCC-3 assignments of the security interest referenced in clause (vi) above showing an unbroken chain of title from the originator to the Trustee, each with evidence of recording thereof, evidencing the interest of the originator under the Security Agreement and the Assignment of Proprietary Lease; (viii) An executed assignment of the interest of the originator in the Security Agreement, Assignment of Proprietary Lease and the recognition agreement referenced in clause (iv) above, showing an unbroken chain of title from the originator to the Trustee; (ix) The original of each modification, assumption agreement or preferred loan agreement, if any, relating to such Cooperative Loan; and (x) A duly completed UCC-1 financing statement showing the Master Servicer as debtor, the Company as secured party and the Trustee as assignee and a duly completed UCC-1 financing statement showing the Company as debtor and the Trustee as secured party, each in a form sufficient for filing, evidencing the interest of such debtors in the Cooperative Loans. (c) The Company may, in lieu of delivering the original of the documents set forth in Section 2.01(b)(I)(ii), (iii), (iv) and (v) and Section (b)(II)(ii), (iv), (vii), (ix) and (x) (or copies thereof as permitted by Section 2.01(b)) to the Trustee or the Custodian or Custodians, deliver such documents to the Master Servicer, and the Master Servicer shall hold such documents in trust for the use and benefit of all present and future Certificateholders until such time as is set forth in the next sentence. Within thirty Business Days following the earlier of (i) the receipt of the original of all of the documents or instruments set forth in Section 2.01(b)(I)(ii), (iii), (iv) and (v) and Section (b)(II)(ii), (iv), (vii), (ix) and (x) (or copies thereof as permitted by such Section) for any Mortgage Loan and (ii) a written request by the Trustee to deliver those documents with respect to any or all of the Mortgage Loans then being held by the Master Servicer, the Master Servicer shall deliver a complete set of such documents to the Trustee or the Custodian or Custodians that are the duly appointed agent or agents of the Trustee. The parties hereto agree that it is not intended that any Mortgage Loan be included in the Trust Fund that is either (i) a "High-Cost Home Loan" as defined in the New Jersey Home Ownership Act effective November 27, 2003, (ii) a "High-Cost Home Loan" as defined in the New Mexico Home Loan Protection Act effective January 1, 2004, (iii) a "High Cost Home Mortgage Loan" as defined in the Massachusetts Predatory Home Loan Practices Act effective November 7, 2004 or (iv) a "High-Cost Home Loan" as defined in the Indiana House Enrolled Act No. 1229, effective as of January 1, 2005. (d) Notwithstanding the provisions of Section 2.01(c), in connection with any Mortgage Loan, if the Company cannot deliver the original of the Mortgage, any assignment, modification, assumption agreement or preferred loan agreement (or copy thereof as permitted by Section 2.01(b)) with evidence of recording thereon concurrently with the execution and delivery of this Agreement because of (i) a delay caused by the public recording office where such Mortgage, assignment, modification, assumption agreement or preferred loan agreement as the case may be, has been delivered for recordation, or (ii) a delay in the receipt of certain information necessary to prepare the related assignments, the Company shall deliver or cause to be delivered to the Trustee or the respective Custodian a copy of such Mortgage, assignment, modification, assumption agreement or preferred loan agreement. The Company shall promptly cause to be recorded in the appropriate public office for real property records the Assignment referred to in clause (I)(iii) of Section 2.01(b), except (a) in states where, in the opinion of counsel acceptable to the Trustee and the Master Servicer, such recording is not required to protect the Trustee's interests in the Mortgage Loan against the claim of any subsequent transferee or any successor to or creditor of the Company or the originator of such Mortgage Loan or (b) if MERS is identified on the Mortgage or on a properly recorded assignment of the Mortgage as the mortgagee of record solely as nominee for the Seller and its successors and assigns, and shall promptly cause to be filed the Form UCC-3 assignment and UCC-1 financing statement referred to in clause (II)(vii) and (x), respectively, of Section 2.01(b). If any Assignment, Form UCC-3 or Form UCC-1, as applicable, is lost or returned unrecorded to the Company because of any defect therein, the Company shall prepare a substitute Assignment, Form UCC-3 or Form UCC-1, as applicable, or cure such defect, as the case may be, and cause such Assignment to be recorded in accordance with this paragraph. The Company shall promptly deliver or cause to be delivered to the Trustee or the respective Custodian such Mortgage or Assignment or Form UCC-3 or Form UCC-1, as applicable, (or copy thereof as permitted by Section 2.01(b)) with evidence of recording indicated thereon at the time specified in Section 2.01(c). In connection with its servicing of Cooperative Loans, the Master Servicer will use its best efforts to file timely continuation statements with regard to each financing statement and assignment relating to Cooperative Loans as to which the related Cooperative Apartment is located outside of the State of New York. If the Company delivers to the Trustee or Custodian any Mortgage Note or Assignment of Mortgage in blank, the Company shall, or shall cause the Custodian to, complete the endorsement of the Mortgage Note and the Assignment of Mortgage in the name of the Trustee in conjunction with the Interim Certification issued by the Custodian, as contemplated by Section 2.02. Any of the items set forth in Sections 2.01(b)(I)(ii), (iii), (iv) and (v) and (II)(vi) and (vii) and that may be delivered as a copy rather than the original may be delivered to the Trustee or the Custodian. In connection with the assignment of any Mortgage Loan registered on the MERS(R)System, the Company further agrees that it will cause, at the Company's own expense, within 30 Business Days after the Closing Date, the MERS(R)System to indicate that such Mortgage Loans have been assigned by the Company to the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in accordance with this Agreement) in such computer files (a) the code in the field which identifies the specific Trustee and (b) the code in the field "Pool Field" which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Company further agrees that it will not, and will not permit the Master Servicer to, and the Master Servicer agrees that it will not, alter the codes referenced in this paragraph with respect to any Mortgage Loan during the term of this Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this Agreement. (e) Residential Funding hereby assigns to the Trustee its security interest in and to any Additional Collateral or Pledged Assets, its right to receive amounts due or to become due in respect of any Additional Collateral or Pledged Assets pursuant to the related Subservicing Agreement and its rights as beneficiary under the Surety Bond in respect of any Additional Collateral Loans. With respect to any Additional Collateral Loan or Pledged Asset Loan, Residential Funding shall cause to be filed in the appropriate recording office a UCC-3 statement giving notice of the assignment of the related security interest to the Trust Fund and shall thereafter cause the timely filing of all necessary continuation statements with regard to such financing statements. (f) It is intended that the conveyance by the Company to the Trustee of the Mortgage Loans as provided for in this Section 2.01 be and the Uncertificated REMIC Regular Interests, if any (as provided for in Section 2.06), be construed as a sale by the Company to the Trustee of the Mortgage Loans and any Uncertificated REMIC Regular Interests for the benefit of the Certificateholders. Further, it is not intended that such conveyance be deemed to be a pledge of the Mortgage Loans and any Uncertificated REMIC Regular Interests by the Company to the Trustee to secure a debt or other obligation of the Company. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction; (b) the conveyance provided for in Section 2.01 shall be deemed to be, and hereby is, (1) a grant by the Company to the Trustee of a security interest in all of the Company's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to any and all general intangibles, payment intangibles, accounts, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and investment property and other property of whatever kind or description now existing or hereafter acquired consisting of, arising from or relating to any of the following: (A) the Mortgage Loans, including (i) with respect to each Cooperative Loan, the related Mortgage Note, Security Agreement, Assignment of Proprietary Lease, Cooperative Stock Certificate and Cooperative Lease, (ii) with respect to each Mortgage Loan other than a Cooperative Loan, the related Mortgage Note and Mortgage, and (iii) any insurance policies and all other documents in the related Mortgage File, (B) all amounts payable pursuant to the Mortgage Loans in accordance with the terms thereof, (C) any Uncertificated REMIC Regular Interests and (D) all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts from time to time held or invested in the Certificate Account or the Custodial Account, whether in the form of cash, instruments, securities or other property and (2) an assignment by the Company to the Trustee of any security interest in any and all of Residential Funding's right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted by Residential Funding to the Company pursuant to the Assignment Agreement; (c) the possession by the Trustee, the Custodian or any other agent of the Trustee of Mortgage Notes or such other items of property as constitute instruments, money, payment intangibles, negotiable documents, goods, deposit accounts, letters of credit, advices of credit, investment property, certificated securities or chattel paper shall be deemed to be "possession by the secured party," or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Minnesota Uniform Commercial Code and the Uniform Commercial Code of any other applicable jurisdiction as in effect (including, without limitation, Sections 8-106, 9-313, 9-314 and 9-106 thereof); and (d) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents of, or persons holding for (as applicable) the Trustee for the purpose of perfecting such security interest under applicable law. The Company and, at the Company's direction, Residential Funding and the Trustee shall, to the extent consistent with this Agreement, take such reasonable actions as may be necessary to ensure that, if this Agreement were determined to create a security interest in the Mortgage Loans, any Uncertificated REMIC Regular Interests and the other property described above, such security interest would be determined to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, the Company shall prepare and deliver to the Trustee not less than 15 days prior to any filing date and, the Trustee shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Company, all filings necessary to maintain the effectiveness of any original filings necessary under the Uniform Commercial Code as in effect in any jurisdiction to perfect the Trustee's security interest in or lien on the Mortgage Loans and any Uncertificated REMIC Regular Interests, as evidenced by an Officers' Certificate of the Company, including without limitation (x) continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of Residential Funding, the Company or the Trustee (such preparation and filing shall be at the expense of the Trustee, if occasioned by a change in the Trustee's name), (2) any change of type or jurisdiction of organization of Residential Funding or the Company, (3) any transfer of any interest of Residential Funding or the Company in any Mortgage Loan or (4) any transfer of any interest of Residential Funding or the Company in any Uncertificated REMIC Regular Interest. (g) The Master Servicer hereby acknowledges the receipt by it of the Initial Monthly Payment Fund. The Master Servicer shall hold such Initial Monthly Payment Fund in the Custodial Account and shall include such Initial Monthly Payment Fund in the Available Distribution Amount for the initial Distribution Date. Notwithstanding anything herein to the contrary, the Initial Monthly Payment Fund shall not be an asset of any REMIC. To the extent that the Initial Monthly Payment Fund constitutes a reserve fund for federal income tax purposes, (1) it shall be an outside reserve fund and not an asset of any REMIC, (2) it shall be owned by the Seller and (3) amounts transferred by any REMIC to the Initial Monthly Payment Fund shall be treated as transferred to the Seller or any successor, all within the meaning of Section 1.860G-2(h) of the Treasury Regulations. (h) The Company agrees that the sale of each Pledged Asset Loan pursuant to this Agreement will also constitute the assignment, sale, setting-over, transfer and conveyance to the Trustee, without recourse (but subject to the Company's covenants, representations and warranties specifically provided herein), of all of the Company's obligations and all of the Company's right, title and interest in, to and under, whether now existing or hereafter acquired as owner of the Mortgage Loan with respect to any and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description consisting of, arising from or related to (i) the Assigned Contracts, (ii) all rights, powers and remedies of the Company as owner of such Mortgage Loan under or in connection with the Assigned Contracts, whether arising under the terms of such Assigned Contracts, by statute, at law or in equity, or otherwise arising out of any default by the Mortgagor under or in connection with the Assigned Contracts, including all rights to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, approval or waiver thereunder, (iii) the Pledged Amounts and all money, securities, security entitlements, accounts, general intangibles, payment intangibles, instruments, documents, deposit accounts, certificates of deposit, commodities contracts, and other investment property and other property of whatever kind or description and all cash and non-cash proceeds of the sale, exchange, or redemption of, and all stock or conversion rights, rights to subscribe, liquidation dividends or preferences, stock dividends, rights to interest, dividends, earnings, income, rents, issues, profits, interest payments or other distributions of cash or other property that secures a Pledged Asset Loan, (iv) all documents, books and records concerning the foregoing (including all computer programs, tapes, disks and related items containing any such information) and (v) all insurance proceeds (including proceeds from the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation or any other insurance company) of any of the foregoing or replacements thereof or substitutions therefor, proceeds of proceeds and the conversion, voluntary or involuntary, of any thereof. The foregoing transfer, sale, assignment and conveyance does not constitute and is not intended to result in the creation, or an assumption by the Trustee, of any obligation of the Company, or any other person in connection with the Pledged Assets or under any agreement or instrument relating thereto, including any obligation to the Mortgagor, other than as owner of the Mortgage Loan. Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(b)(i) above (except that for purposes of such acknowledgement only, a Mortgage Note may be endorsed in blank) and declares that it, or a Custodian as its agent, holds and will hold such documents and the other documents constituting a part of the Mortgage Files delivered to it, or a Custodian as its agent, and the rights of Residential Funding with respect to any Pledged Assets, Additional Collateral and the Surety Bond assigned to the Trustee pursuant to Section 2.01, in trust for the use and benefit of all present and future Certificateholders. The Trustee or Custodian (such Custodian being so obligated under a Custodial Agreement) agrees, for the benefit of Certificateholders, to review each Mortgage File delivered to it pursuant to Section 2.01(b) within 45 days after the Closing Date to ascertain that all required documents (specifically as set forth in Section 2.01(b)), have been executed and received, and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, as supplemented, that have been conveyed to it, and to deliver to the Trustee a certificate (the "Interim Certification") to the effect that all documents required to be delivered pursuant to Section 2.01(b) above have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule A attached to such Interim Certification. Upon delivery of the Mortgage Files by the Company or the Master Servicer, the Trustee shall acknowledge receipt (or, with respect to Mortgage Loans subject to a Custodial Agreement, and based solely upon a receipt or certification executed by the Custodian, receipt by the respective Custodian as the duly appointed agent of the Trustee) of the documents referred to in Section 2.01(c) above. If the Custodian, as the Trustee's agent, finds any document or documents constituting a part of a Mortgage File to be missing or defective, the Trustee shall promptly so notify the Master Servicer and the Company. Pursuant to Section 2.3 of the Custodial Agreement, the Custodian will notify the Master Servicer, the Company and the Trustee of any such omission or defect found by it in respect of any Mortgage File held by it in respect of the items reviewed by it pursuant to the Custodial Agreement. If such omission or defect materially and adversely affects the interests of the Certificateholders, the Master Servicer shall promptly notify Residential Funding of such omission or defect and request Residential Funding to correct or cure such omission or defect within 60 days from the date the Master Servicer was notified of such omission or defect and, if Residential Funding does not correct or cure such omission or defect within such period, require Residential Funding to purchase such Mortgage Loan from the Trust Fund at its Purchase Price, within 90 days from the date the Master Servicer was notified of such omission or defect; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The Purchase Price for any such Mortgage Loan shall be deposited by the Master Servicer in the Custodial Account maintained by it pursuant to Section 3.07 and, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to Residential Funding the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in Residential Funding or its designee any Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall not be part of the Trust Fund. It is understood and agreed that the obligation of Residential Funding to so cure or purchase any Mortgage Loan as to which a material and adverse defect in or omission of a constituent document exists shall constitute the sole remedy respecting such defect or omission available to Certificateholders or the Trustee on behalf of the Certificateholders. Section 2.03. Representations, Warranties and Covenants of the Master Servicer and the Company. (a) The Master Servicer hereby represents and warrants to the Trustee for the benefit of the Certificateholders that: (i) The Master Servicer is a corporation duly organized, validly existing and in good standing under the laws governing its creation and existence and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan in accordance with the terms of this Agreement; (ii) The execution and delivery of this Agreement by the Master Servicer and its performance and compliance with the terms of this Agreement will not violate the Master Servicer's Certificate of Incorporation or Bylaws or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer or any of its assets; (iii) This Agreement, assuming due authorization, execution and delivery by the Trustee and the Company, constitutes a valid, legal and binding obligation of the Master Servicer, enforceable against it in accordance with the terms hereof subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity, regardless of whether such enforcement is considered in a proceeding in equity or at law; (iv) The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default might have consequences that would materially and adversely affect the condition (financial or other) or operations of the Master Servicer or its properties or might have consequences that would materially adversely affect its performance hereunder; (v) No litigation is pending or, to the best of the Master Servicer's knowledge, threatened against the Master Servicer which would prohibit its entering into this Agreement or performing its obligations under this Agreement; (vi) The Master Servicer will comply in all material respects in the performance of this Agreement with all reasonable rules and requirements of each insurer under each Required Insurance Policy; (vii) No information, certificate of an officer, statement furnished in writing or report delivered to the Company, any Affiliate of the Company or the Trustee by the Master Servicer will, to the knowledge of the Master Servicer, contain any untrue statement of a material fact or omit a material fact necessary to make the information, certificate, statement or report not misleading; (viii) The Master Servicer has examined each existing, and will examine each new, Subservicing Agreement and is or will be familiar with the terms thereof. The terms of each existing Subservicing Agreement and each designated Subservicer are acceptable to the Master Servicer and any new Subservicing Agreements will comply with the provisions of Section 3.02; and (ix) The Master Servicer is a member of MERS in good standing, and will comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS. It is understood and agreed that the representations and warranties set forth in this Section 2.03(a) shall survive delivery of the respective Mortgage Files to the Trustee or any Custodian. Upon discovery by either the Company, the Master Servicer, the Trustee or any Custodian of a breach of any representation or warranty set forth in this Section 2.03(a) which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). Within 90 days of its discovery or its receipt of notice of such breach, the Master Servicer shall either (i) cure such breach in all material respects or (ii) to the extent that such breach is with respect to a Mortgage Loan or a related document, purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that if the omission or defect would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure or repurchase must occur within 90 days from the date such breach was discovered. The obligation of the Master Servicer to cure such breach or to so purchase such Mortgage Loan shall constitute the sole remedy in respect of a breach of a representation and warranty set forth in this Section 2.03(a) available to the Certificateholders or the Trustee on behalf of the Certificateholders. (b) Representations and warranties relating to the Mortgage Loans are set forth in Section 2.03(b) of the Series Supplement. Section 2.04. Representations and Warranties of Residential Funding. The Company, as assignee of Residential Funding under the Assignment Agreement, hereby assigns to the Trustee for the benefit of Certificateholders all of its right, title and interest in respect of the Assignment Agreement applicable to a Mortgage Loan. Insofar as the Assignment Agreement relates to the representations and warranties made by Residential Funding in respect of such Mortgage Loan and any remedies provided thereunder for any breach of such representations and warranties, such right, title and interest may be enforced by the Master Servicer on behalf of the Trustee and the Certificateholders. Upon the discovery by the Company, the Master Servicer, the Trustee or any Custodian of a breach of any of the representations and warranties made in the Assignment Agreement (which, for purposes hereof, will be deemed to include any other cause giving rise to a repurchase obligation under the Assignment Agreement) in respect of any Mortgage Loan which materially and adversely affects the interests of the Certificateholders in such Mortgage Loan, the party discovering such breach shall give prompt written notice to the other parties (any Custodian being so obligated under a Custodial Agreement). The Master Servicer shall promptly notify Residential Funding of such breach and request that Residential Funding either (i) cure such breach in all material respects within 90 days from the date the Master Servicer was notified of such breach or (ii) purchase such Mortgage Loan from the Trust Fund at the Purchase Price and in the manner set forth in Section 2.02; provided that Residential Funding shall have the option to substitute a Qualified Substitute Mortgage Loan or Loans for such Mortgage Loan if such substitution occurs within two years following the Closing Date; provided that if the breach would cause the Mortgage Loan to be other than a "qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure, repurchase or substitution must occur within 90 days from the date the breach was discovered. If a breach of the Compliance With Laws Representation has given rise to the obligation to repurchase or substitute a Mortgage Loan pursuant to Section 4 of the Assignment Agreement, then the Master Servicer shall request that Residential Funding pay to the Trust Fund, concurrently with and in addition to the remedies provided in the preceding sentence, an amount equal to any liability, penalty or expense that was actually incurred and paid out of or on behalf of the Trust Fund, and that directly resulted from such breach, or if incurred and paid by the Trust Fund thereafter, concurrently with such payment. In the event that Residential Funding elects to substitute a Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this Section 2.04, Residential Funding shall deliver to the Trustee or the Custodian for the benefit of the Certificateholders with respect to such Qualified Substitute Mortgage Loan or Loans, the original Mortgage Note, the Mortgage, an Assignment of the Mortgage in recordable form, if required pursuant to Section 2.01, and such other documents and agreements as are required by Section 2.01, with the Mortgage Note endorsed as required by Section 2.01. No substitution will be made in any calendar month after the Determination Date for such month. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution shall not be part of the Trust Fund and will be retained by the Master Servicer and remitted by the Master Servicer to Residential Funding on the next succeeding Distribution Date. For the month of substitution, distributions to the Certificateholders will include the Monthly Payment due on a Deleted Mortgage Loan for such month and thereafter Residential Funding shall be entitled to retain all amounts received in respect of such Deleted Mortgage Loan. The Master Servicer shall amend or cause to be amended the Mortgage Loan Schedule, and, if the Deleted Mortgage Loan was a Discount Mortgage Loan, the Schedule of Discount Fractions, for the benefit of the Certificateholders to reflect the removal of such Deleted Mortgage Loan and the substitution of the Qualified Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the amended Mortgage Loan Schedule, and, if the Deleted Mortgage Loan was a Discount Mortgage Loan, the amended Schedule of Discount Fractions, to the Trustee. Upon such substitution, the Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement and the related Subservicing Agreement in all respects, Residential Funding shall be deemed to have made the representations and warranties with respect to the Qualified Substitute Mortgage Loan contained in the related Assignment Agreement, and the Company and the Master Servicer shall be deemed to have made with respect to any Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in this Section 2.04, in Section 2.03 hereof and in Section 4 of the Assignment Agreement, and the Master Servicer shall be obligated to repurchase or substitute for any Qualified Substitute Mortgage Loan as to which a Repurchase Event (as defined in the Assignment Agreement) has occurred pursuant to Section 4 of the Assignment Agreement. In connection with the substitution of one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (in each case after application of the principal portion of the Monthly Payments due in the month of substitution that are to be distributed to the Certificateholders in the month of substitution). Residential Funding shall deposit the amount of such shortfall into the Custodial Account on the day of substitution, without any reimbursement therefor. Residential Funding shall give notice in writing to the Trustee of such event, which notice shall be accompanied by an Officers' Certificate as to the calculation of such shortfall and (subject to Section 10.01(f)) by an Opinion of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) any portion of any REMIC to fail to qualify as such at any time that any Certificate is outstanding. It is understood and agreed that the obligation of Residential Funding to cure such breach or purchase, or to substitute for, a Mortgage Loan as to which such a breach has occurred and is continuing and to make any additional payments required under the Assignment Agreement in connection with a breach of the Compliance With Laws Representation shall constitute the sole remedy respecting such breach available to the Certificateholders or the Trustee on behalf of Certificateholders. If the Master Servicer is Residential Funding, then the Trustee shall also have the right to give the notification and require the purchase or substitution provided for in the second preceding paragraph in the event of such a breach of a representation or warranty made by Residential Funding in the Assignment Agreement. In connection with the purchase of or substitution for any such Mortgage Loan by Residential Funding, the Trustee shall assign to Residential Funding all of the Trustee's right, title and interest in respect of the Assignment Agreement applicable to such Mortgage Loan. Section 2.05. Execution and Authentication of Certificates/Issuance of Certificates Evidencing Interests in REMIC I Certificates. As provided in Section 2.05 of the Series Supplement. Section 2.06. Conveyance of Uncertificated REMIC I and REMIC II Regular Interests; Acceptance by the Trustee. As provided in Section 2.06 of the Series Supplement. Section 2.07. Issuance of Certificates Evidencing Interests in REMIC II. As provided in Section 2.07 of the Series Supplement. Section 2.08. Purposes and Powers of the Trust. The purpose of the trust, as created hereunder, is to engage in the following activities: (a) to sell the Certificates to the Company in exchange for the Mortgage Loans; (b) to enter into and perform its obligations under this Agreement; (c) to engage in those activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith; and (d) subject to compliance with this Agreement, to engage in such other activities as may be required in connection with conservation of the Trust Fund and the making of distributions to the Certificateholders. The trust is hereby authorized to engage in the foregoing activities. Notwithstanding the provisions of Section 11.01, the trust shall not engage in any activity other than in connection with the foregoing or other than as required or authorized by the terms of this Agreement while any Certificate is outstanding, and this Section 2.08 may not be amended, without the consent of the Certificateholders evidencing a majority of the aggregate Voting Rights of the Certificates. -------------------------------------------------------------------------------- ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS Section 3.01. Master Servicer to Act as Servicer. (a) The Master Servicer shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and the respective Mortgage Loans and shall have full power and authority, acting alone or through Subservicers as provided in Section 3.02, to do any and all things which it may deem necessary or desirable in connection with such servicing and administration. Without limiting the generality of the foregoing, the Master Servicer in its own name or in the name of a Subservicer is hereby authorized and empowered by the Trustee when the Master Servicer or the Subservicer, as the case may be, believes it appropriate in its best judgment, to execute and deliver, on behalf of the Certificateholders and the Trustee or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, or of consent to assumption or modification in connection with a proposed conveyance, or of assignment of any Mortgage and Mortgage Note in connection with the repurchase of a Mortgage Loan and all other comparable instruments, or with respect to the modification or re-recording of a Mortgage for the purpose of correcting the Mortgage, the subordination of the lien of the Mortgage in favor of a public utility company or government agency or unit with powers of eminent domain, the taking of a deed in lieu of foreclosure, the commencement, prosecution or completion of judicial or non-judicial foreclosure, the conveyance of a Mortgaged Property to the related Insurer, the acquisition of any property acquired by foreclosure or deed in lieu of foreclosure, or the management, marketing and conveyance of any property acquired by foreclosure or deed in lieu of foreclosure with respect to the Mortgage Loans and with respect to the Mortgaged Properties. The Master Servicer further is authorized and empowered by the Trustee, on behalf of the Certificateholders and the Trustee, in its own name or in the name of the Subservicer, when the Master Servicer or the Subservicer, as the case may be, believes it appropriate in its best judgment to register any Mortgage Loan on the MERS(R)System, or cause the removal from the registration of any Mortgage Loan on the MERS(R)System, to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of assignment and other comparable instruments with respect to such assignment or re-recording of a Mortgage in the name of MERS, solely as nominee for the Trustee and its successors and assigns. Any expenses incurred in connection with the actions described in the preceding sentence shall be borne by the Master Servicer in accordance with Section 3.16(c), with no right of reimbursement; provided, that if, as a result of MERS discontinuing or becoming unable to continue operations in connection with the MERS System, it becomes necessary to remove any Mortgage Loan from registration on the MERS System and to arrange for the assignment of the related Mortgages to the Trustee, then any related expenses shall be reimbursable to the Master Servicer. Notwithstanding the foregoing, subject to Section 3.07(a), the Master Servicer shall not permit any modification with respect to any Mortgage Loan that would both constitute a sale or exchange of such Mortgage Loan within the meaning of Section 1001 of the Code and any proposed, temporary or final regulations promulgated thereunder (other than in connection with a proposed conveyance or assumption of such Mortgage Loan that is treated as a Principal Prepayment in Full pursuant to Section 3.13(d) hereof) and cause any REMIC formed under the Series Supplement to fail to qualify as a REMIC under the Code. The Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to service and administer the Mortgage Loans. The Trustee shall not be liable for any action taken by the Master Servicer or any Subservicer pursuant to such powers of attorney. In servicing and administering any Nonsubserviced Mortgage Loan, the Master Servicer shall, to the extent not inconsistent with this Agreement, comply with the Program Guide as if it were the originator of such Mortgage Loan and had retained the servicing rights and obligations in respect thereof. In connection with servicing and administering the Mortgage Loans, the Master Servicer and any Affiliate of the Master Servicer (i) may perform services such as appraisals and brokerage services that are not customarily provided by servicers of mortgage loans, and shall be entitled to reasonable compensation therefor in accordance with Section 3.10 and (ii) may, at its own discretion and on behalf of the Trustee, obtain credit information in the form of a "credit score" from a credit repository. (b) All costs incurred by the Master Servicer or by Subservicers in effecting the timely payment of taxes and assessments on the properties subject to the Mortgage Loans shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the related Mortgage Loans, notwithstanding that the terms of such Mortgage Loan so permit, and such costs shall be recoverable to the extent permitted by Section 3.10(a)(ii). (c) The Master Servicer may enter into one or more agreements in connection with the offering of pass-through certificates evidencing interests in one or more of the Certificates providing for the payment by the Master Servicer of amounts received by the Master Servicer as servicing compensation hereunder and required to cover certain Prepayment Interest Shortfalls on the Mortgage Loans, which payment obligation will thereafter be an obligation of the Master Servicer hereunder. Section 3.02. Subservicing Agreements Between Master Servicer and Subservicers; Enforcement of Subservicers' and Sellers' Obligations. (a) The Master Servicer may continue in effect Subservicing Agreements entered into by Residential Funding and Subservicers prior to the execution and delivery of this Agreement, and may enter into new Subservicing Agreements with Subservicers, for the servicing and administration of all or some of the Mortgage Loans. Each Subservicer of a Mortgage Loan shall be entitled to receive and retain, as provided in the related Subservicing Agreement and in Section 3.07, the related Subservicing Fee from payments of interest received on such Mortgage Loan after payment of all amounts required to be remitted to the Master Servicer in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced Mortgage Loan, the Master Servicer shall be entitled to receive and retain an amount equal to the Subservicing Fee from payments of interest. Unless the context otherwise requires, references in this Agreement to actions taken or to be taken by the Master Servicer in servicing the Mortgage Loans include actions taken or to be taken by a Subservicer on behalf of the Master Servicer. Each Subservicing Agreement will be upon such terms and conditions as are generally required or permitted by the Program Guide and are not inconsistent with this Agreement and as the Master Servicer and the Subservicer have agreed. A representative form of Subservicing Agreement is attached hereto as Exhibit E. With the approval of the Master Servicer, a Subservicer may delegate its servicing obligations to third-party servicers, but such Subservicer will remain obligated under the related Subservicing Agreement. The Master Servicer and a Subservicer may enter into amendments thereto or a different form of Subservicing Agreement, and the form referred to or included in the Program Guide is merely provided for information and shall not be deemed to limit in any respect the discretion of the Master Servicer to modify or enter into different Subservicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of either this Agreement or the Program Guide in a manner which would materially and adversely affect the interests of the Certificateholders. The Program Guide and any other Subservicing Agreement entered into between the Master Servicer and any Subservicer shall require the Subservicer to accurately and fully report its borrower credit files to each of the Credit Repositories in a timely manner. (b) As part of its servicing activities hereunder, the Master Servicer, for the benefit of the Trustee and the Certificateholders, shall use its best reasonable efforts to enforce the obligations of each Subservicer under the related Subservicing Agreement and of each Seller under the related Seller's Agreement insofar as the Company's rights with respect to Seller's obligation has been assigned to the Trustee hereunder, to the extent that the non-performance of any such Seller's obligation would have a material and adverse effect on a Mortgage Loan, including, without limitation, the obligation to purchase a Mortgage Loan on account of defective documentation, as described in Section 2.02, or on account of a breach of a representation or warranty, as described in Section 2.04. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Subservicing Agreements or Seller's Agreements, as appropriate, and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Master Servicer would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. The Master Servicer shall pay the costs of such enforcement at its own expense, and shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement to the extent, if any, that such recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys fees against the party against whom such enforcement is directed. For purposes of clarification only, the parties agree that the foregoing is not intended to, and does not, limit the ability of the Master Servicer to be reimbursed for expenses that are incurred in connection with the enforcement of a Seller's obligations (insofar as the Company's rights with respect to such Seller's obligations have been assigned to the Trustee hereunder) and are reimbursable pursuant to Section 3.10(a)(viii). Section 3.03. Successor Subservicers. The Master Servicer shall be entitled to terminate any Subservicing Agreement that may exist in accordance with the terms and conditions of such Subservicing Agreement and without any limitation by virtue of this Agreement; provided, however, that in the event of termination of any Subservicing Agreement by the Master Servicer or the Subservicer, the Master Servicer shall either act as servicer of the related Mortgage Loan or enter into a Subservicing Agreement with a successor Subservicer which will be bound by the terms of the related Subservicing Agreement. If the Master Servicer or any Affiliate of Residential Funding acts as servicer, it will not assume liability for the representations and warranties of the Subservicer which it replaces. If the Master Servicer enters into a Subservicing Agreement with a successor Subservicer, the Master Servicer shall use reasonable efforts to have the successor Subservicer assume liability for the representations and warranties made by the terminated Subservicer in respect of the related Mortgage Loans and, in the event of any such assumption by the successor Subservicer, the Master Servicer may, in the exercise of its business judgment, release the terminated Subservicer from liability for such representations and warranties. Section 3.04. Liability of the Master Servicer. Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Master Servicer or a Subservicer or reference to actions taken through a Subservicer or otherwise, the Master Servicer shall remain obligated and liable to the Trustee and 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 Subservicing Agreements or arrangements or by virtue of indemnification from the Subservicer or the Company and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Mortgage Loans. The Master Servicer shall be entitled to enter into any agreement with a Subservicer or Seller for indemnification of the Master Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Section 3.05. No Contractual Relationship Between Subservicer and Trustee or Certificateholders. Any Subservicing Agreement that may be entered into and any other transactions or services relating to the Mortgage Loans involving a Subservicer in its capacity as such and not as an originator shall be deemed to be between the Subservicer and the Master Servicer alone and the Trustee and the Certificateholders shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Subservicer in its capacity as such except as set forth in Section 3.06. The foregoing provision shall not in any way limit a Subservicer's obligation to cure an omission or defect or to repurchase a Mortgage Loan as referred to in Section 2.02 hereof. Section 3.06. Assumption or Termination of Subservicing Agreements by Trustee. (a) If the Master Servicer shall for any reason no longer be the master servicer (including by reason of an Event of Default), the Trustee, its designee or its successor shall thereupon assume all of the rights and obligations of the Master Servicer under each Subservicing Agreement that may have been entered into. The Trustee, its designee or the successor servicer for the Trustee shall be deemed to have assumed all of the Master Servicer's interest therein and to have replaced the Master Servicer as a party to the Subservicing Agreement to the same extent as if the Subservicing Agreement had been assigned to the assuming party except that the Master Servicer shall not thereby be relieved of any liability or obligations under the Subservicing Agreement. (b) The Master Servicer shall, upon request of the Trustee but at the expense of the Master Servicer, deliver to the assuming party all documents and records relating to each Subservicing Agreement and the Mortgage Loans then being serviced and an accounting of amounts collected and held by it and otherwise use its best efforts to effect the orderly and efficient transfer of each Subservicing Agreement to the assuming party. Section 3.07. Collection of Certain Mortgage Loan Payments; Deposits to Custodial Account. (a) The Master Servicer shall make reasonable efforts to collect all payments called for under the terms and provisions of the Mortgage Loans, and shall, to the extent such procedures shall be consistent with this Agreement and the terms and provisions of any related Primary Insurance Policy, follow such collection procedures as it would employ in its good faith business judgment and which are normal and usual in its general mortgage servicing activities. Consistent with the foregoing, the Master Servicer may in its discretion (i) waive any late payment charge or any prepayment charge or penalty interest in connection with the prepayment of a Mortgage Loan and (ii) extend the Due Date for payments due on a Mortgage Loan in accordance with the Program Guide; provided, however, that the Master Servicer shall first determine that any such waiver or extension will not impair the coverage of any related Primary Insurance Policy or materially adversely affect the lien of the related Mortgage. Notwithstanding anything in this Section to the contrary, the Master Servicer shall not enforce any prepayment charge to the extent that such enforcement would violate any applicable law. In the event of any such arrangement, the Master Servicer shall make timely advances on the related Mortgage Loan during the scheduled period in accordance with the amortization schedule of such Mortgage Loan without modification thereof by reason of such arrangements unless otherwise agreed to by the Holders of the Classes of Certificates affected thereby; provided, however, that no such extension shall be made if any such advance would be a Nonrecoverable Advance. Consistent with the terms of this Agreement, the Master Servicer may also waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Master Servicer's determination such waiver, modification, postponement or indulgence is not materially adverse to the interests of the Certificateholders (taking into account any estimated Realized Loss that might result absent such action); provided, however, that the Master Servicer may not modify materially or permit any Subservicer to modify any Mortgage Loan, including without limitation any modification that would change the Mortgage Rate, forgive the payment of any principal or interest (unless in connection with the liquidation of the related Mortgage Loan or except in connection with prepayments to the extent that such reamortization is not inconsistent with the terms of the Mortgage Loan), capitalize any amounts owing on the Mortgage Loan by adding such amount to the outstanding principal balance of the Mortgage Loan, or extend the final maturity date of such Mortgage Loan, unless such Mortgage Loan is in default or, in the judgment of the Master Servicer, such default is reasonably foreseeable; provided, further, that (1) no such modification shall reduce the interest rate on a Mortgage Loan below one-half of the Mortgage Rate as in effect on the Cut-off Date, but not less than the sum of the rates at which the Servicing Fee and the Subservicing Fee with respect to such Mortgage Loan accrues plus the rate at which the premium paid to the Certificate Insurer, if any, accrues, (2) the final maturity date for any Mortgage Loan shall not be extended beyond the Maturity Date, (3) the Stated Principal Balance of all Reportable Modified Mortgage Loans subject to Servicing Modifications (measured at the time of the Servicing Modification and after giving effect to any Servicing Modification) can be no more than five percent of the aggregate principal balance of the Mortgage Loans as of the Cut-off Date, unless such limit is increased from time to time with the consent of the Rating Agencies and the Certificate Insurer, if any. In addition, any amounts owing on a Mortgage Loan added to the outstanding principal balance of such Mortgage Loan must be fully amortized over the remaining term of such Mortgage Loan, and such amounts may be added to the outstanding principal balance of a Mortgage Loan only once during the life of such Mortgage Loan. Also, the addition of such amounts described in the preceding sentence shall be implemented in accordance with the Program Guide and may be implemented only by Subservicers that have been approved by the Master Servicer for such purpose. In connection with any Curtailment of a Mortgage Loan, the Master Servicer, to the extent not inconsistent with the terms of the Mortgage Note and local law and practice, may permit the Mortgage Loan to be reamortized such that the Monthly Payment is recalculated as an amount that will fully amortize the remaining Stated Principal Balance thereof by the original Maturity Date based on the original Mortgage Rate; provided, that such re-amortization shall not be permitted if it would constitute a reissuance of the Mortgage Loan for federal income tax purposes, except if such reissuance is described in Treasury Regulation Section 1.860G-2(b)(3). (b) The Master Servicer shall establish and maintain a Custodial Account in which the Master Servicer shall deposit or cause to be deposited on a daily basis, except as otherwise specifically provided herein, the following payments and collections remitted by Subservicers or received by it in respect of the Mortgage Loans subsequent to the Cut-off Date (other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date): (i) All payments on account of principal, including Principal Prepayments made by Mortgagors on the Mortgage Loans and the principal component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (ii) All payments on account of interest at the Adjusted Mortgage Rate on the Mortgage Loans, including Buydown Funds, if any, and the interest component of any Subservicer Advance or of any REO Proceeds received in connection with an REO Property for which an REO Disposition has occurred; (iii) Insurance Proceeds, Subsequent Recoveries and Liquidation Proceeds (net of any related expenses of the Subservicer); (iv) All proceeds of any Mortgage Loans purchased pursuant to Section 2.02, 2.03, 2.04 or 4.07 (including amounts received from Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the Compliance With Laws Representation and all amounts required to be deposited in connection with the substitution of a Qualified Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; (v) Any amounts required to be deposited pursuant to Section 3.07(c) or 3.21; (vi) All amounts transferred from the Certificate Account to the Custodial Account in accordance with Section 4.02(a); (vii) Any amounts realized by the Subservicer and received by the Master Servicer in respect of any Additional Collateral; and (viii) Any amounts received by the Master Servicer in respect of Pledged Assets. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments on the Mortgage Loans which are not part of the Trust Fund (consisting of payments in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date) and payments or collections in the nature of prepayment charges or late payment charges or assumption fees may but need not be deposited by the Master Servicer in the Custodial Account. In the event any amount not required to be deposited in the Custodial Account is so deposited, the Master Servicer may at any time withdraw such amount from the Custodial Account, any provision herein to the contrary notwithstanding. The Custodial Account may contain funds that belong to one or more trust funds created for mortgage pass-through certificates of other series and may contain other funds respecting payments on mortgage loans belonging to the Master Servicer or serviced or master serviced by it on behalf of others. Notwithstanding such commingling of funds, the Master Servicer shall keep records that accurately reflect the funds on deposit in the Custodial Account that have been identified by it as being attributable to the Mortgage Loans. With respect to Insurance Proceeds, Liquidation Proceeds, REO Proceeds and the proceeds of the purchase of any Mortgage Loan pursuant to Sections 2.02, 2.03, 2.04 and 4.07 received in any calendar month, the Master Servicer may elect to treat such amounts as included in the Available Distribution Amount for the Distribution Date in the month of receipt, but is not obligated to do so. If the Master Servicer so elects, such amounts will be deemed to have been received (and any related Realized Loss shall be deemed to have occurred) on the last day of the month prior to the receipt thereof. (c) The Master Servicer shall use its best efforts to cause the institution maintaining the Custodial Account to invest the funds in the Custodial Account attributable to the Mortgage Loans in Permitted Investments which shall mature not later than the Certificate Account Deposit Date next following the date of such investment (with the exception of the Amount Held for Future Distribution) and which shall not be sold or disposed of prior to their maturities. All income and gain realized from any such investment shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments attributable to the investment of amounts in respect of the Mortgage Loans shall be deposited in the Custodial Account by the Master Servicer out of its own funds immediately as realized without any right of reimbursement. (d) The Master Servicer shall give notice to the Trustee and the Company of any change in the location of the Custodial Account and the location of the Certificate Account prior to the use thereof. Section 3.08. Subservicing Accounts; Servicing Accounts. (a) In those cases where a Subservicer is servicing a Mortgage Loan pursuant to a Subservicing Agreement, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to establish and maintain one or more Subservicing Accounts which shall be an Eligible Account or, if such account is not an Eligible Account, shall generally satisfy the requirements of the Program Guide and be otherwise acceptable to the Master Servicer and each Rating Agency. The Subservicer will be required thereby to deposit into the Subservicing Account on a daily basis all proceeds of Mortgage Loans received by the Subservicer, less its Subservicing Fees and unreimbursed advances and expenses, to the extent permitted by the Subservicing Agreement. If the Subservicing Account is not an Eligible Account, the Master Servicer shall be deemed to have received such monies upon receipt thereof by the Subservicer. The Subservicer shall not be required to deposit in the Subservicing Account payments or collections in the nature of prepayment charges or late charges or assumption fees. On or before the date specified in the Program Guide, but in no event later than the Determination Date, the Master Servicer shall cause the Subservicer, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account all funds held in the Subservicing Account with respect to each Mortgage Loan serviced by such Subservicer that are required to be remitted to the Master Servicer. The Subservicer will also be required, pursuant to the Subservicing Agreement, to advance on such scheduled date of remittance amounts equal to any scheduled monthly installments of principal and interest less its Subservicing Fees on any Mortgage Loans for which payment was not received by the Subservicer. This obligation to advance with respect to each Mortgage Loan will continue up to and including the first of the month following the date on which the related Mortgaged Property is sold at a foreclosure sale or is acquired by the Trust Fund by deed in lieu of foreclosure or otherwise. All such advances received by the Master Servicer shall be deposited promptly by it in the Custodial Account. (b) The Subservicer may also be required, pursuant to the Subservicing Agreement, to remit to the Master Servicer for deposit in the Custodial Account interest at the Adjusted Mortgage Rate (or Modified Net Mortgage Rate plus the rate per annum at which the Servicing Fee accrues in the case of a Modified Mortgage Loan) on any Curtailment received by such Subservicer in respect of a Mortgage Loan from the related Mortgagor during any month that is to be applied by the Subservicer to reduce the unpaid principal balance of the related Mortgage Loan as of the first day of such month, from the date of application of such Curtailment to the first day of the following month. Any amounts paid by a Subservicer pursuant to the preceding sentence shall be for the benefit of the Master Servicer as additional servicing compensation and shall be subject to its withdrawal or order from time to time pursuant to Sections 3.10(a)(iv) and (v). (c) In addition to the Custodial Account and the Certificate Account, the Master Servicer shall for any Nonsubserviced Mortgage Loan, and shall cause the Subservicers for Subserviced Mortgage Loans to, establish and maintain one or more Servicing Accounts and deposit and retain therein all collections from the Mortgagors (or advances from Subservicers) for the payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items for the account of the Mortgagors. Each Servicing Account shall satisfy the requirements for a Subservicing Account and, to the extent permitted by the Program Guide or as is otherwise acceptable to the Master Servicer, may also function as a Subservicing Account. Withdrawals of amounts related to the Mortgage Loans from the Servicing Accounts may be made only to effect timely payment of taxes, assessments, hazard insurance premiums, Primary Insurance Policy premiums, if applicable, or comparable items, to reimburse the Master Servicer or Subservicer out of related collections for any payments made pursuant to Sections 3.11 (with respect to the Primary Insurance Policy) and 3.12(a) (with respect to hazard insurance), to refund to any Mortgagors any sums as may be determined to be overages, to pay interest, if required, to Mortgagors on balances in the Servicing Account or to clear and terminate the Servicing Account at the termination of this Agreement in accordance with Section 9.01 or in accordance with the Program Guide. As part of its servicing duties, the Master Servicer shall, and the Subservicers will, pursuant to the Subservicing Agreements, be required to pay to the Mortgagors interest on funds in this account to the extent required by law. (d) The Master Servicer shall advance the payments referred to in the preceding subsection that are not timely paid by the Mortgagors or advanced by the Subservicers on the date when the tax, premium or other cost for which such payment is intended is due, but the Master Servicer shall be required so to advance only to the extent that such advances, in the good faith judgment of the Master Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise. Section 3.09. Access to Certain Documentation and Information Regarding the Mortgage Loans. If compliance with this Section 3.09 shall make any Class of Certificates legal for investment by federally insured savings and loan associations, the Master Servicer shall provide, or cause the Subservicers to provide, to the Trustee, the Office of Thrift Supervision or the FDIC and the supervisory agents and examiners thereof access to the documentation regarding the Mortgage Loans required by applicable regulations of the Office of Thrift Supervision, such access being afforded without charge but only upon reasonable request and during normal business hours at the offices designated by the Master Servicer. The Master Servicer shall permit such representatives to photocopy any such documentation and shall provide equipment for that purpose at a charge reasonably approximating the cost of such photocopying to the Master Servicer. Section 3.10. Permitted Withdrawals from the Custodial Account. (a) The Master Servicer may, from time to time as provided herein, make withdrawals from the Custodial Account of amounts on deposit therein pursuant to Section 3.07 that are attributable to the Mortgage Loans for the following purposes: (i) to make deposits into the Certificate Account in the amounts and in the manner provided for in Section 4.01; (ii) to reimburse itself or the related Subservicer for previously unreimbursed Advances, Servicing Advances or other expenses made pursuant to Sections 3.01, 3.07(a), 3.08, 3.11, 3.12(a), 3.14 and 4.04 or otherwise reimbursable pursuant to the terms of this Agreement, such withdrawal right being limited to amounts received on the related Mortgage Loans (including, for this purpose, REO Proceeds, Insurance Proceeds, Liquidation Proceeds and proceeds from the purchase of a Mortgage Loan pursuant to Section 2.02, 2.03, 2.04 or 4.07) which represent (A) Late Collections of Monthly Payments for which any such advance was made in the case of Subservicer Advances or Advances pursuant to Section 4.04 and (B) recoveries of amounts in respect of which such advances were made in the case of Servicing Advances; (iii) to pay to itself or the related Subservicer (if not previously retained by such Subservicer) out of each payment received by the Master Servicer on account of interest on a Mortgage Loan as contemplated by Sections 3.14 and 3.16, an amount equal to that remaining portion of any such payment as to interest (but not in excess of the Servicing Fee and the Subservicing Fee, if not previously retained) which, when deducted, will result in the remaining amount of such interest being interest at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) on the amount specified in the amortization schedule of the related Mortgage Loan as the principal balance thereof at the beginning of the period respecting which such interest was paid after giving effect to any previous Curtailments; (iv) to pay to itself as additional servicing compensation any interest or investment income earned on funds and other property deposited in or credited to the Custodial Account that it is entitled to withdraw pursuant to Section 3.07(c); (v) to pay to itself as additional servicing compensation any Foreclosure Profits, any amounts remitted by Subservicers as interest in respect of Curtailments pursuant to Section 3.08(b), and any amounts paid by a Mortgagor in connection with a Principal Prepayment in Full in respect of interest for any period during the calendar month in which such Principal Prepayment in Full is to be distributed to the Certificateholders; (vi) to pay to itself, a Subservicer, a Seller, Residential Funding, the Company or any other appropriate Person, as the case may be, with respect to each Mortgage Loan or property acquired in respect thereof that has been purchased or otherwise transferred pursuant to Section 2.02, 2.03, 2.04, 4.07 or 9.01, all amounts received thereon and not required to be distributed to the Certificateholders as of the date on which the related Stated Principal Balance or Purchase Price is determined; (vii) to reimburse itself or the related Subservicer for any Nonrecoverable Advance or Advances in the manner and to the extent provided in subsection (c) below, and any Advance or Servicing Advance made in connection with a modified Mortgage Loan that is in default or, in the judgment of the Master Servicer, default is reasonably foreseeable pursuant to Section 3.07(a), to the extent the amount of the Advance or Servicing Advance was added to the Stated Principal Balance of the Mortgage Loan in a prior calendar month, or any Advance reimbursable to the Master Servicer pursuant to Section 4.02(a); (viii) to reimburse itself or the Company for expenses incurred by and reimbursable to it or the Company pursuant to Sections 3.01(a), 3.11, 3.13, 3.14(c), 6.03, 10.01 or otherwise, or in connection with enforcing, in accordance with this Agreement, any repurchase, substitution or indemnification obligation of any Seller (other than an Affiliate of the Company) pursuant to the related Seller's Agreement; (ix) to reimburse itself for Servicing Advances expended by it (a) pursuant to Section 3.14 in good faith in connection with the restoration of property damaged by an Uninsured Cause, and (b) in connection with the liquidation of a Mortgage Loan or disposition of an REO Property to the extent not otherwise reimbursed pursuant to clause (ii) or (viii) above; and (x) to withdraw any amount deposited in the Custodial Account that was not required to be deposited therein pursuant to Section 3.07. (b) Since, in connection with withdrawals pursuant to clauses (ii), (iii), (v) and (vi), the Master Servicer's entitlement thereto is limited to collections or other recoveries on the related Mortgage Loan, the Master Servicer shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such clauses. (c) The Master Servicer shall be entitled to reimburse itself or the related Subservicer for any advance made in respect of a Mortgage Loan that the Master Servicer determines to be a Nonrecoverable Advance by withdrawal from the Custodial Account of amounts on deposit therein attributable to the Mortgage Loans on any Certificate Account Deposit Date succeeding the date of such determination. Such right of reimbursement in respect of a Nonrecoverable Advance relating to an Advance pursuant to Section 4.04 on any such Certificate Account Deposit Date shall be limited to an amount not exceeding the portion of such Advance previously paid to Certificateholders (and not theretofore reimbursed to the Master Servicer or the related Subservicer). Section 3.11. Maintenance of the Primary Insurance Policies; Collections Thereunder. (a) The Master Servicer shall not take, or permit any Subservicer to take, any action which would result in non-coverage under any applicable Primary Insurance Policy of any loss which, but for the actions of the Master Servicer or Subservicer, would have been covered thereunder. To the extent coverage is available, the Master Servicer shall keep or cause to be kept in full force and effect each such Primary Insurance Policy until the principal balance of the related Mortgage Loan secured by a Mortgaged Property is reduced to 80% or less of the Appraised Value in the case of such a Mortgage Loan having a Loan-to-Value Ratio at origination in excess of 80%, provided that such Primary Insurance Policy was in place as of the Cut-off Date and the Company had knowledge of such Primary Insurance Policy. The Master Servicer shall be entitled to cancel or permit the discontinuation of any Primary Insurance Policy as to any Mortgage Loan, if the Stated Principal Balance of the Mortgage Loan is reduced below an amount equal to 80% of the appraised value of the related Mortgaged Property as determined in any appraisal thereof after the Closing Date, or if the Loan-to-Value Ratio is reduced below 80% as a result of principal payments on the Mortgage Loan after the Closing Date. In the event that the Company gains knowledge that as of the Closing Date, a Mortgage Loan had a Loan-to-Value Ratio at origination in excess of 80% and is not the subject of a Primary Insurance Policy (and was not included in any exception to the representation in Section 2.03(b)(iv)) and that such Mortgage Loan has a current Loan-to-Value Ratio in excess of 80% then the Master Servicer shall use its reasonable efforts to obtain and maintain a Primary Insurance Policy to the extent that such a policy is obtainable at a reasonable price. The Master Servicer shall not cancel or refuse to renew any such Primary Insurance Policy applicable to a Nonsubserviced Mortgage Loan, or consent to any Subservicer canceling or refusing to renew any such Primary Insurance Policy applicable to a Mortgage Loan subserviced by it, that is in effect at the date of the initial issuance of the Certificates and is required to be kept in force hereunder unless the replacement Primary Insurance Policy for such canceled or non-renewed policy is maintained with an insurer whose claims-paying ability is acceptable to each Rating Agency for mortgage pass-through certificates having a rating equal to or better than the lower of the then-current rating or the rating assigned to the Certificates as of the Closing Date by such Rating Agency. (b) In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present or to cause the related Subservicer to present, on behalf of the Master Servicer, the Subservicer, if any, the Trustee and Certificateholders, claims to the related Insurer under any Primary Insurance Policies, in a timely manner in accordance with such policies, and, in this regard, to take or cause to be taken such reasonable action as shall be necessary to permit recovery under any Primary Insurance Policies respecting defaulted Mortgage Loans. Pursuant to Section 3.07, any Insurance Proceeds collected by or remitted to the Master Servicer under any Primary Insurance Policies shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Section 3.12. Maintenance of Fire Insurance and Omissions and Fidelity Coverage. (a) The Master Servicer shall cause to be maintained for each Mortgage Loan (other than a Cooperative Loan) fire insurance with extended coverage in an amount which is equal to the lesser of the principal balance owing on such Mortgage Loan or 100 percent of the insurable value of the improvements; provided, however, that such coverage may not be less than the minimum amount required to fully compensate for any loss or damage on a replacement cost basis. To the extent it may do so without breaching the related Subservicing Agreement, the Master Servicer shall replace any Subservicer that does not cause such insurance, to the extent it is available, to be maintained. The Master Servicer shall also cause to be maintained on property acquired upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan (other than a Cooperative Loan), fire insurance with extended coverage in an amount which is at least equal to the amount necessary to avoid the application of any co-insurance clause contained in the related hazard insurance policy. Pursuant to Section 3.07, any amounts collected by the Master Servicer under any such policies (other than amounts to be applied to the restoration or repair of the related Mortgaged Property or property thus acquired or amounts released to the Mortgagor in accordance with the Master Servicer's normal servicing procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any cost incurred by the Master Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to the Certificateholders, be added to the amount owing under the Mortgage Loan, notwithstanding that the terms of the Mortgage Loan so permit. Such costs shall be recoverable by the Master Servicer out of related late payments by the Mortgagor or out of Insurance Proceeds and Liquidation Proceeds to the extent permitted by Section 3.10. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. Whenever the improvements securing a Mortgage Loan (other than a Cooperative Loan) are located at the time of origination of such Mortgage Loan in a federally designated special flood hazard area, the Master Servicer shall cause flood insurance (to the extent available) to be maintained in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the amount required to compensate for any loss or damage to the Mortgaged Property on a replacement cost basis and (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (assuming that the area in which such Mortgaged Property is located is participating in such program). If the Master Servicer shall obtain and maintain a blanket fire insurance policy with extended coverage insuring against hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 3.12(a), it being understood and agreed that such policy may contain a deductible clause, in which case the Master Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property a policy complying with the first sentence of this Section 3.12(a) and there shall have been a loss which would have been covered by such policy, deposit in the Certificate Account the amount not otherwise payable under the blanket policy because of such deductible clause. Any such deposit by the Master Servicer shall be made on the Certificate Account Deposit Date next preceding the Distribution Date which occurs in the month following the month in which payments under any such policy would have been deposited in the Custodial Account. In connection with its activities as administrator and servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the Trustee and the Certificateholders, claims under any such blanket policy. (b) The Master Servicer shall obtain and maintain at its own expense and keep in full force and effect throughout the term of this Agreement a blanket fidelity bond and an errors and omissions insurance policy covering the Master Servicer's officers and employees and other persons acting on behalf of the Master Servicer in connection with its activities under this Agreement. The amount of coverage shall be at least equal to the coverage that would be required by Fannie Mae or Freddie Mac, whichever is greater, with respect to the Master Servicer if the Master Servicer were servicing and administering the Mortgage Loans for Fannie Mae or Freddie Mac. In the event that any such bond or policy ceases to be in effect, the Master Servicer shall obtain a comparable replacement bond or policy from an issuer or insurer, as the case may be, meeting the requirements, if any, of the Program Guide and acceptable to the Company. Coverage of the Master Servicer under a policy or bond obtained by an Affiliate of the Master Servicer and providing the coverage required by this Section 3.12(b) shall satisfy the requirements of this Section 3.12(b). Section 3.13. Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements; Certain Assignments. (a) When any Mortgaged Property is conveyed by the Mortgagor, the Master Servicer or Subservicer, to the extent it has knowledge of such conveyance, shall enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent permitted under applicable law and governmental regulations, but only to the extent that such enforcement will not adversely affect or jeopardize coverage under any Required Insurance Policy. Notwithstanding the foregoing: (i) the Master Servicer shall not be deemed to be in default under this Section 3.13(a) by reason of any transfer or assumption which the Master Servicer is restricted by law from preventing; and (ii) if the Master Servicer determines that it is reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring, legal action to declare invalid or otherwise avoid enforcement of a due-on-sale clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not be required to enforce the due-on-sale clause or to contest such action. (b) Subject to the Master Servicer's duty to enforce any due-on-sale clause to the extent set forth in Section 3.13(a), in any case in which a Mortgaged Property is to be conveyed to a Person by a Mortgagor, and such Person is to enter into an assumption or modification agreement or supplement to the Mortgage Note or Mortgage which requires the signature of the Trustee, or if an instrument of release signed by the Trustee is required releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer is authorized, subject to the requirements of the sentence next following, to execute and deliver, on behalf of the Trustee, the assumption agreement with the Person to whom the Mortgaged Property is to be conveyed and such modification agreement or supplement to the Mortgage Note or Mortgage or other instruments as are reasonable or necessary to carry out the terms of the Mortgage Note or Mortgage or otherwise to comply with any applicable laws regarding assumptions or the transfer of the Mortgaged Property to such Person; provided, however, none of such terms and requirements shall either (i) both (A) constitute a "significant modification" effecting an exchange or reissuance of such Mortgage Loan under the REMIC Provisions and (B) cause any portion of any REMIC formed under the Series Supplement to fail to qualify as a REMIC under the Code or (subject to Section 10.01(f)), result in the imposition of any tax on "prohibited transactions" or (ii) constitute "contributions" after the start-up date under the REMIC Provisions. The Master Servicer shall execute and deliver such documents only if it reasonably determines that (i) its execution and delivery thereof will not conflict with or violate any terms of this Agreement or cause the unpaid balance and interest on the Mortgage Loan to be uncollectible in whole or in part, (ii) any required consents of insurers under any Required Insurance Policies have been obtained and (iii) subsequent to the closing of the transaction involving the assumption or transfer (A) the Mortgage Loan will continue to be secured by a first mortgage lien pursuant to the terms of the Mortgage, (B) such transaction will not adversely affect the coverage under any Required Insurance Policies, (C) the Mortgage Loan will fully amortize over the remaining term thereof, (D) no material term of the Mortgage Loan (including the interest rate on the Mortgage Loan) will be altered nor will the term of the Mortgage Loan be changed and (E) if the seller/transferor of the Mortgaged Property is to be released from liability on the Mortgage Loan, such release will not (based on the Master Servicer's or Subservicer's good faith determination) adversely affect the collectability of the Mortgage Loan. Upon receipt of appropriate instructions from the Master Servicer in accordance with the foregoing, the Trustee shall execute any necessary instruments for such assumption or substitution of liability as directed in writing by the Master Servicer. Upon the closing of the transactions contemplated by such documents, the Master Servicer shall cause the originals or true and correct copies of the assumption agreement, the release (if any), or the modification or supplement to the Mortgage Note or Mortgage to be delivered to the Trustee or the Custodian and deposited with the Mortgage File for such Mortgage Loan. Any fee collected by the Master Servicer or such related Subservicer for entering into an assumption or substitution of liability agreement will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (c) The Master Servicer or the related Subservicer, as the case may be, shall be entitled to approve a request from a Mortgagor for a partial release of the related Mortgaged Property, the granting of an easement thereon in favor of another Person, any alteration or demolition of the related Mortgaged Property (or, with respect to a Cooperative Loan, the related Cooperative Apartment) without any right of reimbursement or other similar matters if it has determined, exercising its good faith business judgment in the same manner as it would if it were the owner of the related Mortgage Loan, that the security for, and the timely and full collectability of, such Mortgage Loan would not be adversely affected thereby and that any portion of any REMIC formed under the Series Supplement would not fail to continue to qualify as a REMIC under the Code as a result thereof and (subject to Section 10.01(f)) that no tax on "prohibited transactions" or "contributions" after the startup day would be imposed on any such REMIC as a result thereof. Any fee collected by the Master Servicer or the related Subservicer for processing such a request will be retained by the Master Servicer or such Subservicer as additional servicing compensation. (d) Subject to any other applicable terms and conditions of this Agreement, the Trustee and Master Servicer shall be entitled to approve an assignment in lieu of satisfaction with respect to any Mortgage Loan, provided the obligee with respect to such Mortgage Loan following such proposed assignment provides the Trustee and Master Servicer with a "Lender Certification for Assignment of Mortgage Loan" in the form attached hereto as Exhibit M, in form and substance satisfactory to the Trustee and Master Servicer, providing the following: (i) that the substance of the assignment is, and is intended to be, a refinancing of such Mortgage; (ii) that the Mortgage Loan following the proposed assignment will have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (iii) that such assignment is at the request of the borrower under the related Mortgage Loan. Upon approval of an assignment in lieu of satisfaction with respect to any Mortgage Loan, the Master Servicer shall receive cash in an amount equal to the unpaid principal balance of and accrued interest on such Mortgage Loan and the Master Servicer shall treat such amount as a Principal Prepayment in Full with respect to such Mortgage Loan for all purposes hereof. Section 3.14. Realization Upon Defaulted Mortgage Loans. (a) The Master Servicer shall foreclose upon or otherwise comparably convert (which may include an REO Acquisition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Section 3.07. Alternatively, the Master Servicer may take other actions in respect of a defaulted Mortgage Loan, which may include (i) accepting a short sale (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate a sale of the Mortgaged Property by the Mortgagor) or permitting a short refinancing (a payoff of the Mortgage Loan for an amount less than the total amount contractually owed in order to facilitate refinancing transactions by the Mortgagor not involving a sale of the Mortgaged Property), (ii) arranging for a repayment plan or (iii) agreeing to a modification in accordance with Section 3.07. In connection with such foreclosure or other conversion, the Master Servicer shall, consistent with Section 3.11, follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in its general mortgage servicing activities and as shall be required or permitted by the Program Guide; provided that the Master Servicer shall not be liable in any respect hereunder if the Master Servicer is acting in connection with any such foreclosure or other conversion in a manner that is consistent with the provisions of this Agreement. The Master Servicer, however, shall not be required to expend its own funds or incur other reimbursable charges in connection with any foreclosure, or attempted foreclosure which is not completed, or towards the restoration of any property unless it shall determine (i) that such restoration and/or foreclosure will increase the proceeds of liquidation of the Mortgage Loan to Holders of Certificates of one or more Classes after reimbursement to itself for such expenses or charges and (ii) that such expenses or charges will be recoverable to it through Liquidation Proceeds, Insurance Proceeds, or REO Proceeds (respecting which it shall have priority for purposes of withdrawals from the Custodial Account pursuant to Section 3.10, whether or not such expenses and charges are actually recoverable from related Liquidation Proceeds, Insurance Proceeds or REO Proceeds). In the event of such a determination by the Master Servicer pursuant to this Section 3.14(a), the Master Servicer shall be entitled to reimbursement of such amounts pursuant to Section 3.10. In addition to the foregoing, the Master Servicer shall use its best reasonable efforts to realize upon any Additional Collateral for such of the Additional Collateral 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; provided that the Master Servicer shall not, on behalf of the Trustee, obtain title to any such Additional Collateral as a result of or in lieu of the disposition thereof or otherwise; and provided further that (i) the Master Servicer shall not proceed with respect to such Additional Collateral in any manner that would impair the ability to recover against the related Mortgaged Property, and (ii) the Master Servicer shall proceed with any REO Acquisition in a manner that preserves the ability to apply the proceeds of such Additional Collateral against amounts owed under the defaulted Mortgage Loan. Any proceeds realized from such Additional Collateral (other than amounts to be released to the Mortgagor or the related guarantor in accordance with procedures that the Master Servicer would follow in servicing loans held for its own account, subject to the terms and conditions of the related Mortgage and Mortgage Note and to the terms and conditions of any security agreement, guarantee agreement, mortgage or other agreement governing the disposition of the proceeds of such Additional Collateral) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any other payment received by the Master Servicer in respect of such Additional Collateral shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 3.10. For so long as the Master Servicer is the Master Servicer under the Credit Support Pledge Agreement, the Master Servicer shall perform its obligations under the Credit Support Pledge Agreement in accordance with such Agreement and in a manner that is in the best interests of the Certificateholders. Further, the Master Servicer shall use its best reasonable efforts to realize upon any Pledged Assets for such of the Pledged Asset 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; provided that the Master Servicer shall not, on behalf of the Trustee, obtain title to any such Pledged Assets as a result of or in lieu of the disposition thereof or otherwise; and provided further that (i) the Master Servicer shall not proceed with respect to such Pledged Assets in any manner that would impair the ability to recover against the related Mortgaged Property, and (ii) the Master Servicer shall proceed with any REO Acquisition in a manner that preserves the ability to apply the proceeds of such Pledged Assets against amounts owed under the defaulted Mortgage Loan. Any proceeds realized from such Pledged Assets (other than amounts to be released to the Mortgagor or the related guarantor in accordance with procedures that the Master Servicer would follow in servicing loans held for its own account, subject to the terms and conditions of the related Mortgage and Mortgage Note and to the terms and conditions of any security agreement, guarantee agreement, mortgage or other agreement governing the disposition of the proceeds of such Pledged Assets) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 3.10. Any other payment received by the Master Servicer in respect of such Pledged Assets shall be deposited in the Custodial Account subject to withdrawal pursuant to Section 3.10. Concurrently with the foregoing, the Master Servicer may pursue any remedies that may be available in connection with a breach of a representation and warranty with respect to any such Mortgage Loan in accordance with Sections 2.03 and 2.04. However, the Master Servicer is not required to continue to pursue both foreclosure (or similar remedies) with respect to the Mortgage Loans and remedies in connection with a breach of a representation and warranty if the Master Servicer determines in its reasonable discretion that one such remedy is more likely to result in a greater recovery as to the Mortgage Loan. Upon the occurrence of a Cash Liquidation or REO Disposition, following the deposit in the Custodial Account of all Insurance Proceeds, Liquidation Proceeds and other payments and recoveries referred to in the definition of "Cash Liquidation" or "REO Disposition," as applicable, upon receipt by the Trustee of written notification of such deposit signed by a Servicing Officer, the Trustee or any Custodian, as the case may be, shall release to the Master Servicer the related Mortgage File and the Trustee shall execute and deliver such instruments of transfer or assignment prepared by the Master Servicer, in each case without recourse, as shall be necessary to vest in the Master Servicer or its designee, as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan shall not be part of the Trust Fund. Notwithstanding the foregoing or any other provision of this Agreement, in the Master Servicer's sole discretion with respect to any defaulted Mortgage Loan or REO Property as to either of the following provisions, (i) a Cash Liquidation or REO Disposition may be deemed to have occurred if substantially all amounts expected by the Master Servicer to be received in connection with the related defaulted Mortgage Loan or REO Property have been received, and (ii) for purposes of determining the amount of any Liquidation Proceeds, Insurance Proceeds, REO Proceeds or any other unscheduled collections or the amount of any Realized Loss, the Master Servicer may take into account minimal amounts of additional receipts expected to be received or any estimated additional liquidation expenses expected to be incurred in connection with the related defaulted Mortgage Loan or REO Property. (b) If title to any Mortgaged Property is acquired by the Trust Fund as an REO Property by foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be issued to the Trustee or to its nominee on behalf of Certificateholders. Notwithstanding any such acquisition of title and cancellation of the related Mortgage Loan, such REO Property shall (except as otherwise expressly provided herein) be considered to be an Outstanding Mortgage Loan held in the Trust Fund until such time as the REO Property shall be sold. Consistent with the foregoing for purposes of all calculations hereunder so long as such REO Property shall be considered to be an Outstanding Mortgage Loan it shall be assumed that, notwithstanding that the indebtedness evidenced by the related Mortgage Note shall have been discharged, such Mortgage Note and the related amortization schedule in effect at the time of any such acquisition of title (after giving effect to any previous Curtailments and before any adjustment thereto by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period) remain in effect. (c) If the Trust Fund acquires any REO Property as aforesaid or otherwise in connection with a default or imminent default on a Mortgage Loan, the Master Servicer on behalf of the Trust Fund shall dispose of such REO Property as soon as practicable, giving due consideration to the interests of the Certificateholders, but in all cases within three full years after the taxable year of its acquisition by the Trust Fund for purposes of Section 860G(a)(8) of the Code (or such shorter period as may be necessary under applicable state (including any state in which such property is located) law to maintain the status of any portion of any REMIC formed under the Series Supplement as a REMIC under applicable state law and avoid taxes resulting from such property failing to be foreclosure property under applicable state law) or, at the expense of the Trust Fund, request, more than 60 days before the day on which such grace period would otherwise expire, an extension of such grace period unless the Master Servicer (subject to Section 10.01(f)) obtains for the Trustee an Opinion of Counsel, addressed to the Trustee and the Master Servicer, to the effect that the holding by the Trust Fund of such REO Property subsequent to such period will not result in the imposition of taxes on "prohibited transactions" as defined in Section 860F of the Code or cause any REMIC formed under the Series Supplement to fail to qualify as a REMIC (for federal (or any applicable State or local) income tax purposes) at any time that any Certificates are outstanding, in which case the Trust Fund may continue to hold such REO Property (subject to any conditions contained in such Opinion of Counsel). The Master Servicer shall be entitled to be reimbursed from the Custodial Account for any costs incurred in obtaining such Opinion of Counsel, as provided in Section 3.10. Notwithstanding any other provision of this Agreement, no REO Property acquired by the Trust Fund shall be rented (or allowed to continue to be rented) or otherwise used by or on behalf of the Trust Fund in such a manner or pursuant to any terms that would (i) cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code or (ii) subject the Trust Fund to the imposition of any federal income taxes on the income earned from such REO Property, including any taxes imposed by reason of Section 860G(c) of the Code, unless the Master Servicer has agreed to indemnify and hold harmless the Trust Fund with respect to the imposition of any such taxes. (d) The proceeds of any Cash Liquidation, REO Disposition or purchase or repurchase of any Mortgage Loan pursuant to the terms of this Agreement, as well as any recovery resulting from a collection of Liquidation Proceeds, Insurance Proceeds or REO Proceeds, will be applied in the following order of priority: first, to reimburse the Master Servicer or the related Subservicer in accordance with Section 3.10(a)(ii); second, to the Certificateholders to the extent of accrued and unpaid interest on the Mortgage Loan, and any related REO Imputed Interest, at the Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan) to the Due Date prior to the Distribution Date on which such amounts are to be distributed; third, to the Certificateholders as a recovery of principal on the Mortgage Loan (or REO Property); fourth, to all Servicing Fees and Subservicing Fees payable therefrom (and the Master Servicer and the Subservicer shall have no claims for any deficiencies with respect to such fees which result from the foregoing allocation); and fifth, to Foreclosure Profits. (e) In the event of a default on a Mortgage Loan one or more of whose obligors is not a United States Person, in connection with any foreclosure or acquisition of a deed in lieu of foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the Master Servicer will cause compliance with the provisions of Treasury Regulation Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no withholding tax obligation arises with respect to the proceeds of such foreclosure except to the extent, if any, that proceeds of such foreclosure are required to be remitted to the obligors on such Mortgage Loan. Section 3.15. Trustee to Cooperate; Release of Mortgage Files. (a) Upon becoming aware of the payment in full of any Mortgage Loan, or upon the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer will immediately notify the Trustee (if it holds the related Mortgage File) or the Custodian by a certification of a Servicing Officer (which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Section 3.07 have been or will be so deposited), substantially in one of the forms attached hereto as Exhibit F, or, in the case of the Custodian, an electronic request in a form acceptable to the Custodian, requesting delivery to it of the Mortgage File. Within two Business Days of receipt of such certification and request, the Trustee shall release, or cause the Custodian to release, the related Mortgage File to the Master Servicer. The Master Servicer is authorized to execute and deliver to the Mortgagor the request for reconveyance, deed of reconveyance or release or satisfaction of mortgage or such instrument releasing the lien of the Mortgage, together with the Mortgage Note with, as appropriate, written evidence of cancellation thereon and to cause the removal from the registration on the MERS(R)System of such Mortgage and to execute and deliver, on behalf of the Trustee and the Certificateholders or any of them, any and all instruments of satisfaction or cancellation or of partial or full release. No expenses incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Certificate Account. (b) From time to time as is appropriate for the servicing or foreclosure of any Mortgage Loan, the Master Servicer shall deliver to the Custodian, with a copy to the Trustee, a certificate of a Servicing Officer substantially in one of the forms attached as Exhibit F hereto, or, in the case of the Custodian, an electronic request in a form acceptable to the Custodian, requesting that possession of all, or any document constituting part of, the Mortgage File be released to the Master Servicer and certifying as to the reason for such release and that such release will not invalidate any insurance coverage provided in respect of the Mortgage Loan under any Required Insurance Policy. Upon receipt of the foregoing, the Trustee shall deliver, or cause the Custodian to deliver, the Mortgage File or any document therein to the Master Servicer. The Master Servicer shall cause each Mortgage File or any document therein so released to be returned to the Trustee, or the Custodian as agent for the Trustee when the need therefor by the Master Servicer no longer exists, unless (i) the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or (ii) the Mortgage File or such document has been delivered directly or through a Subservicer to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially, and the Master Servicer has delivered directly or through a Subservicer to the Trustee a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. In the event of the liquidation of a Mortgage Loan, the Trustee shall deliver the Request for Release with respect thereto to the Master Servicer upon deposit of the related Liquidation Proceeds in the Custodial Account. (c) The Trustee or the Master Servicer on the Trustee's behalf shall execute and deliver to the Master Servicer, if necessary, any court pleadings, requests for trustee's sale or other documents necessary to the foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or rights provided by the Mortgage Note or Mortgage or otherwise available at law or in equity. Together with such documents or pleadings (if signed by the Trustee), the Master Servicer shall deliver to the Trustee a certificate of a Servicing Officer requesting that such pleadings or documents be executed by the Trustee and certifying as to the reason such documents or pleadings are required and that the execution and delivery thereof by the Trustee will not invalidate any insurance coverage under any Required Insurance Policy or invalidate or otherwise affect the lien of the Mortgage, except for the termination of such a lien upon completion of the foreclosure or trustee's sale. Section 3.16. Servicing and Other Compensation; Compensating Interest. (a) The Master Servicer, as compensation for its activities hereunder, shall be entitled to receive on each Distribution Date the amounts provided for by clauses (iii), (iv), (v) and (vi) of Section 3.10(a), subject to clause (e) below. The amount of servicing compensation provided for in such clauses shall be accounted for on a Mortgage Loan-by-Mortgage Loan basis. In the event that Liquidation Proceeds, Insurance Proceeds and REO Proceeds (net of amounts reimbursable therefrom pursuant to Section 3.10(a)(ii)) in respect of a Cash Liquidation or REO Disposition exceed the unpaid principal balance of such Mortgage Loan plus unpaid interest accrued thereon (including REO Imputed Interest) at a per annum rate equal to the related Net Mortgage Rate (or the Modified Net Mortgage Rate in the case of a Modified Mortgage Loan), the Master Servicer shall be entitled to retain therefrom and to pay to itself and/or the related Subservicer, any Foreclosure Profits and any Servicing Fee or Subservicing Fee considered to be accrued but unpaid. (b) Additional servicing compensation in the form of prepayment charges, assumption fees, late payment charges, investment income on amounts in the Custodial Account or the Certificate Account or otherwise shall be retained by the Master Servicer or the Subservicer to the extent provided herein, subject to clause (e) below. (c) The Master Servicer shall be required to pay, or cause to be paid, all expenses incurred by it in connection with its servicing activities hereunder (including payment of premiums for the Primary Insurance Policies, if any, to the extent such premiums are not required to be paid by the related Mortgagors, and the fees and expenses of the Trustee and any co-trustee (as provided in Section 8.05) and the fees and expense of any Custodian) and shall not be entitled to reimbursement therefor except as specifically provided in Sections 3.10 and 3.14. (d) The Master Servicer's right to receive servicing compensation may not be transferred in whole or in part except in connection with the transfer of all of its responsibilities and obligations of the Master Servicer under this Agreement. (e) Notwithstanding any other provision herein, the amount of servicing compensation that the Master Servicer shall be entitled to receive for its activities hereunder for the period ending on each Distribution Date shall be reduced (but not below zero) by an amount equal to Compensating Interest (if any) for such Distribution Date. Such reduction shall be applied during such period as follows: first, to any Servicing Fee or Subservicing Fee to which the Master Servicer is entitled pursuant to Section 3.10(a)(iii), and second, to any income or gain realized from any investment of funds held in the Custodial Account or the Certificate Account to which the Master Servicer is entitled pursuant to Sections 3.07(c) or 4.01(b), respectively. In making such reduction, the Master Servicer (i) will not withdraw from the Custodial Account any such amount representing all or a portion of the Servicing Fee to which it is entitled pursuant to Section 3.10(a)(iii), and (ii) will not withdraw from the Custodial Account or Certificate Account any such amount to which it is entitled pursuant to Section 3.07(c) or 4.01(b). Section 3.17. Reports to the Trustee and the Company. Not later than fifteen days after it receives a written request from the Trustee or the Company, the Master Servicer shall forward to the Trustee and the Company a statement, certified by a Servicing Officer, setting forth the status of the Custodial Account as of the close of business on the immediately preceding Distribution Date as it relates to the Mortgage Loans and showing, for the period covered by such statement, the aggregate of deposits in or withdrawals from the Custodial Account in respect of the Mortgage Loans for each category of deposit specified in Section 3.07 and each category of withdrawal specified in Section 3.10. Section 3.18. Annual Statement as to Compliance and Servicing Assessment. The Master Servicer will deliver to the Company and the Trustee on or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Company's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, (i) a servicing assessment as described in Section 4.03(f)(ii) and (ii) a servicer compliance statement, signed by an authorized officer of the Master Servicer, as described in Items 1122(a), 1122(b) and 1123 of Regulation AB, to the effect that: (A) A review of the Master Servicer's activities during the reporting period and of its performance under this Agreement has been made under such officer's supervision. (B) To the best of such officer's knowledge, based on such review, the Master Servicer has fulfilled all of its obligations under this Agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof. The Master Servicer shall use commercially reasonable efforts to obtain from all other parties participating in the servicing function any additional certifications required under Item 1122 and Item 1123 of Regulation AB to the extent required to be included in a Report on Form 10-K; provided, however, that a failure to obtain such certifications shall not be a breach of the Master Servicer's duties hereunder if any such party fails to deliver such a certification. Section 3.19. Annual Independent Public Accountants' Servicing Report. On or before the earlier of (a) March 31 of each year or (b) with respect to any calendar year during which the Company's annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the date on which the annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations of the Commission, the Master Servicer at its expense shall cause a firm of independent public accountants, which shall be members of the American Institute of Certified Public Accountants, to furnish to the Company and the Trustee the attestation required under Item 1122(b) of Regulation AB. In rendering such statement, such firm may rely, as to matters relating to the direct servicing of mortgage loans by Subservicers, upon comparable statements for examinations conducted by independent public accountants substantially in accordance with standards established by the American Institute of Certified Public Accountants (rendered within one year of such statement) with respect to such Subservicers. Section 3.20. Rights of the Company in Respect of the Master Servicer. The Master Servicer shall afford the Company, upon reasonable notice, during normal business hours access to all records maintained by the Master Servicer in respect of its rights and obligations hereunder and access to officers of the Master Servicer responsible for such obligations. Upon request, the Master Servicer shall furnish the Company with its most recent financial statements and such other information as the Master Servicer possesses regarding its business, affairs, property and condition, financial or otherwise. The Master Servicer shall also cooperate with all reasonable requests for information including, but not limited to, notices, tapes and copies of files, regarding itself, the Mortgage Loans or the Certificates from any Person or Persons identified by the Company or Residential Funding. The Company may, but is not obligated to, enforce the obligations of the Master Servicer hereunder and may, but is not obligated to, perform, or cause a designee to perform, any defaulted obligation of the Master Servicer hereunder or exercise the rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Company or its designee. The Company shall not have any responsibility or liability for any action or failure to act by the Master Servicer and is not obligated to supervise the performance of the Master Servicer under this Agreement or otherwise. Section 3.21. Administration of Buydown Funds (a) With respect to any Buydown Mortgage Loan, the Subservicer has deposited Buydown Funds in an account that satisfies the requirements for a Subservicing Account (the "Buydown Account"). The Master Servicer shall cause the Subservicing Agreement to require that upon receipt from the Mortgagor of the amount due on a Due Date for each Buydown Mortgage Loan, the Subservicer will withdraw from the Buydown Account the predetermined amount that, when added to the amount due on such date from the Mortgagor, equals the full Monthly Payment and transmit that amount in accordance with the terms of the Subservicing Agreement to the Master Servicer together with the related payment made by the Mortgagor or advanced by the Subservicer. (b) If the Mortgagor on a Buydown Mortgage Loan prepays such loan in its entirety during the period (the "Buydown Period") when Buydown Funds are required to be applied to such Buydown Mortgage Loan, the Subservicer shall be required to withdraw from the Buydown Account and remit any Buydown Funds remaining in the Buydown Account in accordance with the related buydown agreement. The amount of Buydown Funds which may be remitted in accordance with the related buydown agreement may reduce the amount required to be paid by the Mortgagor to fully prepay the related Mortgage Loan. If the Mortgagor on a Buydown Mortgage Loan defaults on such Mortgage Loan during the Buydown Period and the property securing such Buydown Mortgage Loan is sold in the liquidation thereof (either by the Master Servicer or the insurer under any related Primary Insurance Policy), the Subservicer shall be required to withdraw from the Buydown Account the Buydown Funds for such Buydown Mortgage Loan still held in the Buydown Account and remit the same to the Master Servicer in accordance with the terms of the Subservicing Agreement for deposit in the Custodial Account or, if instructed by the Master Servicer, pay to the insurer under any related Primary Insurance Policy if the Mortgaged Property is transferred to such insurer and such insurer pays all of the loss incurred in respect of such default. Any amount so remitted pursuant to the preceding sentence will be deemed to reduce the amount owed on the Mortgage Loan. Section 3.22. Advance Facility (a) The Master Servicer is hereby authorized to enter into a financing or other facility (any such arrangement, an "Advance Facility") under which (1) the Master Servicer sells, assigns or pledges to another Person (an "Advancing Person") the Master Servicer's rights under this Agreement to be reimbursed for any Advances or Servicing Advances and/or (2) an Advancing Person agrees to fund some or all Advances and/or Servicing Advances required to be made by the Master Servicer pursuant to this Agreement. No consent of the Depositor, the Trustee, the Certificateholders or any other party shall be required before the Master Servicer may enter into an Advance Facility. Notwithstanding the existence of any Advance Facility under which an Advancing Person agrees to fund Advances and/or Servicing Advances on the Master Servicer's behalf, the Master Servicer shall remain obligated pursuant to this Agreement to make Advances and Servicing Advances pursuant to and as required by this Agreement. If the Master Servicer enters into an Advance Facility, and for so long as an Advancing Person remains entitled to receive reimbursement for any Advances including Nonrecoverable Advances ("Advance Reimbursement Amounts") and/or Servicing Advances including Nonrecoverable Advances ("Servicing Advance Reimbursement Amounts" and together with Advance Reimbursement Amounts, "Reimbursement Amounts") (in each case to the extent such type of Reimbursement Amount is included in the Advance Facility), as applicable, pursuant to this Agreement, then the Master Servicer shall identify such Reimbursement Amounts consistent with the reimbursement rights set forth in Section 3.10(a)(ii) and (vii) and remit such Reimbursement Amounts in accordance with this Section 3.22 or otherwise in accordance with the documentation establishing the Advance Facility to such Advancing Person or to a trustee, agent or custodian (an "Advance Facility Trustee") designated by such Advancing Person in an Advance Facility Notice described below in Section 3.22(b). Notwithstanding the foregoing, if so required pursuant to the terms of the Advance Facility, the Master Servicer may direct, and if so directed in writing the Trustee is hereby authorized to and shall pay to the Advance Facility Trustee the Reimbursement Amounts identified pursuant to the preceding sentence. An Advancing Person whose obligations hereunder are limited to the funding of Advances and/or Servicing Advances shall not be required to meet the qualifications of a Master Servicer or a Subservicer pursuant to Section 3.02(a) or 6.02(c) hereof and shall not be deemed to be a Subservicer under this Agreement. Notwithstanding anything to the contrary herein, in no event shall Advance Reimbursement Amounts or Servicing Advance Reimbursement Amounts be included in the Available Distribution Amount or distributed to Certificateholders. (b) If the Master Servicer enters into an Advance Facility and makes the election set forth in Section 3.22(a), the Master Servicer and the related Advancing Person shall deliver to the Certificate Insurer and the Trustee a written notice and payment instruction (an "Advance Facility Notice"), providing the Trustee with written payment instructions as to where to remit Advance Reimbursement Amounts and/or Servicing Advance Reimbursement Amounts (each to the extent such type of Reimbursement Amount is included within the Advance Facility) on subsequent Distribution Dates. The payment instruction shall require the applicable Reimbursement Amounts to be distributed to the Advancing Person or to an Advance Facility Trustee designated in the Advance Facility Notice. An Advance Facility Notice may only be terminated by the joint written direction of the Master Servicer and the related Advancing Person (and any related Advance Facility Trustee). The Master Servicer shall provide the Certificate Insurer, if any, with notice of any termination of any Advance Facility pursuant to this Section 3.22(b). (c) Reimbursement Amounts shall consist solely of amounts in respect of Advances and/or Servicing Advances made with respect to the Mortgage Loans for which the Master Servicer would be permitted to reimburse itself in accordance with Section 3.10(a)(ii) and (vii) hereof, assuming the Master Servicer or the Advancing Person had made the related Advance(s) and/or Servicing Advance(s). Notwithstanding the foregoing, except with respect to reimbursement of Nonrecoverable Advances as set forth in Section 3.10(c) of this Agreement, no Person shall be entitled to reimbursement from funds held in the Collection Account for future distribution to Certificateholders pursuant to this Agreement. Neither the Company nor the Trustee shall have any duty or liability with respect to the calculation of any Reimbursement Amount, nor shall the Company or the Trustee have any responsibility to track or monitor the administration of the Advance Facility or have any responsibility to track, monitor or verify the payment of Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee. The Master Servicer shall maintain and provide to any Successor Master Servicer a detailed accounting on a loan-by-loan basis as to amounts advanced by, sold, pledged or assigned to, and reimbursed to any Advancing Person. The Successor Master Servicer shall be entitled to rely on any such information provided by the Master Servicer and the Successor Master Servicer shall not be liable for any errors in such information. (d) Upon the direction of and at the expense of the Master Servicer, the Trustee agrees to execute such acknowledgments, certificates and other documents reasonably satisfactory to the Trustee provided by the Master Servicer recognizing the interests of any Advancing Person or Advance Facility Trustee in such Reimbursement Amounts as the Master Servicer may cause to be made subject to Advance Facilities pursuant to this Section 3.22. (e) Reimbursement Amounts collected with respect to each Mortgage Loan shall be allocated to outstanding unreimbursed Advances or Servicing Advances (as the case may be) made with respect to that Mortgage Loan on a "first-in, first out" ("FIFO") basis, subject to the qualifications set forth below: (i) Any successor Master Servicer to Residential Funding (a "Successor Master Servicer") and the Advancing Person or Advance Facility Trustee shall be required to apply all amounts available in accordance with this Section 3.22(e) to the reimbursement of Advances and Servicing Advances in the manner provided for herein; provided, however, that after the succession of a Successor Master Servicer, (A) to the extent that any Advances or Servicing Advances with respect to any particular Mortgage Loan are reimbursed from payments or recoveries, if any, from the related Mortgagor, and Liquidation Proceeds or Insurance Proceeds, if any, with respect to that Mortgage Loan, reimbursement shall be made, first, to the Advancing Person or Advance Facility Trustee in respect of Advances and/or Servicing Advances related to that Mortgage Loan to the extent of the interest of the Advancing Person or Advance Facility Trustee in such Advances and/or Servicing Advances, second to the Master Servicer in respect of Advances and/or Servicing Advances related to that Mortgage Loan in excess of those in which the Advancing Person or Advance Facility Trustee Person has an interest, and third, to the Successor Master Servicer in respect of any other Advances and/or Servicing Advances related to that Mortgage Loan, from such sources as and when collected, and (B) reimbursements of Advances and Servicing Advances that are Nonrecoverable Advances shall be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and any such Successor Master Servicer, on the other hand, on the basis of the respective aggregate outstanding unreimbursed Advances and Servicing Advances that are Nonrecoverable Advances owed to the Advancing Person, Advance Facility Trustee or Master Servicer pursuant to this Agreement, on the one hand, and any such Successor Master Servicer, on the other hand, and without regard to the date on which any such Advances or Servicing Advances shall have been made. In the event that, as a result of the FIFO allocation made pursuant to this Section 3.22(e), some or all of a Reimbursement Amount paid to the Advancing Person or Advance Facility Trustee relates to Advances or Servicing Advances that were made by a Person other than Residential Funding or the Advancing Person or Advance Facility Trustee, then the Advancing Person or Advance Facility Trustee shall be required to remit any portion of such Reimbursement Amount to the Person entitled to such portion of such Reimbursement Amount. Without limiting the generality of the foregoing, Residential Funding shall remain entitled to be reimbursed by the Advancing Person or Advance Facility Trustee for all Advances and Servicing Advances funded by Residential Funding to the extent the related Reimbursement Amount(s) have not been assigned or pledged to an Advancing Person or Advance Facility Trustee. The documentation establishing any Advance Facility shall require Residential Funding to provide to the related Advancing Person or Advance Facility Trustee loan by loan information with respect to each Reimbursement Amount distributed to such Advancing Person or Advance Facility Trustee on each date of remittance thereof to such Advancing Person or Advance Facility Trustee, to enable the Advancing Person or Advance Facility Trustee to make the FIFO allocation of each Reimbursement Amount with respect to each Mortgage Loan. (ii) By way of illustration, and not by way of limiting the generality of the foregoing, if the Master Servicer resigns or is terminated at a time when the Master Servicer is a party to an Advance Facility, and is replaced by a Successor Master Servicer, and the Successor Master Servicer directly funds Advances or Servicing Advances with respect to a Mortgage Loan and does not assign or pledge the related Reimbursement Amounts to the related Advancing Person or Advance Facility Trustee, then all payments and recoveries received from the related Mortgagor or received in the form of Liquidation Proceeds with respect to such Mortgage Loan (including Insurance Proceeds collected in connection with a liquidation of such Mortgage Loan) will be allocated first to the Advancing Person or Advance Facility Trustee until the related Reimbursement Amounts attributable to such Mortgage Loan that are owed to the Master Servicer and the Advancing Person, which were made prior to any Advances or Servicing Advances made by the Successor Master Servicer, have been reimbursed in full, at which point the Successor Master Servicer shall be entitled to retain all related Reimbursement Amounts subsequently collected with respect to that Mortgage Loan pursuant to Section 3.10 of this Agreement. To the extent that the Advances or Servicing Advances are Nonrecoverable Advances to be reimbursed on an aggregate basis pursuant to Section 3.10 of this Agreement, the reimbursement paid in this manner will be made pro rata to the Advancing Person or Advance Facility Trustee, on the one hand, and the Successor Master Servicer, on the other hand, as described in clause (i)(B) above. (f) The Master Servicer shall remain entitled to be reimbursed for all Advances and Servicing Advances funded by the Master Servicer to the extent the related rights to be reimbursed therefor have not been sold, assigned or pledged to an Advancing Person. (g) Any amendment to this Section 3.22 or to any other provision of this Agreement that may be necessary or appropriate to effect the terms of an Advance Facility as described generally in this Section 3.22, including amendments to add provisions relating to a successor Master Servicer, may be entered into by the Trustee, the Certificate Insurer, Company and the Master Servicer without the consent of any Certificateholder, with written confirmation from each Rating Agency that the amendment will not result in the reduction of the ratings on any class of the Certificates below the lesser of the then current or original ratings on such Certificates, and an opinion of counsel as required by Section 11.01(c), notwithstanding anything to the contrary in Section 11.01 of or elsewhere in this Agreement. (h) Any rights of set-off that the Trust Fund, the Trustee, the Company, any Successor Master Servicer or any other Person might otherwise have against the Master Servicer under this Agreement shall not attach to any rights to be reimbursed for Advances or Servicing Advances that have been sold, transferred, pledged, conveyed or assigned to any Advancing Person. (i) At any time when an Advancing Person shall have ceased funding Advances and/or Servicing Advances (as the case may be) and the Advancing Person or related Advance Facility Trustee shall have received Reimbursement Amounts sufficient in the aggregate to reimburse all Advances and/or Servicing Advances (as the case may be) the right to reimbursement for which were assigned to the Advancing Person, then upon the delivery of a written notice signed by the Advancing Person and the Master Servicer or its successor or assign) to the Trustee terminating the Advance Facility Notice (the "Notice of Facility Termination"), the Master Servicer or its Successor Master Servicer shall again be entitled to withdraw and retain the related Reimbursement Amounts from the Custodial Account pursuant to Section 3.10. (j) After delivery of any Advance Facility Notice, and until any such Advance Facility Notice has been terminated by a Notice of Facility Termination, this Section 3.22 may not be amended or otherwise modified without the prior written consent of the related Advancing Person. -------------------------------------------------------------------------------- ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS Section 4.01. Certificate Account. (a) The Master Servicer on behalf of the Trustee shall establish and maintain a Certificate Account in which the Master Servicer shall cause to be deposited on behalf of the Trustee on or before 2:00 P.M. New York time on each Certificate Account Deposit Date by wire transfer of immediately available funds an amount equal to the sum of (i) any Advance for the immediately succeeding Distribution Date, (ii) any amount required to be deposited in the Certificate Account pursuant to Section 3.12(a), (iii) any amount required to be deposited in the Certificate Account pursuant to Section 3.16(e) or Section 4.07, (iv) any amount required to be paid pursuant to Section 9.01 and (v) all other amounts constituting the Available Distribution Amount for the immediately succeeding Distribution Date. (b) The Trustee shall, upon written request from the Master Servicer, invest or cause the institution maintaining the Certificate Account to invest the funds in the Certificate Account in Permitted Investments designated in the name of the Trustee for the benefit of the Certificateholders, which shall mature or be payable on demand not later than the Business Day next preceding the Distribution Date next following the date of such investment (except that (i) any investment in the institution with which the Certificate Account is maintained may mature or be payable on demand on such Distribution Date and (ii) any other investment may mature or be payable on demand on such Distribution Date if the Trustee shall advance funds on such Distribution Date to the Certificate Account in the amount payable on such investment on such Distribution Date, pending receipt thereof to the extent necessary to make distributions on the Certificates) and shall not be sold or disposed of prior to maturity. Subject to Section 3.16(e), all income and gain realized from any such investment shall be for the benefit of the Master Servicer and shall be subject to its withdrawal or order from time to time. The amount of any losses incurred in respect of any such investments shall be deposited in the Certificate Account by the Master Servicer out of its own funds immediately as realized without any right of reimbursement. The Trustee or its Affiliates are permitted to receive compensation that could be deemed to be in the Trustee's economic self-interest for (i) serving as investment adviser (with respect to investments made through its Affiliates), administrator, shareholder servicing agent, custodian or sub-custodian with respect to certain of the Permitted Investments, (ii) using Affiliates to effect transactions in certain Permitted Investments and (iii) effecting transactions in certain Permitted Investments. Section 4.02. Distributions. As provided in Section 4.02 of the Series Supplement. Section 4.03. Statements to Certificateholders; Statements to Rating Agencies; Exchange Act Reporting. (a) Concurrently with each distribution charged to the Certificate Account and with respect to each Distribution Date the Master Servicer shall forward to the Trustee and the Trustee shall either forward by mail or make available to each Holder and the Company, via the Trustee's internet website, a statement (and at its option, any additional files containing the same information in an alternative format) setting forth information as to each Class of Certificates, the Mortgage Pool and, if the Mortgage Pool is comprised of two or more Loan Groups, each Loan Group, to the extent applicable. This statement will include the information set forth in an exhibit to the Series Supplement. The Trustee shall mail to each Holder that requests a paper copy by telephone a paper copy via first class mail. The Trustee may modify the distribution procedures set forth in this Section provided that such procedures are no less convenient for the Certificateholders. The Trustee shall provide prior notification to the Company, the Master Servicer and the Certificateholders regarding any such modification. In addition, the Master Servicer shall provide to any manager of a trust fund consisting of some or all of the Certificates, upon reasonable request, such additional information as is reasonably obtainable by the Master Servicer at no additional expense to the Master Servicer. Also, at the request of a Rating Agency, the Master Servicer shall provide the information relating to the Reportable Modified Mortgage Loans substantially in the form attached hereto as Exhibit Q to such Rating Agency within a reasonable period of time; provided, however, that the Master Servicer shall not be required to provide such information more than four times in a calendar year to any Rating Agency. (b) Within a reasonable period of time after it receives a written request from a Holder of a Certificate, other than a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Certificate, other than a Class R Certificate, a statement containing the information set forth in clauses (v) and (vi) of the exhibit to the Series Supplement referred to in subsection (a) above aggregated for such calendar year or applicable portion thereof during which such Person was a Certificateholder. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (c) Within a reasonable period of time after it receives a written request from a Holder of a Class R Certificate, the Master Servicer shall prepare, or cause to be prepared, and shall forward, or cause to be forwarded, to each Person who at any time during the calendar year was the Holder of a Class R Certificate, a statement containing the applicable distribution information provided pursuant to this Section 4.03 aggregated for such calendar year or applicable portion thereof during which such Person was the Holder of a Class R Certificate. Such obligation of the Master Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Master Servicer pursuant to any requirements of the Code. (d) Upon the written request of any Certificateholder, the Master Servicer, as soon as reasonably practicable, shall provide the requesting Certificateholder with such information as is necessary and appropriate, in the Master Servicer's sole discretion, for purposes of satisfying applicable reporting requirements under Rule 144A. (e) The Master Servicer shall, on behalf of the Company and in respect of the Trust Fund, sign and cause to be filed with the Commission any periodic reports required to be filed under the provisions of the Exchange Act, and the rules and regulations of the Commission thereunder including, without limitation, reports on Form 10-K, Form 10-D and Form 8-K. In connection with the preparation and filing of such periodic reports, the Trustee shall timely provide to the Master Servicer (I) a list of Certificateholders as shown on the Certificate Register as of the end of each calendar year, (II) copies of all pleadings, other legal process and any other documents relating to any claims, charges or complaints involving the Trustee, as trustee hereunder, or the Trust Fund that are received by a Responsible Officer of the Trustee, (III) notice of all matters that, to the actual knowledge of a Responsible Officer of the Trustee, have been submitted to a vote of the Certificateholders, other than those matters that have been submitted to a vote of the Certificateholders at the request of the Company or the Master Servicer, and (IV) notice of any failure of the Trustee to make any distribution to the Certificateholders as required pursuant to the Series Supplement. Neither the Master Servicer nor the Trustee shall have any liability with respect to the Master Servicer's failure to properly prepare or file such periodic reports resulting from or relating to the Master Servicer's inability or failure to obtain any information not resulting from the Master Servicer's own negligence or willful misconduct. (f) Any Form 10-K filed with the Commission in connection with this Section 4.03 shall include, with respect to the Certificates relating to such 10-K: (i) A certification, signed by the senior officer in charge of the servicing functions of the Master Servicer, in the form attached as Exhibit O hereto or such other form as may be required or permitted by the Commission (the "Form 10-K Certification"), in compliance with Rules 13a-14 and 15d-14 under the Exchange Act and any additional directives of the Commission. (ii) A report regarding its assessment of compliance during the preceding calendar year with all applicable servicing criteria set forth in relevant Commission regulations with respect to mortgage-backed securities transactions taken as a whole involving the Master Servicer that are backed by the same types of assets as those backing the certificates, as well as similar reports on assessment of compliance received from other parties participating in the servicing function as required by relevant Commission regulations, as described in Item 1122(a) of Regulation AB. The Master Servicer shall obtain from all other parties participating in the servicing function any required assessments. (iii) With respect to each assessment report described immediately above, a report by a registered public accounting firm that attests to, and reports on, the assessment made by the asserting party, as set forth in relevant Commission regulations, as described in Regulation 1122(b) of Regulation AB and Section 3.19. (iv) The servicer compliance certificate required to be delivered pursuant Section 3.18. (g) In connection with the Form 10-K Certification, the Trustee shall provide the Master Servicer with a back-up certification substantially in the form attached hereto as Exhibit P. (h) This Section 4.03 may be amended in accordance with this Agreement without the consent of the Certificateholders. (i) The Trustee shall make available on the Trustee's internet website each of the reports filed with the Commission by or on behalf of the Company under the Exchange Act, as soon as reasonably practicable upon delivery of such reports to the Trustee. Section 4.04. Distribution of Reports to the Trustee and the Company; Advances by the Master Servicer. (a) Prior to the close of business on the Determination Date, the Master Servicer shall furnish a written statement to the Trustee, any Paying Agent and the Company (the information in such statement to be made available to any Certificate Insurer and Certificateholders by the Master Servicer on request) setting forth (i) the Available Distribution Amount and (ii) the amounts required to be withdrawn from the Custodial Account and deposited into the Certificate Account on the immediately succeeding Certificate Account Deposit Date pursuant to clause (iii) of Section 4.01(a). The determination by the Master Servicer of such amounts shall, in the absence of obvious error, be presumptively deemed to be correct for all purposes hereunder and the Trustee shall be protected in relying upon the same without any independent check or verification. (b) On or before 2:00 P.M. New York time on each Certificate Account Deposit Date, the Master Servicer shall either (i) deposit in the Certificate Account from its own funds, or funds received therefor from the Subservicers, an amount equal to the Advances to be made by the Master Servicer in respect of the related Distribution Date, which shall be in an aggregate amount equal to the aggregate amount of Monthly Payments (with each interest portion thereof adjusted to the Net Mortgage Rate), less the amount of any related Servicing Modifications, Debt Service Reductions or reductions in the amount of interest collectable from the Mortgagor pursuant to the Servicemembers Civil Relief Act, as amended, or similar legislation or regulations then in effect, on the Outstanding Mortgage Loans as of the related Due Date, which Monthly Payments were not received as of the close of business as of the related Determination Date; provided that no Advance shall be made if it would be a Nonrecoverable Advance, (ii) withdraw from amounts on deposit in the Custodial Account and deposit in the Certificate Account all or a portion of the Amount Held for Future Distribution in discharge of any such Advance, or (iii) make advances in the form of any combination of (i) and (ii) aggregating the amount of such Advance. Any portion of the Amount Held for Future Distribution so used shall be replaced by the Master Servicer by deposit in the Certificate Account on or before 11:00 A.M. New York time on any future Certificate Account Deposit Date to the extent that funds attributable to the Mortgage Loans that are available in the Custodial Account for deposit in the Certificate Account on such Certificate Account Deposit Date shall be less than payments to Certificateholders required to be made on the following Distribution Date. The Master Servicer shall be entitled to use any Advance made by a Subservicer as described in Section 3.07(b) that has been deposited in the Custodial Account on or before such Distribution Date as part of the Advance made by the Master Servicer pursuant to this Section 4.04. The amount of any reimbursement pursuant to Section 4.02(a) in respect of outstanding Advances on any Distribution Date shall be allocated to specific Monthly Payments due but delinquent for previous Due Periods, which allocation shall be made, to the extent practicable, to Monthly Payments which have been delinquent for the longest period of time. Such allocations shall be conclusive for purposes of reimbursement to the Master Servicer from recoveries on related Mortgage Loans pursuant to Section 3.10. The determination by the Master Servicer that it has made a Nonrecoverable Advance or that any proposed Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced by an Officers' Certificate of the Master Servicer delivered to the Company and the Trustee. If the Master Servicer determines as of the Business Day preceding any Certificate Account Deposit Date that it will be unable to deposit in the Certificate Account an amount equal to the Advance required to be made for the immediately succeeding Distribution Date, it shall give notice to the Trustee of its inability to advance (such notice may be given by telecopy), not later than 3:00 P.M., New York time, on such Business Day, specifying the portion of such amount that it will be unable to deposit. Not later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the Trustee shall, unless by 12:00 Noon, New York time, on such day the Trustee shall have been notified in writing (by telecopy) that the Master Servicer shall have directly or indirectly deposited in the Certificate Account such portion of the amount of the Advance as to which the Master Servicer shall have given notice pursuant to the preceding sentence, pursuant to Section 7.01, (a) terminate all of the rights and obligations of the Master Servicer under this Agreement in accordance with Section 7.01 and (b) assume the rights and obligations of the Master Servicer hereunder, including the obligation to deposit in the Certificate Account an amount equal to the Advance for the immediately succeeding Distribution Date. The Trustee shall deposit all funds it receives pursuant to this Section 4.04 into the Certificate Account. Section 4.05. Allocation of Realized Losses. As provided in Section 4.05 of the Series Supplement. Section 4.06. Reports of Foreclosures and Abandonment of Mortgaged Property. The Master Servicer or the Subservicers shall file information returns with respect to the receipt of mortgage interests received in a trade or business, the reports of foreclosures and abandonments of any Mortgaged Property and the information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property required by Sections 6050H, 6050J and 6050P, respectively, of the Code, and deliver to the Trustee an Officers' Certificate on or before March 31 of each year stating that such reports have been filed. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by Sections 6050H, 6050J and 6050P of the Code. Section 4.07. Optional Purchase of Defaulted Mortgage Loans. (a) With respect to any Mortgage Loan that is delinquent in payment by 90 days or more, the Master Servicer may, at its option, purchase such Mortgage Loan from the Trustee at the Purchase Price therefor; provided, that such Mortgage Loan that becomes 90 days or more delinquent during any given Calendar Quarter shall only be eligible for purchase pursuant to this Section during the period beginning on the first Business Day of the following Calendar Quarter, and ending at the close of business on the second-to-last Business Day of such following Calendar Quarter; and provided, further, that such Mortgage Loan is 90 days or more delinquent at the time of repurchase. Such option if not exercised shall not thereafter be reinstated as to any Mortgage Loan, unless the delinquency is cured and the Mortgage Loan thereafter again becomes delinquent in payment by 90 days or more in a subsequent Calendar Quarter. (b) If at any time the Master Servicer makes a payment to the Certificate Account covering the amount of the Purchase Price for such a Mortgage Loan as provided in clause (a) above, and the Master Servicer provides to the Trustee a certification signed by a Servicing Officer stating that the amount of such payment has been deposited in the Certificate Account, then the Trustee shall execute the assignment of such Mortgage Loan at the request of the Master Servicer, without recourse, to the Master Servicer, which shall succeed to all the Trustee's right, title and interest in and to such Mortgage Loan, and all security and documents relative thereto. Such assignment shall be an assignment outright and not for security. The Master Servicer will thereupon own such Mortgage, and all such security and documents, free of any further obligation to the Trustee or the Certificateholders with respect thereto. If, however, the Master Servicer shall have exercised its right to repurchase a Mortgage Loan pursuant to this Section 4.07 upon the written request of and with funds provided by the Junior Certificateholder and thereupon transferred such Mortgage Loan to the Junior Certificateholder, the Master Servicer shall so notify the Trustee in writing. Section 4.08. Surety Bond. (a) If a Required Surety Payment is payable pursuant to the Surety Bond with respect to any Additional Collateral Loan, the Master Servicer shall so notify the Trustee as soon as reasonably practicable and the Trustee shall promptly complete the notice in the form of Attachment 1 to the Surety Bond and shall promptly submit such notice to the Surety as a claim for a Required Surety. The Master Servicer shall upon request assist the Trustee in completing such notice and shall provide any information requested by the Trustee in connection therewith. (b) Upon receipt of a Required Surety Payment from the Surety on behalf of the Holders of Certificates, the Trustee shall deposit such Required Surety Payment in the Certificate Account and shall distribute such Required Surety Payment, or the proceeds thereof, in accordance with the provisions of Section 4.02. (c) The Trustee shall (i) receive as attorney-in-fact of each Holder of a Certificate any Required Surety Payment from the Surety and (ii) disburse the same to the Holders of such Certificates as set forth in Section 4.02. -------------------------------------------------------------------------------- ARTICLE V THE CERTIFICATES Section 5.01. The Certificates. (a) The Senior, Class X, Class M, Class B, Class P and Class R Certificates shall be substantially in the forms set forth in Exhibits A, A-I, B, C, C-I and D, respectively, and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery to or upon the order of the Company upon receipt by the Trustee or one or more Custodians of the documents specified in Section 2.01. The Certificates shall be issuable in the minimum denominations designated in the Preliminary Statement to the Series Supplement. The Certificates shall be executed by manual or facsimile signature on behalf of an authorized officer of the Trustee. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificate or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by the Certificate Registrar by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication. (b) Except as provided below, registration of Book-Entry 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 Holders of the Book-Entry Certificates shall hold their respective Ownership Interests in and to each of such Certificates through the book-entry facilities of the Depository and, except as provided below, shall not be entitled to Definitive Certificates in respect of such Ownership Interests. All transfers by Certificate Owners of their respective Ownership Interests in the Book-Entry Certificates shall be made in accordance with the procedures established by the Depository Participant or brokerage firm representing such Certificate Owner. Each Depository Participant shall transfer the Ownership Interests only in the Book-Entry Certificates of Certificate Owners it represents or of brokerage firms for which it acts as agent in accordance with the Depository's normal procedures. The Trustee, the Master Servicer and the Company 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 Company advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities as Depository and (B) the Company is unable to locate a qualified successor or (ii) the Company notifies the Depository and the Trustee of its intent to terminate the book-entry system and, upon receipt of notice of such intent from the Depository, the Depository Participants holding beneficial interests in the Book-Entry Certificates agree to such termination through the Depository, 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 Depository, accompanied by registration instructions from the Depository for registration of transfer, the Trustee shall execute, authenticate and deliver the Definitive Certificates. In addition, if an Event of Default has occurred and is continuing, each Certificate Owner materially adversely affected thereby may at its option request a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in the related Class of Certificates. In order to make such a request, such Certificate Owner shall, subject to the rules and procedures of the Depository, provide the Depository or the related Depository Participant with directions for the Certificate Registrar to exchange or cause the exchange of the Certificate Owner's interest in such Class of Certificates for an equivalent Percentage Interest in fully registered definitive form. Upon receipt by the Certificate Registrar of instructions from the Depository directing the Certificate Registrar to effect such exchange (such instructions shall contain information regarding the Class of Certificates and the Certificate Principal Balance being exchanged, the Depository Participant account to be debited with the decrease, the registered holder of and delivery instructions for the Definitive Certificate, and any other information reasonably required by the Certificate Registrar), (i) the Certificate Registrar shall instruct the Depository to reduce the related Depository Participant's account by the aggregate Certificate Principal Balance of the Definitive Certificate, (ii) the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in accordance with the registration and delivery instructions provided by the Depository, a Definitive Certificate evidencing such Certificate Owner's Percentage Interest in such Class of Certificates and (iii) the Trustee shall execute and the Certificate Registrar shall authenticate a new Book-Entry Certificate reflecting the reduction in the aggregate Certificate Principal Balance of such Class of Certificates by the Certificate Principal Balance of the Definitive Certificate. None of the Company, the Master Servicer or the Trustee shall be liable for any actions taken by the Depository or its nominee, including, without limitation, any delay in delivery of any instructions required under Section 5.01 and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Certificates, the Trustee and the Master Servicer shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. (c) If the Class A-V Certificates are Definitive Certificates, from time to time Residential Funding, as the initial Holder of the Class A-V Certificates, may exchange such Holder's Class A-V Certificates for Subclasses of Class A-V Certificates to be issued under this Agreement by delivering a "Request for Exchange" substantially in the form attached to this Agreement as Exhibit N executed by an authorized officer, which Subclasses, in the aggregate, will represent the Uncertificated Class A-V REMIC Regular Interests corresponding to the Class A-V Certificates so surrendered for exchange. Any Subclass so issued shall bear a numerical designation commencing with Class A-V-1 and continuing sequentially thereafter, and will evidence ownership of the Uncertificated REMIC Regular Interest or Interests specified in writing by such initial Holder to the Trustee. The Trustee may conclusively, without any independent verification, rely on, and shall be protected in relying on, Residential Funding's determinations of the Uncertificated Class A-V REMIC Regular Interests corresponding to any Subclass, the Initial Notional Amount and the initial Pass-Through Rate on a Subclass as set forth in such Request for Exchange and the Trustee shall have no duty to determine if any Uncertificated Class A-V REMIC Regular Interest designated on a Request for Exchange corresponds to a Subclass which has previously been issued. Each Subclass so issued shall be substantially in the form set forth in Exhibit A and shall, on original issue, be executed and delivered by the Trustee to the Certificate Registrar for authentication and delivery in accordance with Section 5.01(a). Every Certificate presented or surrendered for exchange by the initial Holder shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer attached to such Certificate and shall be completed to the satisfaction of the Trustee and the Certificate Registrar duly executed by, the initial Holder thereof or his attorney duly authorized in writing. The Certificates of any Subclass of Class A-V Certificates may be transferred in whole, but not in part, in accordance with the provisions of Section 5.02. Section 5.02. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at one of the offices or agencies to be appointed by the Trustee in accordance with the provisions of Section 8.12 a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee is initially appointed Certificate Registrar for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided. The Certificate Registrar, or the Trustee, shall provide the Master Servicer with a certified list of Certificateholders as of each Record Date prior to the related Determination Date. (b) Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose pursuant to Section 8.12 and, in the case of any Class M, Class B, Class P or Class R Certificate, upon satisfaction of the conditions set forth below, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of a like Class (or Subclass) and aggregate Percentage Interest. (c) At the option of the Certificateholders, Certificates may be exchanged for other Certificates of authorized denominations of a like Class (or Subclass) and aggregate Percentage Interest, upon surrender of the Certificates to be exchanged at any such office or agency. Whenever any Certificates are so surrendered for exchange the Trustee shall execute and the Certificate Registrar shall authenticate and deliver the Certificates of such Class which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing. (d) No transfer, sale, pledge or other disposition of a Class B Certificate or Class P Certificate shall be made unless such transfer, sale, pledge or other disposition is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that a transfer of a Class B Certificate or Class P Certificate is to be made either (i)(A) the Trustee shall require a written Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer may be made pursuant to an exemption, describing the applicable exemption and the basis therefor, from said Act and laws or is being made pursuant to said Act and laws, which Opinion of Counsel shall not be an expense of the Trustee, the Company or the Master Servicer (except that, if such transfer is made by the Company or the Master Servicer or any Affiliate thereof, the Company or the Master Servicer shall provide such Opinion of Counsel at their own expense); provided that such Opinion of Counsel will not be required in connection with the initial transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company and (B) the Trustee shall require the transferee to execute a representation letter, substantially in the form of Exhibit H (with respect to any Class B Certificate) or Exhibit G-1 (with respect to any Class P Certificate) hereto, and the Trustee shall require the transferor to execute a representation letter, substantially in the form of Exhibit I hereto, each acceptable to and in form and substance satisfactory to the Company and the Trustee certifying to the Company and the Trustee the facts surrounding such transfer, which representation letters shall not be an expense of the Trustee, the Company or the Master Servicer; provided, however, that such representation letters will not be required in connection with any transfer of any such Certificate by the Company or any Affiliate thereof to the Company or an Affiliate of the Company, 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 Company, of the status of such transferee as an Affiliate of the Company or (ii) the prospective transferee of such a Certificate shall be required to provide the Trustee, the Company and the Master Servicer with an investment letter substantially in the form of Exhibit J attached hereto (or such other form as the Company in its sole discretion deems acceptable), which investment letter shall not be an expense of the Trustee, the Company or the Master Servicer, and which investment letter states that, among other things, such transferee (A) is a "qualified institutional buyer" as defined under Rule 144A, acting for its own account or the accounts of other "qualified institutional buyers" as defined under Rule 144A, and (B) is aware that the proposed transferor intends to rely on the exemption from registration requirements under the Securities Act of 1933, as amended, provided by Rule 144A. The Holder of any such Certificate desiring to effect any such transfer, sale, pledge or other disposition shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar against any liability that may result if the transfer, sale, pledge or other disposition is not so exempt or is not made in accordance with such federal and state laws. (e) (i) In the case of any Class B, Class P or Class R Certificate presented for registration in the name of any Person, either (A) the Trustee shall require an Opinion of Counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer to the effect that the purchase or holding of such Class B, Class P or Class R Certificate is permissible under applicable law, will not constitute or result in any non-exempt prohibited transaction under Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (or comparable provisions of any subsequent enactments), and will not subject the Trustee, the Company or the Master Servicer to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those undertaken in this Agreement, which Opinion of Counsel shall not be an expense of the Trustee, the Company or the Master Servicer or (B) the prospective Transferee shall be required to provide the Trustee, the Company and the Master Servicer with a certification to the effect set forth in paragraph six of Exhibit H (with respect to any Class B Certificate) or paragraph fifteen of Exhibit G-1 (with respect to any Class R Certificate or Class P Certificate), which the Trustee may rely upon without further inquiry or investigation, or such other certifications as the Trustee may deem desirable or necessary in order to establish that such Transferee or the Person in whose name such registration is requested either (a) is not an employee benefit plan or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code, or any Person (including an investment manager, a named fiduciary or a trustee of any such plan) who is using "plan assets" of any such plan to effect such acquisition (each, a "Plan Investor") or (b) in the case of any Class B Certificate, the following conditions are satisfied: (i) such Transferee is an insurance company, (ii) the source of funds used to purchase or hold such Certificate (or interest therein) is an "insurance company general account" (as defined in U.S. Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60, and (iii) the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (b), a "Complying Insurance Company"). (ii) Any Transferee of a Class M Certificate will be deemed to have represented by virtue of its purchase or holding of such Certificate (or interest therein) that either (a) such Transferee is not a Plan Investor, (b) it has acquired and is holding such Certificate in reliance on Prohibited Transaction Exemption ("PTE") 94-29, as most recently amended, PTE 2002-41, 67 Fed. Reg. 54487 (August 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Standard & Poor's, Fitch or Moody's or (c) such Transferee is a Complying Insurance Company. (iii) (A) If any Class M Certificate (or any interest therein) is acquired or held by any Person that does not satisfy the conditions described in paragraph (ii) above, then the last preceding Transferee that either (i) is not a Plan Investor, (ii) acquired such Certificate in compliance with the RFC Exemption, or (iii) is a Complying Insurance Company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate Owner thereof retroactive to the date of such Transfer of such Class M Certificate. The Trustee shall be under no liability to any Person for making any payments due on such Certificate to such preceding Transferee. (B) Any purported Certificate Owner whose acquisition or holding of any Class M Certificate (or interest therein) was effected in violation of the restrictions in this Section 5.02(e) shall indemnify and hold harmless the Company, the Trustee, the Master Servicer, any Subservicer, the Underwriters and the Trust Fund from and against any and all liabilities, claims, costs or expenses incurred by such parties as a result of such acquisition or holding. (f) (i) Each Person who has or who acquires any Ownership Interest in a Class R Certificate shall be deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the following provisions and to have irrevocably authorized the Trustee or its designee under clause (iii)(A) below to deliver payments to a Person other than such Person and to negotiate the terms of any mandatory sale under clause (iii)(B) below and to execute all instruments of transfer and to do all other things necessary in connection with any such sale. The rights of each Person acquiring any Ownership Interest in a Class R Certificate are expressly subject to the following provisions: (A) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall be a Permitted Transferee and shall promptly notify the Trustee of any change or impending change in its status as a Permitted Transferee. (B) In connection with any proposed Transfer of any Ownership Interest in a Class R Certificate, the Trustee shall require delivery to it, and shall not register the Transfer of any Class R Certificate until its receipt of, (I) an affidavit and agreement (a "Transfer Affidavit and Agreement," in the form attached hereto as Exhibit G-1) from the proposed Transferee, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that it is a Permitted Transferee, that it is not acquiring its Ownership Interest in the Class R Certificate that is the subject of the proposed Transfer as a nominee, trustee or agent for any Person who is not a Permitted Transferee, that for so long as it retains its Ownership Interest in a Class R Certificate, it will endeavor to remain a Permitted Transferee, and that it has reviewed the provisions of this Section 5.02(f) and agrees to be bound by them, and (II) a certificate, in the form attached hereto as Exhibit G-2, from the Holder wishing to transfer the Class R Certificate, in form and substance satisfactory to the Master Servicer, representing and warranting, among other things, that no purpose of the proposed Transfer is to impede the assessment or collection of tax. (C) Notwithstanding the delivery of a Transfer Affidavit and Agreement by a proposed Transferee under clause (B) above, if a Responsible Officer of the Trustee who is assigned to this Agreement has actual knowledge that the proposed Transferee is not a Permitted Transferee, no Transfer of an Ownership Interest in a Class R Certificate to such proposed Transferee shall be effected. (D) Each Person holding or acquiring any Ownership Interest in a Class R Certificate shall agree (x) to require a Transfer Affidavit and Agreement from any other Person to whom such Person attempts to transfer its Ownership Interest in a Class R Certificate and (y) not to transfer its Ownership Interest unless it provides a certificate to the Trustee in the form attached hereto as Exhibit G-2. (E) Each Person holding or acquiring an Ownership Interest in a Class R Certificate, by purchasing an Ownership Interest in such Certificate, agrees to give the Trustee written notice that it is a "pass-through interest holder" within the meaning of Temporary Treasury Regulations Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an Ownership Interest in a Class R Certificate, if it is, or is holding an Ownership Interest in a Class R Certificate on behalf of, a "pass-through interest holder." (ii) The Trustee shall register the Transfer of any Class R Certificate only if it shall have received the Transfer Affidavit and Agreement, a certificate of the Holder requesting such transfer in the form attached hereto as Exhibit G-2 and all of such other documents as shall have been reasonably required by the Trustee as a condition to such registration. Transfers of the Class R Certificates to Non-United States Persons and Disqualified Organizations (as defined in Section 860E(e)(5) of the Code) are prohibited. (iii) (A) If any Disqualified Organization shall become a holder of a Class R Certificate, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a Non-United States Person shall become a holder of a Class R Certificate, then the last preceding United States Person shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. If a transfer of a Class R Certificate is disregarded pursuant to the provisions of Treasury Regulations Section 1.860E-1 or Section 1.860G-3, then the last preceding Permitted Transferee shall be restored, to the extent permitted by law, to all rights and obligations as Holder thereof retroactive to the date of registration of such Transfer of such Class R Certificate. The Trustee shall be under no liability to any Person for any registration of Transfer of a Class R Certificate that is in fact not permitted by this Section 5.02(f) or for making any payments due on such Certificate to the holder thereof or for taking any other action with respect to such holder under the provisions of this Agreement. (B) If any purported Transferee shall become a Holder of a Class R Certificate in violation of the restrictions in this Section 5.02(f) and to the extent that the retroactive restoration of the rights of the Holder of such Class R Certificate as described in clause (iii)(A) above shall be invalid, illegal or unenforceable, then the Master Servicer shall have the right, without notice to the holder or any prior holder of such Class R Certificate, to sell such Class R Certificate to a purchaser selected by the Master Servicer on such terms as the Master Servicer may choose. Such purported Transferee shall promptly endorse and deliver each Class R Certificate in accordance with the instructions of the Master Servicer. Such purchaser may be the Master Servicer itself or any Affiliate of the Master Servicer. The proceeds of such sale, net of the commissions (which may include commissions payable to the Master Servicer or its Affiliates), expenses and taxes due, if any, shall be remitted by the Master Servicer to such purported Transferee. The terms and conditions of any sale under this clause (iii)(B) shall be determined in the sole discretion of the Master Servicer, and the Master Servicer shall not be liable to any Person having an Ownership Interest in a Class R Certificate as a result of its exercise of such discretion. (iv) The Master Servicer, on behalf of the Trustee, shall make available, upon written request from the Trustee, all information necessary to compute any tax imposed (A) as a result of the Transfer of an Ownership Interest in a Class R Certificate to any Person who is a Disqualified Organization, including the information regarding "excess inclusions" of such Class R Certificates required to be provided to the Internal Revenue Service and certain Persons as described in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E-2(a)(5), and (B) as a result of any regulated investment company, real estate investment trust, common trust fund, partnership, trust, estate or organization described in Section 1381 of the Code that holds an Ownership Interest in a Class R Certificate having as among its record holders at any time any Person who is a Disqualified Organization. Reasonable compensation for providing such information may be required by the Master Servicer from such Person. (v) The provisions of this Section 5.02(f) set forth prior to this clause (v) may be modified, added to or eliminated, provided that there shall have been delivered to the Trustee the following: (A) written notification from each Rating Agency to the effect that the modification, addition to or elimination of such provisions will not cause such Rating Agency to downgrade its then-current ratings, if any, of any Class of the Senior (in the case of the Insured Certificates (as defined in the Series Supplement), such determination shall be made without giving effect to the Certificate Policy (as defined in the Series Supplement)), Class M or Class B Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date by such Rating Agency; and (B) subject to Section 10.01(f), an Officers' Certificate of the Master Servicer stating that the Master Servicer has received an Opinion of Counsel, in form and substance satisfactory to the Master Servicer, to the effect that such modification, addition to or absence of such provisions will not cause any portion of any REMIC formed under the Series Supplement to cease to qualify as a REMIC and will not cause (x) any portion of any REMIC formed under the Series Supplement to be subject to an entity-level tax caused by the Transfer of any Class R Certificate to a Person that is a Disqualified Organization or (y) a Certificateholder or another Person to be subject to a REMIC-related tax caused by the Transfer of a Class R Certificate to a Person that is not a Permitted Transferee. (g) No service charge shall be made for any transfer or exchange of Certificates of any Class, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Certificates. (h) All Certificates surrendered for transfer and exchange shall be destroyed by the Certificate Registrar. Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Certificate Registrar, or the Trustee and the Certificate Registrar receive evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee and the Certificate Registrar such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee or the Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute and the Certificate Registrar shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class and Percentage Interest but bearing a number not contemporaneously outstanding. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. Section 5.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Company, the Master Servicer, the Trustee, any Certificate Insurer, the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee, any Certificate Insurer or the Certificate Registrar may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 4.02 and for all other purposes whatsoever, except as and to the extent provided in the definition of "Certificateholder," and neither the Company, the Master Servicer, the Trustee, any Certificate Insurer, the Certificate Registrar nor any agent of the Company, the Master Servicer, the Trustee, any Certificate Insurer or the Certificate Registrar shall be affected by notice to the contrary except as provided in Section 5.02(f). Section 5.05. Appointment of Paying Agent. The Trustee may appoint a Paying Agent for the purpose of making distributions to the Certificateholders pursuant to Section 4.02. In the event of any such appointment, on or prior to each Distribution Date the Master Servicer on behalf of the Trustee shall deposit or cause to be deposited with the Paying Agent a sum sufficient to make the payments to the Certificateholders in the amounts and in the manner provided for in Section 4.02, such sum to be held in trust for the benefit of the Certificateholders. The Trustee shall cause each Paying Agent to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent shall hold all sums held by it for the payment to the Certificateholders in trust for the benefit of the Certificateholders entitled thereto until such sums shall be distributed to such Certificateholders. Any sums so held by such Paying Agent shall be held only in Eligible Accounts to the extent such sums are not distributed to the Certificateholders on the date of receipt by such Paying Agent. Section 5.06. U.S.A. Patriot Act Compliance. In order for it to comply with its duties under the U.S.A. Patriot Act, the Trustee may obtain and verify certain information from the other parties hereto, including but not limited to such parties' name, address and other identifying information. -------------------------------------------------------------------------------- ARTICLE VI THE COMPANY AND THE MASTER SERVICER Section 6.01. Respective Liabilities of the Company and the Master Servicer. The Company and the Master Servicer shall each be liable in accordance herewith only to the extent of the obligations specifically and respectively imposed upon and undertaken by the Company and the Master Servicer herein. By way of illustration and not limitation, the Company is not liable for the servicing and administration of the Mortgage Loans, nor is it obligated by Section 7.01 or Section 10.01 to assume any obligations of the Master Servicer or to appoint a designee to assume such obligations, nor is it liable for any other obligation hereunder that it may, but is not obligated to, assume unless it elects to assume such obligation in accordance herewith. Section 6.02. Merger or Consolidation of the Company or the Master Servicer; Assignment of Rights and Delegation of Duties by Master Servicer. (a) The Company and the Master Servicer shall each keep in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation, and shall each obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, the Certificates or any of the Mortgage Loans and to perform its respective duties under this Agreement. (b) Any Person into which the Company or the Master Servicer may be merged or consolidated, or any corporation resulting from any merger or consolidation to which the Company or the Master Servicer shall be a party, or any Person succeeding to the business of the Company or the Master Servicer, shall be the successor of the Company or the Master Servicer, as the case may be, hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that the successor or surviving Person to the Master Servicer shall be qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that each Rating Agency's ratings, if any, of the Senior (in the case of the Insured Certificates (as defined in the Series Supplement), such determination shall be made without giving effect to the Certificate Policy (as defined in the Series Supplement)), Class M or Class B Certificates in effect immediately prior to such merger or consolidation will not be qualified, reduced or withdrawn as a result thereof (as evidenced by a letter to such effect from each Rating Agency). (c) Notwithstanding anything else in this Section 6.02 and Section 6.04 to the contrary, the Master Servicer may assign its rights and delegate its duties and obligations under this Agreement; provided that the Person accepting such assignment or delegation shall be a Person which is qualified to service mortgage loans on behalf of Fannie Mae or Freddie Mac, is reasonably satisfactory to the Trustee and the Company, is willing to service the Mortgage Loans and executes and delivers to the Company and the Trustee an agreement, in form and substance reasonably satisfactory to the Company and the Trustee, which contains an assumption by such Person of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Master Servicer under this Agreement; provided further that each Rating Agency's rating of the Classes of Certificates (in the case of the Insured Certificates (as defined in the Series Supplement), such determination shall be made without giving effect to the Certificate Policy (as defined in the Series Supplement)) that have been rated in effect immediately prior to such assignment and delegation will not be qualified, reduced or withdrawn as a result of such assignment and delegation (as evidenced by a letter to such effect from each Rating Agency). In the case of any such assignment and delegation, the Master Servicer shall be released from its obligations under this Agreement, except that the Master Servicer shall remain liable for all liabilities and obligations incurred by it as Master Servicer hereunder prior to the satisfaction of the conditions to such assignment and delegation set forth in the next preceding sentence. Notwithstanding the foregoing, in the event of a pledge or assignment by the Master Servicer solely of its rights to purchase all assets of the Trust Fund under Section 9.01(a) (or, if so specified in Section 9.01(a), its rights to purchase the Mortgage Loans and property acquired related to such Mortgage Loans or its rights to purchase the Certificates related thereto), the provisos of the first sentence of this paragraph will not apply. Section 6.03. Limitation on Liability of the Company, the Master Servicer and Others. Neither the Company, the Master Servicer nor any of the directors, officers, employees or agents of the Company or the Master Servicer shall be under any liability to the Trust Fund or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Company, the Master Servicer or any such Person against any breach of warranties or representations made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of reckless disregard of obligations and duties hereunder. The Company, the Master Servicer and any director, officer, employee or agent of the Company or the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Company, the Master Servicer and any director, officer, employee or agent of the Company or the Master Servicer shall be indemnified by the Trust Fund and held harmless against any loss, liability or expense incurred in connection with any legal action relating to this Agreement or the Certificates, other than any loss, liability or expense related to any specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of reckless disregard of obligations and duties hereunder. Neither the Company nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal or administrative action, proceeding, hearing or examination that is not incidental to its respective duties under this Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Company or the Master Servicer may in its discretion undertake any such action, proceeding, hearing or examination that it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. In such event, the legal expenses and costs of such action, proceeding, hearing or examination and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Company and the Master Servicer shall be entitled to be reimbursed therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 and, on the Distribution Date(s) following such reimbursement, the aggregate of such expenses and costs shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such expenses and costs constituted a Prepayment Interest Shortfall. Section 6.04. Company and Master Servicer Not to Resign. Subject to the provisions of Section 6.02, neither the Company nor the Master Servicer shall resign from its respective obligations and duties hereby imposed on it except upon determination that its duties hereunder are no longer permissible under applicable law. Any such determination permitting the resignation of the Company or the Master Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation by the Master Servicer shall become effective until the Trustee or a successor servicer shall have assumed the Master Servicer's responsibilities and obligations in accordance with Section 7.02. -------------------------------------------------------------------------------- ARTICLE VII DEFAULT Section 7.01. Events of Default. Event of Default, wherever used herein, means any one of the following events (whatever reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the Master Servicer shall fail to deposit or cause to be deposited into the Certificate Account any amounts required to be so deposited therein at the time required pursuant to Section 4.01 or otherwise or the Master Servicer shall fail to distribute or cause to be distributed to the Holders of Certificates of any Class any distribution required to be made under the terms of the Certificates of such Class and this Agreement and, in each case, such failure shall continue unremedied for a period of 5 days after the date upon which written notice of such failure, requiring such failure to be remedied, shall have been given to the Master Servicer by the Trustee or the Company or to the Master Servicer, the Company and the Trustee by the Holders of Certificates of such Class evidencing Percentage Interests aggregating not less than 25%; or (ii) the Master Servicer shall fail to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer contained in the Certificates of any Class or in this Agreement and such failure shall continue unremedied for a period of 30 days (except that such number of days shall be 15 in the case of a failure to pay the premium for any Required Insurance Policy) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Master Servicer by the Trustee or the Company, or to the Master Servicer, the Company and the Trustee by the Holders of Certificates of any Class evidencing, in the case of any such Class, Percentage Interests aggregating not less than 25%; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction in the premises in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or appointing a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or (iv) the Master Servicer shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, or similar proceedings of, or relating to, the Master Servicer or of, or relating to, all or substantially all of the property of the Master Servicer; or (v) the Master Servicer shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of, or commence a voluntary case under, any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) the Master Servicer shall notify the Trustee pursuant to Section 4.04(b) that it is unable to deposit in the Certificate Account an amount equal to the Advance. If an Event of Default described in clauses (i)-(v) of this Section shall occur, then, and in each and every such case, so long as such Event of Default shall not have been remedied, either the Company or the Trustee may, and at the direction of Holders of Certificates entitled to at least 51% of the Voting Rights, the Trustee shall, by notice in writing to the Master Servicer (and to the Company if given by the Trustee or to the Trustee if given by the Company), terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder. If an Event of Default described in clause (vi) hereof shall occur, the Trustee shall, by notice to the Master Servicer and the Company, immediately terminate all of the rights and obligations of the Master Servicer under this Agreement and in and to the Mortgage Loans and the proceeds thereof, other than its rights as a Certificateholder hereunder as provided in Section 4.04(b). On or after the receipt by the Master Servicer of such written notice, all authority and power of the Master Servicer under this Agreement, whether with respect to the Certificates (other than as a Holder thereof) or the Mortgage Loans or otherwise, shall subject to Section 7.02 pass to and be vested in the Trustee or the Trustee's designee appointed pursuant to Section 7.02; and, without limitation, the Trustee is hereby authorized and empowered to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise. The Master Servicer agrees to cooperate with the Trustee in effecting the termination of the Master Servicer's responsibilities and rights hereunder, including, without limitation, the transfer to the Trustee or its designee for administration by it of all cash amounts which shall at the time be credited to the Custodial Account or the Certificate Account or thereafter be received with respect to the Mortgage Loans. No such termination shall release the Master Servicer for any liability that it would otherwise have hereunder for any act or omission prior to the effective time of such termination. Notwithstanding any termination of the activities of Residential Funding in its capacity as Master Servicer hereunder, Residential Funding shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating Residential Funding's rights and obligations as Master Servicer hereunder and received after such notice, that portion to which Residential Funding would have been entitled pursuant to Sections 3.10(a)(ii), (vi) and (vii) as well as its Servicing Fee in respect thereof, and any other amounts payable to Residential Funding hereunder the entitlement to which arose prior to the termination of its activities hereunder. Upon the termination of Residential Funding as Master Servicer hereunder the Company shall deliver to the Trustee a copy of the Program Guide. Section 7.02. Trustee or Company to Act; Appointment of Successor. (a) On and after the time the Master Servicer receives a notice of termination pursuant to Section 7.01 or resigns in accordance with Section 6.04, the Trustee or, upon notice to the Company and with the Company's consent (which shall not be unreasonably withheld) a designee (which meets the standards set forth below) of the Trustee, shall be the successor in all respects to the Master Servicer in its capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Master Servicer (except for the responsibilities, duties and liabilities contained in Sections 2.02 and 2.03(a), excluding the duty to notify related Subservicers or Sellers as set forth in such Sections, and its obligations to deposit amounts in respect of losses incurred prior to such notice or termination on the investment of funds in the Custodial Account or the Certificate Account pursuant to Sections 3.07(c) and 4.01(b) by the terms and provisions hereof); provided, however, that any failure to perform such duties or responsibilities caused by the preceding Master Servicer's failure to provide information required by Section 4.04 shall not be considered a default by the Trustee hereunder. As compensation therefor, the Trustee shall be entitled to all funds relating to the Mortgage Loans which the Master Servicer would have been entitled to charge to the Custodial Account or the Certificate Account if the Master Servicer had continued to act hereunder and, in addition, shall be entitled to the income from any Permitted Investments made with amounts attributable to the Mortgage Loans held in the Custodial Account or the Certificate Account. If the Trustee has become the successor to the Master Servicer in accordance with Section 6.04 or Section 7.01, then notwithstanding the above, the Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so act, appoint, or petition a court of competent jurisdiction to appoint, any established housing and home finance institution, which is also a Fannie Mae- or Freddie Mac-approved mortgage servicing institution, having a net worth of not less than $10,000,000 as the successor to the Master Servicer hereunder in the assumption of all or any part of the responsibilities, duties or liabilities of the Master Servicer hereunder. Pending appointment of a successor to the Master Servicer hereunder, the Trustee shall become successor to the Master Servicer and shall act in such capacity as hereinabove provided. In connection with such appointment and assumption, the Trustee may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree; provided, however, that no such compensation shall be in excess of that permitted the initial Master Servicer hereunder. The Company, the Trustee, the Custodian and such successor shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Servicing Fee for any successor Master Servicer appointed pursuant to this Section 7.02 will be lowered with respect to those Mortgage Loans, if any, where the Subservicing Fee accrues at a rate of less than 0.20% per annum in the event that the successor Master Servicer is not servicing such Mortgage Loans directly and it is necessary to raise the related Subservicing Fee to a rate of 0.20% per annum in order to hire a Subservicer with respect to such Mortgage Loans. The Master Servicer shall pay the reasonable expenses of the Trustee in connection with any servicing transition hereunder. (b) In connection with the termination or resignation of the Master Servicer hereunder, either (i) the successor Master Servicer, including the Trustee if the Trustee is acting as successor Master Servicer, shall represent and warrant that it is a member of MERS in good standing and shall agree to comply in all material respects with the rules and procedures of MERS in connection with the servicing of the Mortgage Loans that are registered with MERS, in which case the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to revise its records to reflect the transfer of servicing to the successor Master Servicer as necessary under MERS' rules and regulations, or (ii) the predecessor Master Servicer shall cooperate with the successor Master Servicer in causing MERS to execute and deliver an assignment of Mortgage in recordable form to transfer the Mortgage from MERS to the Trustee and to execute and deliver such other notices, documents and other instruments as may be necessary or desirable to effect a transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS(R)System to the successor Master Servicer. The predecessor Master Servicer shall file or cause to be filed any such assignment in the appropriate recording office. The predecessor Master Servicer shall bear any and all fees of MERS, costs of preparing any assignments of Mortgage, and fees and costs of filing any assignments of Mortgage that may be required under this subsection (b). The successor Master Servicer shall cause such assignment to be delivered to the Trustee or the Custodian promptly upon receipt of the original with evidence of recording thereon or a copy certified by the public recording office in which such assignment was recorded. Section 7.03. Notification to Certificateholders. (a) Upon any such termination or appointment of a successor to the Master Servicer, the Trustee shall give prompt written notice thereof to the Certificateholders at their respective addresses appearing in the Certificate Register. (b) Within 60 days after the occurrence of any Event of Default, the Trustee shall transmit by mail to all Holders of Certificates notice of each such Event of Default hereunder known to the Trustee, unless such Event of Default shall have been cured or waived. Section 7.04. Waiver of Events of Default. The Holders representing at least 66% of the Voting Rights affected by a default or Event of Default hereunder may waive such default or Event of Default; provided, however, that (a) a default or Event of Default under clause (i) of Section 7.01 may be waived only by all of the Holders of Certificates affected by such default or Event of Default and (b) no waiver pursuant to this Section 7.04 shall affect the Holders of Certificates in the manner set forth in Section 11.01(b)(i) or (ii). Upon any such waiver of a default or Event of Default by the Holders representing the requisite percentage of Voting Rights affected by such default or Event of Default, such default or Event of Default shall cease to exist and shall be deemed to have been remedied for every purpose hereunder. No such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon except to the extent expressly so waived. -------------------------------------------------------------------------------- ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiver of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor's own affairs. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they conform to the requirements of this Agreement. The Trustee shall notify the Certificateholders of any such documents which do not materially conform to the requirements of this Agreement in the event that the Trustee, after so requesting, does not receive satisfactorily corrected documents. The Trustee shall forward or cause to be forwarded in a timely fashion the notices, reports and statements required to be forwarded by the Trustee pursuant to Sections 4.03, 4.06, 7.03 and 10.01. The Trustee shall furnish in a timely fashion to the Master Servicer such information as the Master Servicer may reasonably request from time to time for the Master Servicer to fulfill its duties as set forth in this Agreement. The Trustee covenants and agrees that it shall perform its obligations hereunder in a manner so as to maintain the status of any portion of any REMIC formed under the Series Supplement as a REMIC under the REMIC Provisions and (subject to Section 10.01(f)) to prevent the imposition of any federal, state or local income, prohibited transaction, contribution or other tax on the Trust Fund to the extent that maintaining such status and avoiding such taxes are reasonably within the control of the Trustee and are reasonably within the scope of its duties under this Agreement. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement, no implied covenants or obligations shall be read into this Agreement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee by the Company or the Master Servicer and which on their face, do not contradict the requirements of this Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of Certificateholders of any Class holding Certificates which evidence, as to such Class, Percentage Interests aggregating not less than 25% as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; (iv) The Trustee shall not be charged with knowledge of any default (other than a default in payment to the Trustee) specified in clauses (i) and (ii) of Section 7.01 or an Event of Default under clauses (iii), (iv) and (v) of Section 7.01 unless a Responsible Officer of the Trustee assigned to and working in the Corporate Trust Office obtains actual knowledge of such failure or event or the Trustee receives written notice of such failure or event at its Corporate Trust Office from the Master Servicer, the Company or any Certificateholder; and (v) Except to the extent provided in Section 7.02, no provision in this Agreement shall require the Trustee to expend or risk its own funds (including, without limitation, the making of any Advance) or otherwise incur any personal financial liability in the performance of any of its duties as Trustee hereunder, or in the exercise of any of its rights or powers, if the Trustee shall have reasonable grounds for believing that repayment of funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) The Trustee shall timely pay, from its own funds, the amount of any and all federal, state and local taxes imposed on the Trust Fund or its assets or transactions including, without limitation, (A) "prohibited transaction" penalty taxes as defined in Section 860F of the Code, if, when and as the same shall be due and payable, (B) any tax on contributions to a REMIC after the Closing Date imposed by Section 860G(d) of the Code and (C) any tax on "net income from foreclosure property" as defined in Section 860G(c) of the Code, but only if such taxes arise out of a breach by the Trustee of its obligations hereunder, which breach constitutes negligence or willful misconduct of the Trustee. Section 8.02. Certain Matters Affecting the Trustee. (a) Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured 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 investor would exercise or use under the circumstances in the conduct of such investor's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (v) Prior to the occurrence of an Event of Default hereunder and after the curing or waiver of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of Certificates of any Class evidencing, as to such Class, Percentage Interests, aggregating not less than 50%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Master Servicer, if an Event of Default shall have occurred and is continuing, and otherwise by the Certificateholder requesting the investigation; (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys; and (vii) To the extent authorized under the Code and the regulations promulgated thereunder, each Holder of a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to be its attorney-in-fact for purposes of signing any Tax Returns required to be filed on behalf of the Trust Fund. The Trustee shall sign on behalf of the Trust Fund and deliver to the Master Servicer in a timely manner any Tax Returns prepared by or on behalf of the Master Servicer that the Trustee is required to sign as determined by the Master Servicer pursuant to applicable federal, state or local tax laws, provided that the Master Servicer shall indemnify the Trustee for signing any such Tax Returns that contain errors or omissions. (b) Following the issuance of the Certificates, the Trustee shall not accept any contribution of assets to the Trust Fund unless (subject to Section 10.01(f)) it shall have obtained or been furnished with an Opinion of Counsel to the effect that such contribution will not (i) cause any portion of any REMIC formed under the Series Supplement to fail to qualify as a REMIC at any time that any Certificates are outstanding or (ii) cause the Trust Fund to be subject to any federal tax as a result of such contribution (including the imposition of any federal tax on "prohibited transactions" imposed under Section 860F(a) of the Code). Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans. The recitals contained herein and in the Certificates (other than the execution of the Certificates and relating to the acceptance and receipt of the Mortgage Loans) shall be taken as the statements of the Company or the Master Servicer as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by it as Certificate Registrar) or of any Mortgage Loan or related document, or of MERS or the MERS(R)System. Except as otherwise provided herein, the Trustee shall not be accountable for the use or application by the Company or the Master Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Company or the Master Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the Custodial Account or the Certificate Account by the Company or the Master Servicer. Section 8.04. Trustee May Own Certificates. The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05. Master Servicer to Pay Trustee's Fees and Expenses; Indemnification. (a) The Master Servicer covenants and agrees to pay to the Trustee and any co-trustee from time to time, and the Trustee and any co-trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by each of them in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee and any co-trustee, and the Master Servicer will pay or reimburse the Trustee and any co-trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any co-trustee in accordance with any of the provisions of this Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ, and the expenses incurred by the Trustee or any co-trustee in connection with the appointment of an office or agency pursuant to Section 8.12) except any such expense, disbursement or advance as may arise from its negligence or bad faith. (b) The Master Servicer agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense incurred without negligence or willful misconduct on the Trustee's part, arising out of, or in connection with, the acceptance and administration of the Trust Fund, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against any claim in connection with the exercise or performance of any of its powers or duties under this Agreement and the Custodial Agreement, and the Master Servicer further agrees to indemnify the Trustee for, and to hold the Trustee harmless against, any loss, liability or expense arising out of, or in connection with, the provisions set forth in the second paragraph of Section 2.01(c) hereof, including, without limitation, all costs, liabilities and expenses (including reasonable legal fees and expenses) of investigating and defending itself against any claim, action or proceeding, pending or threatened, relating to the provisions of this paragraph, provided that: (i) with respect to any such claim, the Trustee shall have given the Master Servicer written notice thereof promptly after the Trustee shall have actual knowledge thereof; (ii) while maintaining control over its own defense, the Trustee shall cooperate and consult fully with the Master Servicer in preparing such defense; and (iii) notwithstanding anything in this Agreement to the contrary, the Master Servicer shall not be liable for settlement of any claim by the Trustee entered into without the prior consent of the Master Servicer which consent shall not be unreasonably withheld. No termination of this Agreement shall affect the obligations created by this Section 8.05(b) of the Master Servicer to indemnify the Trustee under the conditions and to the extent set forth herein. Notwithstanding the foregoing, the indemnification provided by the Master Servicer in this Section 8.05(b) shall not be available (A) for any loss, liability or expense of the Trustee, including the costs and expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee at the direction of the Certificateholders pursuant to the terms of this Agreement or (B) where the Trustee is required to indemnify the Master Servicer pursuant to Section 12.05(a). Section 8.06. Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation or a national banking association having its principal office in a state and city acceptable to the Company and organized and doing business under the laws of such state or the United States of America, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by federal or state authority and the short-term rating of such institution shall be A-1 in the case of Standard & Poor's if Standard & Poor's is a Rating Agency. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07. Section 8.07. Resignation and Removal of the Trustee. (a) The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Company, 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 Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. In addition, in the event that the Company determines that the Trustee has failed (i) to distribute or cause to be distributed to the Certificateholders any amount required to be distributed hereunder, if such amount is held by the Trustee or its Paying Agent (other than the Master Servicer or the Company) for distribution or (ii) to otherwise observe or perform in any material respect any of its covenants, agreements or obligations hereunder, and such failure shall continue unremedied for a period of 5 days (in respect of clause (i) above) or 30 days (in respect of clause (ii) above other than any failure to comply with the provisions of Article XII, in which case no notice or grace period shall be applicable) after the date on which written notice of such failure, requiring that the same be remedied, shall have been given to the Trustee by the Company, then the Company may remove the Trustee and appoint a successor trustee by written instrument delivered as provided in the preceding sentence. In connection with the appointment of a successor trustee pursuant to the preceding sentence, the Company shall, on or before the date on which any such appointment becomes effective, obtain from each Rating Agency written confirmation that the appointment of any such successor trustee will not result in the reduction of the ratings on any class of the Certificates below the lesser of the then current or original ratings on such Certificates. (c) The Holders of Certificates entitled to at least 51% of the Voting Rights may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Company, one complete set to the Trustee so removed and one complete set to the successor so appointed. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.08. Section 8.08. Successor Trustee. (a) Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee all Mortgage Files and related documents and statements held by it hereunder (other than any Mortgage Files at the time held by a Custodian, which shall become the agent of any successor trustee hereunder), and the Company, the Master Servicer and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06. (c) Upon acceptance of appointment by a successor trustee as provided in this Section, the Company 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 Company 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 Company. Section 8.09. Merger or Consolidation of Trustee. Any corporation or national banking association into which the Trustee may be merged or converted or with which it may be consolidated or any corporation or national banking association resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation or national banking association succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation or national banking association shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall mail notice of any such merger or consolidation to the Certificateholders at their address as shown in the Certificate Register. Section 8.10. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Fund or property securing the same may at the time be located, the Master Servicer and the Trustee acting jointly shall have the power and shall execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the Trust Fund, and to vest in such Person or Persons, in such capacity, such title to the Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Master Servicer and the Trustee may consider necessary or desirable. If the Master Servicer shall not have joined in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Trustee alone shall have the power to make such appointment. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06 hereunder and no notice to Holders of Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be required under Section 8.08 hereof. (b) In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10 all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee, and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee. (d) Any separate trustee or co-trustee may, at any time, constitute the Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 8.11. Appointment of Custodians. The Trustee may, with the consent of the Master Servicer and the Company, or shall, at the direction of the Company and the Master Servicer, appoint one or more Custodians who are not Affiliates of the Company, the Master Servicer or any Seller to hold all or a portion of the Mortgage Files as agent for the Trustee, by entering into a Custodial Agreement. Subject to Article VIII, the Trustee agrees to comply with the terms of each Custodial Agreement and to enforce the terms and provisions thereof against the Custodian for the benefit of the Certificateholders. Each Custodian shall be a depository institution subject to supervision by federal or state authority, shall have a combined capital and surplus of at least $15,000,000 and shall be qualified to do business in the jurisdiction in which it holds any Mortgage File. Each Custodial Agreement may be amended only as provided in Section 11.01. The Trustee shall notify the Certificateholders of the appointment of any Custodian (other than the Custodian appointed as of the Closing Date) pursuant to this Section 8.11. Section 8.12. Appointment of Office or Agency. The Trustee will maintain an office or agency in the United States at the address designated in Section 11.05 of the Series Supplement where Certificates may be surrendered for registration of transfer or exchange. The Trustee will maintain an office at the address stated in Section 11.05 of the Series Supplement where notices and demands to or upon the Trustee in respect of this Agreement may be served. -------------------------------------------------------------------------------- ARTICLE IX TERMINATION OR OPTIONAL PURCHASE OF ALL CERTIFICATES Section 9.01. Optional Purchase by the Master Servicer of All Certificates; Termination Upon Purchase by the Master Servicer or Liquidation of All Mortgage Loans (a) Subject to Section 9.02, the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee created hereby in respect of the Certificates (other than the obligation of the Trustee to make certain payments after the Final Distribution Date to Certificateholders and the obligation of the Company to send certain notices as hereinafter set forth) shall terminate upon the last action required to be taken by the Trustee on the Final Distribution Date pursuant to this Article IX following the earlier of: (i) the later of the final payment or other liquidation (or any Advance with respect thereto) of the last Mortgage Loan remaining in the Trust Fund or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, or (ii) the purchase by the Master Servicer of all Mortgage Loans and all property acquired in respect of any Mortgage Loan remaining in the Trust Fund at a price equal to 100% of the unpaid principal balance of each Mortgage Loan or, if less than such unpaid principal balance, the fair market value of the related underlying property of such Mortgage Loan with respect to Mortgage Loans as to which title has been acquired if such fair market value is less than such unpaid principal balance (net of any unreimbursed Advances attributable to principal) on the day of repurchase plus accrued interest thereon at the Net Mortgage Rate (or Modified Net Mortgage Rate in the case of any Modified Mortgage Loan) to, but not including, the first day of the month in which such repurchase price is distributed, provided, however, that in no event shall the trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof and provided further that the purchase price set forth above shall be increased as is necessary, as determined by the Master Servicer, to avoid disqualification of any portion of any REMIC formed under the Series Supplement as a REMIC. The purchase price paid by the Master Servicer shall also include any amounts owed by Residential Funding pursuant to the last paragraph of Section 4 of the Assignment Agreement in respect of any liability, penalty or expense that resulted from a breach of the Compliance With Laws Representation, that remain unpaid on the date of such purchase. The right of the Master Servicer to purchase all the assets of the Trust Fund pursuant to clause (ii) above is conditioned upon the Pool Stated Principal Balance as of the Final Distribution Date, prior to giving effect to distributions to be made on such Distribution Date, being less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. If such right is exercised by the Master Servicer, the Master Servicer shall be deemed to have been reimbursed for the full amount of any unreimbursed Advances theretofore made by it with respect to the Mortgage Loans. In addition, the Master Servicer shall provide to the Trustee the certification required by Section 3.15 and the Trustee and any Custodian shall, promptly following payment of the purchase price, release to the Master Servicer the Mortgage Files pertaining to the Mortgage Loans being purchased. In addition to the foregoing, on any Distribution Date on which the Pool Stated Principal Balance, prior to giving effect to distributions to be made on such Distribution Date, is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans, the Master Servicer shall have the right, at its option, to purchase the Certificates in whole, but not in part, at a price equal to the outstanding Certificate Principal Balance of such Certificates plus the sum of Accrued Certificate Interest thereon for the related Interest Accrual Period and any previously unpaid Accrued Certificate Interest. If the Master Servicer exercises this right to purchase the outstanding Certificates, the Master Servicer will promptly terminate the respective obligations and responsibilities created hereby in respect of the Certificates pursuant to this Article IX. (b) The Master Servicer shall give the Trustee not less than 40 days' prior notice of the Distribution Date on which the Master Servicer anticipates that the final distribution will be made to Certificateholders (whether as a result of the exercise by the Master Servicer of its right to purchase the assets of the Trust Fund or otherwise) or on which the Master Servicer anticipates that the Certificates will be purchased (as a result of the exercise by the Master Servicer to purchase the outstanding Certificates). Notice of any termination specifying the anticipated Final Distribution Date (which shall be a date that would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates to the Trustee (if so required by the terms hereof) for payment of the final distribution and cancellation or notice of any purchase of the outstanding Certificates, specifying the Distribution Date upon which the Holders may surrender their Certificates to the Trustee for payment, shall be given promptly by the Master Servicer (if it is exercising its right to purchase the assets of the Trust Fund or to purchase the outstanding Certificates), or by the Trustee (in any other case) by letter. Such notice shall be prepared by the Master Servicer (if it is exercising its right to purchase the assets of the Trust Fund or to purchase the outstanding Certificates), or by the Trustee (in any other case) and mailed by the Trustee to the Certificateholders not earlier than the 15th day and not later than the 25th day of the month next preceding the month of such final distribution specifying: (iii) the anticipated Final Distribution Date upon which final payment of the Certificates is anticipated to be made upon presentation and surrender of Certificates at the office or agency of the Trustee therein designated where required pursuant to this Agreement or, in the case of the purchase by the Master Servicer of the outstanding Certificates, the Distribution Date on which such purchase is to be made, (iv) the amount of any such final payment, or in the case of the purchase of the outstanding Certificates, the purchase price, in either case, if known, and (v) that the Record Date otherwise applicable to such Distribution Date is not applicable, and in the case of the Senior Certificates, or in the case of all of the Certificates in connection with the exercise by the Master Servicer of its right to purchase the Certificates, that payment will be made only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein specified. If the Master Servicer is obligated to give notice to Certificateholders as aforesaid, it shall give such notice to the Certificate Registrar at the time such notice is given to Certificateholders and, if the Master Servicer is exercising its rights to purchase the outstanding Certificates, it shall give such notice to each Rating Agency at the time such notice is given to Certificateholders. As a result of the exercise by the Master Servicer of its right to purchase the assets of the Trust Fund, the Master Servicer shall deposit in the Certificate Account, before the Final Distribution Date in immediately available funds an amount equal to the purchase price for the assets of the Trust Fund, computed as provided above. As a result of the exercise by the Master Servicer of its right to purchase the outstanding Certificates, the Master Servicer shall deposit in an Eligible Account, established by the Master Servicer on behalf of the Trustee and separate from the Certificate Account in the name of the Trustee in trust for the registered holders of the Certificates, before the Distribution Date on which such purchase is to occur in immediately available funds an amount equal to the purchase price for the Certificates, computed as above provided, and provide notice of such deposit to the Trustee. The Trustee will withdraw from such account the amount specified in subsection (c) below. (b) In the case of the Senior Certificates, upon presentation and surrender of the Certificates by the Certificateholders thereof, and in the case of the Class M and Class B Certificates, upon presentation and surrender of the Certificates by the Certificateholders thereof in connection with the exercise by the Master Servicer of its right to purchase the Certificates, and otherwise in accordance with Section 4.01(a), the Trustee shall distribute to the Certificateholders (i) the amount otherwise distributable on such Distribution Date, if not in connection with the Master Servicer's election to repurchase the assets of the Trust Fund or the outstanding Certificates, or (ii) if the Master Servicer elected to so repurchase the assets of the Trust Fund or the outstanding Certificates, an amount determined as follows: (A) with respect to each Certificate the outstanding Certificate Principal Balance thereof, plus Accrued Certificate Interest for the related Interest Accrual Period thereon and any previously unpaid Accrued Certificate Interest, subject to the priority set forth in Section 4.02(a), and (B) with respect to the Class R Certificates, any excess of the amounts available for distribution (including the repurchase price specified in clause (ii) of subsection (a) of this Section) over the total amount distributed under the immediately preceding clause (A). Notwithstanding the reduction of the Certificate Principal Balance of any Class of Subordinate Certificates to zero, such Class will be outstanding hereunder until the termination of the respective obligations and responsibilities of the Company, the Master Servicer and the Trustee hereunder in accordance with Article IX. (c) If any Certificateholders shall not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date (if so required by the terms hereof), the Trustee shall on such date cause all funds in the Certificate Account not distributed in final distribution to Certificateholders to be withdrawn therefrom and credited to the remaining Certificateholders by depositing such funds in a separate escrow account for the benefit of such Certificateholders, and the Master Servicer (if it exercised its right to purchase the assets of the Trust Fund), or the Trustee (in any other case) shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the remaining Certificateholders concerning surrender of their Certificates. The costs and expenses of maintaining the escrow account and of contacting Certificateholders shall be paid out of the assets which remain in the escrow account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation, the Trustee shall pay to the Master Servicer all amounts distributable to the holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the escrow account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for final payment thereof in accordance with this Section 9.01. (d) If any Certificateholders do not surrender their Certificates on or before the Distribution Date on which a purchase of the outstanding Certificates is to be made, the Trustee shall on such date cause all funds in the Certificate Account deposited therein by the Master Servicer pursuant to Section 9.01(b) to be withdrawn therefrom and deposited in a separate escrow account for the benefit of such Certificateholders, and the Master Servicer shall give a second written notice to such Certificateholders to surrender their Certificates for payment of the purchase price therefor. If within six months after the second notice any Certificate shall not have been surrendered for cancellation, the Trustee shall take appropriate steps as directed by the Master Servicer to contact the Holders of such Certificates concerning surrender of their Certificates. The costs and expenses of maintaining the escrow account and of contacting Certificateholders shall be paid out of the assets which remain in the escrow account. If within nine months after the second notice any Certificates shall not have been surrendered for cancellation in accordance with this Section 9.01, the Trustee shall pay to the Master Servicer all amounts distributable to the Holders thereof and the Master Servicer shall thereafter hold such amounts until distributed to such Holders. No interest shall accrue or be payable to any Certificateholder on any amount held in the escrow account or by the Master Servicer as a result of such Certificateholder's failure to surrender its Certificate(s) for payment in accordance with this Section 9.01. Any Certificate that is not surrendered on the Distribution Date on which a purchase pursuant to this Section 9.01 occurs as provided above will be deemed to have been purchased and the Holder as of such date will have no rights with respect thereto except to receive the purchase price therefor minus any costs and expenses associated with such escrow account and notices allocated thereto. Any Certificates so purchased or deemed to have been purchased on such Distribution Date shall remain outstanding hereunder until the Master Servicer has terminated the respective obligations and responsibilities created hereby in respect of the Certificates pursuant to this Article IX. The Master Servicer shall be for all purposes the Holder thereof as of such date. Section 9.02. Additional Termination Requirements. (a) Each REMIC that comprises the Trust Fund shall be terminated in accordance with the following additional requirements, unless (subject to Section 10.01(f)) the Trustee and the Master Servicer have received an Opinion of Counsel (which Opinion of Counsel shall not be an expense of the Trustee) to the effect that the failure of each such REMIC to comply with the requirements of this Section 9.02 will not (i) result in the imposition on the Trust Fund of taxes on "prohibited transactions," as described in Section 860F of the Code, or (ii) cause any such REMIC to fail to qualify as a REMIC at any time that any Certificate is outstanding: (i) The Master Servicer shall establish a 90-day liquidation period for each such REMIC and specify the first day of such period in a statement attached to the Trust Fund's final Tax Return pursuant to Treasury regulations Section 1.860F-1. The Master Servicer also shall satisfy all of the requirements of a qualified liquidation for a REMIC under Section 860F of the Code and regulations thereunder; (ii) The Master Servicer shall notify the Trustee at the commencement of such 90-day liquidation period and, at or prior to the time of making of the final payment on the Certificates, the Trustee shall sell or otherwise dispose of all of the remaining assets of the Trust Fund in accordance with the terms hereof; and (iii) If the Master Servicer or the Company is exercising its right to purchase the assets of the Trust Fund, the Master Servicer shall, during the 90-day liquidation period and at or prior to the Final Distribution Date, purchase all of the assets of the Trust Fund for cash. (b) Each Holder of a Certificate and the Trustee hereby irrevocably approves and appoints the Master Servicer as its attorney-in-fact to adopt a plan of complete liquidation for each REMIC at the expense of the Trust Fund in accordance with the terms and conditions of this Agreement. Section 9.03. Termination of Multiple REMICs. If the REMIC Administrator makes two or more separate REMIC elections, the applicable REMIC shall be terminated on the earlier of the Final Distribution Date and the date on which it is deemed to receive the last deemed distributions on the related Uncertificated REMIC Regular Interests and the last distribution due on the Certificates is made. -------------------------------------------------------------------------------- ARTICLE X REMIC PROVISIONS Section 10.01. REMIC Administration. (a) The REMIC Administrator shall make an election to treat the Trust Fund as one or more REMICs under the Code and, if necessary, under applicable state law. The assets of each such REMIC will be set forth in the Series Supplement. Such election will be made on Form 1066 or other appropriate federal tax or information return (including Form 8811) or any appropriate state return for the taxable year ending on the last day of the calendar year in which the Certificates are issued. For the purposes of each REMIC election in respect of the Trust Fund, Certificates and interests to be designated as the "regular interests" and the sole class of "residual interests" in the REMIC will be set forth in Section 10.03 of the Series Supplement. The REMIC Administrator and the Trustee shall not permit the creation of any "interests" (within the meaning of Section 860G of the Code) in any REMIC elected in respect of the Trust Fund other than the "regular interests" and "residual interests" so designated. (b) The Closing Date is hereby designated as the "startup day" of the Trust Fund within the meaning of Section 860G(a)(9) of the Code. (c) The REMIC Administrator shall hold a Class R Certificate representing a 0.01% Percentage Interest each Class of the Class R Certificates and shall be designated as "the tax matters person" with respect to each REMIC in the manner provided under Treasury regulations section 1.860F-4(d) and Treasury regulations section 301.6231(a)(7)-1. The REMIC Administrator, as tax matters person, shall (i) act on behalf of each REMIC in relation to any tax matter or controversy involving the Trust Fund and (ii) represent the Trust Fund in any administrative or judicial proceeding relating to an examination or audit by any governmental taxing authority with respect thereto. The legal expenses, including without limitation attorneys' or accountants' fees, and costs of any such proceeding and any liability resulting therefrom shall be expenses of the Trust Fund and the REMIC Administrator shall be entitled to reimbursement therefor out of amounts attributable to the Mortgage Loans on deposit in the Custodial Account as provided by Section 3.10 unless such legal expenses and costs are incurred by reason of the REMIC Administrator's willful misfeasance, bad faith or gross negligence. If the REMIC Administrator is no longer the Master Servicer hereunder, at its option the REMIC Administrator may continue its duties as REMIC Administrator and shall be paid reasonable compensation not to exceed $3,000 per year by any successor Master Servicer hereunder for so acting as the REMIC Administrator. (d) The REMIC Administrator shall prepare or cause to be prepared all of the Tax Returns that it determines are required with respect to each REMIC created hereunder and deliver such Tax Returns in a timely manner to the Trustee and the Trustee shall sign and file such Tax Returns in a timely manner. The expenses of preparing such returns shall be borne by the REMIC Administrator without any right of reimbursement therefor. The REMIC Administrator agrees to indemnify and hold harmless the Trustee with respect to any tax or liability arising from the Trustee's signing of Tax Returns that contain errors or omissions. The Trustee and Master Servicer shall promptly provide the REMIC Administrator with such information as the REMIC Administrator may from time to time request for the purpose of enabling the REMIC Administrator to prepare Tax Returns. (e) The REMIC Administrator shall provide (i) to any Transferor of a Class R Certificate such information as is necessary for the application of any tax relating to the transfer of a Class R Certificate to any Person who is not a Permitted Transferee, (ii) to the Trustee, and the Trustee shall forward to the Certificateholders, such information or reports as are required by the Code or the REMIC Provisions including reports relating to interest, original issue discount and market discount or premium (using the Prepayment Assumption) and (iii) to the Internal Revenue Service the name, title, address and telephone number of the person who will serve as the representative of each REMIC. (f) The Master Servicer and the REMIC Administrator shall take such actions and shall cause each REMIC created hereunder to take such actions as are reasonably within the Master Servicer's or the REMIC Administrator's control and the scope of its duties more specifically set forth herein as shall be necessary or desirable to maintain the status of each REMIC as a REMIC under the REMIC Provisions (and the Trustee shall assist the Master Servicer and the REMIC Administrator, to the extent reasonably requested by the Master Servicer and the REMIC Administrator to do so). The Master Servicer and the REMIC Administrator shall not knowingly or intentionally take any action, cause the Trust Fund to take any action or fail to take (or fail to cause to be taken) any action reasonably within their respective control that, under the REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of any portion of any REMIC formed under the Series Supplement as a REMIC or (ii) result in the imposition of a tax upon any such REMIC (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, in the absence of an Opinion of Counsel or the indemnification referred to in this sentence, an "Adverse REMIC Event") unless the Master Servicer or the REMIC Administrator, as applicable, has received an Opinion of Counsel (at the expense of the party seeking to take such action or, if such party fails to pay such expense, and the Master Servicer or the REMIC Administrator, as applicable, determines that taking such action is in the best interest of the Trust Fund and the Certificateholders, at the expense of the Trust Fund, but in no event at the expense of the Master Servicer, the REMIC Administrator or the Trustee) to the effect that the contemplated action will not, with respect to each REMIC created hereunder, endanger such status or, unless the Master Servicer, the REMIC Administrator or both, as applicable, determine in its or their sole discretion to indemnify the Trust Fund against the imposition of such a tax, result in the imposition of such a tax. Wherever in this Agreement a contemplated action may not be taken because the timing of such action might result in the imposition of a tax on the Trust Fund, or may only be taken pursuant to an Opinion of Counsel that such action would not impose a tax on the Trust Fund, such action may nonetheless be taken provided that the indemnity given in the preceding sentence with respect to any taxes that might be imposed on the Trust Fund has been given and that all other preconditions to the taking of such action have been satisfied. The Trustee shall not take or fail to take any action (whether or not authorized hereunder) as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that it has received an Opinion of Counsel to the effect that an Adverse REMIC Event could occur with respect to such action. In addition, prior to taking any action with respect to any REMIC created hereunder or any related assets thereof, or causing any such REMIC to take any action, which is not expressly permitted under the terms of this Agreement, the Trustee will consult with the Master Servicer or the REMIC Administrator, as applicable, or its designee, in writing, with respect to whether such action could cause an Adverse REMIC Event to occur with respect to any such REMIC, and the Trustee shall not take any such action or cause any such REMIC to take any such action as to which the Master Servicer or the REMIC Administrator, as applicable, has advised it in writing that an Adverse REMIC Event could occur. The Master Servicer or the REMIC Administrator, as applicable, may consult with counsel to make such written advice, and the cost of same shall be borne by the party seeking to take the action not expressly permitted by this Agreement, but in no event at the expense of the Master Servicer or the REMIC Administrator. At all times as may be required by the Code, the Master Servicer will to the extent within its control and the scope of its duties more specifically set forth herein, maintain substantially all of the assets of each REMIC created hereunder as "qualified mortgages" as defined in Section 860G(a)(3) of the Code and "permitted investments" as defined in Section 860G(a)(5) of the Code. (g) In the event that any tax is imposed on "prohibited transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on "net income from foreclosure property" of any 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 Master Servicer, if such tax arises out of or results from a breach by the Master Servicer of any of its obligations under this Agreement or the Master Servicer has in its sole discretion determined to indemnify the Trust Fund against such tax, (ii) to the Trustee, if such tax arises out of or results from a breach by the Trustee of any of its obligations under this Article X, or (iii) otherwise against amounts on deposit in the Custodial Account as provided by Section 3.10 and on the Distribution Date(s) following such reimbursement the aggregate of such taxes shall be allocated in reduction of the Accrued Certificate Interest on each Class entitled thereto in the same manner as if such taxes constituted a Prepayment Interest Shortfall. (h) The Trustee and the Master Servicer shall, for federal income tax purposes, maintain books and records with respect to each REMIC created hereunder on a calendar year and on an accrual basis or as otherwise may be required by the REMIC Provisions. (i) Following the Startup Day, neither the Master Servicer nor the Trustee shall accept any contributions of assets to any REMIC created hereunder unless (subject to Section 10.01(f)) the Master Servicer and the Trustee shall have received an Opinion of Counsel (at the expense of the party seeking to make such contribution) to the effect that the inclusion of such assets in such REMIC will not cause the REMIC to fail to qualify as a REMIC at any time that any Certificates are outstanding or subject the REMIC to any tax under the REMIC Provisions or other applicable provisions of federal, state and local law or ordinances. (j) Neither the Master Servicer nor the Trustee shall (subject to Section 10.01(f)) enter into any arrangement by which any REMIC created hereunder will receive a fee or other compensation for services nor permit any such 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. (k) Solely for the purposes of Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest possible maturity date" by which the Certificate Principal Balance of each Class of Certificates (other than the Interest Only Certificates) representing a regular interest in the applicable REMIC and the Uncertificated Principal Balance of each Uncertificated REMIC Regular Interest (other than each Uncertificated REMIC Regular Interest represented by a Class A-V Certificate, if any) and the rights to the Interest Only Certificates and Uncertificated REMIC Regular Interest represented by a Class A-V Certificate would be reduced to zero is the Maturity Date for each such Certificate and Interest. (l) Within 30 days after the Closing Date, the REMIC Administrator shall prepare and file with the Internal Revenue Service Form 8811, "Information Return for Real Estate Mortgage Investment Conduits (REMIC) and Issuers of Collateralized Debt Obligations" for each REMIC created hereunder. (m) Neither the Trustee nor the Master Servicer shall sell, dispose of or substitute for any of the Mortgage Loans (except in connection with (i) the default, imminent default or foreclosure of a Mortgage Loan, including but not limited to, the acquisition or sale of a Mortgaged Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of any REMIC created hereunder, (iii) the termination of any such REMIC pursuant to Article IX of this Agreement or (iv) a purchase of Mortgage Loans pursuant to Article II or III of this Agreement) nor acquire any assets for any such REMIC, nor sell or dispose of any investments in the Custodial Account or the Certificate Account for gain nor accept any contributions to any such REMIC after the Closing Date unless it has received an Opinion of Counsel that such sale, disposition, substitution or acquisition will not (a) affect adversely the status of such REMIC as a REMIC or (b) unless the Master Servicer has determined in its sole discretion to indemnify the Trust Fund against such tax, cause such REMIC to be subject to a tax on "prohibited transactions" or "contributions" pursuant to the REMIC Provisions. Section 10.02. Master Servicer, REMIC Administrator and Trustee Indemnification. (a) The Trustee agrees to indemnify the Trust Fund, the Company, the REMIC Administrator and the Master Servicer for any taxes and costs including, without limitation, any reasonable attorneys fees imposed on or incurred by the Trust Fund, the Company or the Master Servicer, as a result of a breach of the Trustee's covenants set forth in Article VIII or this Article X. (b) The REMIC Administrator agrees to indemnify the Trust Fund, the Company, the Master Servicer and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Company, the Master Servicer or the Trustee, as a result of a breach of the REMIC Administrator's covenants set forth in this Article X with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the REMIC Administrator that contain errors or omissions; provided, however, that such liability will not be imposed to the extent such breach is a result of an error or omission in information provided to the REMIC Administrator by the Master Servicer in which case Section 10.02(c) will apply. (c) The Master Servicer agrees to indemnify the Trust Fund, the Company, the REMIC Administrator and the Trustee for any taxes and costs (including, without limitation, any reasonable attorneys' fees) imposed on or incurred by the Trust Fund, the Company, the REMIC Administrator or the Trustee, as a result of a breach of the Master Servicer's covenants set forth in this Article X or in Article III with respect to compliance with the REMIC Provisions, including without limitation, any penalties arising from the Trustee's execution of Tax Returns prepared by the Master Servicer that contain errors or omissions. Section 10.03. Designation of REMIC(s). As provided in Section 10.03 of the Series Supplement. Section 10.04. Distributions on the Uncertificated REMIC I and REMIC II Regular Interests. As provided in Section 10.04 of the Series Supplement. Section 10.05. Compliance with Withholding Requirements. As provided in Section 10.05 of the Series Supplement. -------------------------------------------------------------------------------- ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Amendment. (a) This Agreement or any Custodial Agreement may be amended from time to time by the Company, the Master Servicer and the Trustee, without the consent of any of the Certificateholders: (i) to cure any ambiguity, (ii) to correct or supplement any provisions herein or therein, which may be inconsistent with any other provisions herein or therein or to correct any error, (iii) to modify, eliminate or add to any of its provisions to such extent as shall be necessary or desirable to maintain the qualification of the Trust Fund as a REMIC at all times that any Certificate is outstanding or to avoid or minimize the risk of the imposition of any tax on the Trust Fund pursuant to the Code that would be a claim against the Trust Fund, provided that the Trustee has received an Opinion of Counsel to the effect that (A) such action is necessary or desirable to maintain such qualification or to avoid or minimize the risk of the imposition of any such tax and (B) such action will not adversely affect in any material respect the interests of any Certificateholder, (iv) to change the timing and/or nature of deposits into the Custodial Account or the Certificate Account or to change the name in which the Custodial Account is maintained, provided that (A) the Certificate Account Deposit Date shall in no event be later than the related Distribution Date, (B) such change shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder and (C) such change shall not result in a reduction of the rating assigned to any Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date (in the case of the Insured Certificates (as defined in the Series Supplement), such determination shall be made without giving effect to the Certificate Policy (as defined in the Series Supplement)), as evidenced by a letter from each Rating Agency to such effect, (v) to modify, eliminate or add to the provisions of Section 5.02(f) or any other provision hereof restricting transfer of the Class R Certificates, by virtue of their being the "residual interests" in a REMIC, provided that (A) such change shall not result in reduction of the rating assigned to any such Class of Certificates below the lower of the then-current rating or the rating assigned to such Certificates as of the Closing Date (in the case of the Insured Certificates (as defined in the Series Supplement), such determination shall be made without giving effect to the Certificate Policy (as defined in the Series Supplement)), as evidenced by a letter from each Rating Agency to such effect, and (B) such change shall not (subject to Section 10.01(f)), as evidenced by an Opinion of Counsel (at the expense of the party seeking so to modify, eliminate or add such provisions), cause any REMIC created hereunder or any of the Certificateholders (other than the transferor) to be subject to a federal tax caused by a transfer to a Person that is not a Permitted Transferee, (vi) to make any other provisions with respect to matters or questions arising under this Agreement or such Custodial Agreement which shall not be materially inconsistent with the provisions of this Agreement, provided that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any Certificateholder or (vii) to amend any provision herein or therein that is not material to any of the Certificateholders. (b) This Agreement or any Custodial Agreement may also be amended from time to time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates with a Certificate Principal Balance greater than zero affected thereby for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or such Custodial Agreement or of modifying in any manner the rights of the Holders of Certificates of such Class; provided, however, that no such amendment shall: (i) reduce in any manner the amount of, or delay the timing of, payments which are required to be distributed on any Certificate without the consent of the Holder of such Certificate, (ii) reduce the aforesaid percentage of Certificates of any Class the Holders of which are required to consent to any such amendment, in any such case without the consent of the Holders of all Certificates of such Class then outstanding. (c) Notwithstanding any contrary provision of this Agreement, the Trustee shall not consent to any amendment to this Agreement unless it shall have first received an Opinion of Counsel (subject to Section 10.01(f) and at the expense of the party seeking such amendment) to the effect that such amendment or the exercise of any power granted to the Master Servicer, the Company or the Trustee in accordance with such amendment is permitted hereunder and will not result in the imposition of a federal tax on the Trust Fund or cause any REMIC created under the Series Supplement to fail to qualify as a REMIC at any time that any Certificate is outstanding. (d) Promptly after the execution of any such amendment the Trustee shall furnish written notification of the substance of such amendment to the Custodian and each Certificateholder. It shall not be necessary for the consent of Certificateholders under this Section 11.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee may prescribe. (e) The Company shall have the option, in its sole discretion, to obtain and deliver to the Trustee any corporate guaranty, payment obligation, irrevocable letter of credit, surety bond, insurance policy or similar instrument or a reserve fund, or any combination of the foregoing, for the purpose of protecting the Holders of the Class B Certificates against any or all Realized Losses or other shortfalls. Any such instrument or fund shall be held by the Trustee for the benefit of the Class B Certificateholders, but shall not be and shall not be deemed to be under any circumstances included in the Trust Fund. To the extent that any such instrument or fund constitutes a reserve fund for federal income tax purposes, (i) any reserve fund so established shall be an outside reserve fund and not an asset of the Trust Fund, (ii) any such reserve fund shall be owned by the Company, and (iii) amounts transferred by the Trust Fund to any such reserve fund shall be treated as amounts distributed by the Trust Fund to the Company or any successor, all within the meaning of Treasury Regulations Section 1.860G-2(h) as it reads as of the Cut-off Date. In connection with the provision of any such instrument or fund, this Agreement and any provision hereof may be modified, added to, deleted or otherwise amended in any manner that is related or incidental to such instrument or fund or the establishment or administration thereof, such amendment to be made by written instrument executed or consented to by the Company but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of the Senior Certificateholders, the Class M Certificateholders, the Master Servicer or the Trustee, as applicable; provided that the Company obtains (subject to Section 10.01(f)) an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment will not cause (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code and (b) any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is outstanding. In the event that the Company elects to provide such coverage in the form of a limited guaranty provided by General Motors Acceptance Corporation, the Company may elect that the text of such amendment to this Agreement shall be substantially in the form attached hereto as Exhibit K (in which case Residential Funding's Subordinate Certificate Loss Obligation as described in such exhibit shall be established by Residential Funding's consent to such amendment) and that the limited guaranty shall be executed in the form attached hereto as Exhibit L, with such changes as the Company shall deem to be appropriate; it being understood that the Trustee has reviewed and approved the content of such forms and that the Trustee's consent or approval to the use thereof is not required. Section 11.02. Recordation of Agreement; Counterparts. (a) To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Master Servicer and at its expense on direction by the Trustee (pursuant to the request of Holders of Certificates entitled to at least 25% of the Voting Rights), but only upon direction accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders. (b) For the purpose of facilitating the recordation of this Agreement as herein provided and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. Section 11.03. Limitation on Rights of Certificateholders. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Fund, nor otherwise affect the rights, obligations and liabilities of any of the parties hereto. (b) No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Trust Fund, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given to the Trustee a written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates of any Class evidencing in the aggregate not less than 25% of the related Percentage Interests of such Class, shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates of any Class shall have any right in any manner whatever by virtue of any provision of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates of such Class or any other Class, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the common benefit of Certificateholders of such Class or all Classes, as the case may be. For the protection and enforcement of the provisions of this Section 11.03, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.04. Governing Law. This agreement and the Certificates shall be governed by and construed in accordance with the laws of the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 11.05. Notices. As provided in Section 11.05 of the Series Supplement. Section 11.06. Required Notices to Rating Agency and Subservicer. The Company, the Master Servicer or the Trustee, as applicable, (i) shall notify each Rating Agency at such time as it is otherwise required pursuant to this Agreement to give notice of the occurrence of, any of the events described in clause (a), (b), (c), (d), (g), (h), (i) or (j) below, (ii) shall notify the Subservicer at such time as it is otherwise required pursuant to this Agreement to give notice of the occurrence of, any of the events described in clause (a), (b), (c)(1), (g)(1), or (i) below, or (iii) provide a copy to each Rating Agency at such time as otherwise required to be delivered pursuant to this Agreement of any of the statements described in clauses (e) and (f) below: (a) a material change or amendment to this Agreement, (b) the occurrence of an Event of Default, (c) (1) the termination or appointment of a successor Master Servicer or (2) the termination or appointment of a successor Trustee or a change in the majority ownership of the Trustee, (d) the filing of any claim under the Master Servicer's blanket fidelity bond and the errors and omissions insurance policy required by Section 3.12 or the cancellation or modification of coverage under any such instrument, (e) the statement required to be delivered to the Holders of each Class of Certificates pursuant to Section 4.03, (f) the statements required to be delivered pursuant to Sections 3.18 and 3.19, (g) (1) a change in the location of the Custodial Account or (2) a change in the location of the Certificate Account, (h) the occurrence of any monthly cash flow shortfall to the Holders of any Class of Certificates resulting from the failure by the Master Servicer to make an Advance pursuant to Section 4.04, (i) the occurrence of the Final Distribution Date, and (j) the repurchase of or substitution for any Mortgage Loan, provided, however, that with respect to notice of the occurrence of the events described in clauses (d), (g) or (h) above, the Master Servicer shall provide prompt written notice to each Rating Agency and the Subservicer, if applicable, of any such event known to the Master Servicer. Section 11.07. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the Certificates or the rights of the Holders thereof. Section 11.08. Supplemental Provisions for Resecuritization. This Agreement may be supplemented by means of the addition of a separate Article hereto (a "Supplemental Article") for the purpose of resecuritizing any of the Certificates issued hereunder, under the following circumstances. With respect to any Class or Classes of Certificates issued hereunder, or any portion of any such Class, as to which the Company or any of its Affiliates (or any designee thereof) is the registered Holder (the "Resecuritized Certificates"), the Company may deposit such Resecuritized Certificates into a new REMIC, grantor trust or custodial arrangement (a "Restructuring Vehicle") to be held by the Trustee pursuant to a Supplemental Article. The instrument adopting such Supplemental Article shall be executed by the Company, the Master Servicer and the Trustee; provided, that neither the Master Servicer nor the Trustee shall withhold their consent thereto if their respective interests would not be materially adversely affected thereby. To the extent that the terms of the Supplemental Article do not in any way affect any provisions of this Agreement as to any of the Certificates initially issued hereunder, the adoption of the Supplemental Article shall not constitute an "amendment" of this Agreement. Each Supplemental Article shall set forth all necessary provisions relating to the holding of the Resecuritized Certificates by the Trustee, the establishment of the Restructuring Vehicle, the issuing of various classes of new certificates by the Restructuring Vehicle and the distributions to be made thereon, and any other provisions necessary for the purposes thereof. In connection with each Supplemental Article, the Company shall deliver to the Trustee an Opinion of Counsel to the effect that (i) the Restructuring Vehicle will qualify as a REMIC, grantor trust or other entity not subject to taxation for federal income tax purposes and (ii) the adoption of the Supplemental Article will not endanger the status of the Trust Fund as a REMIC or (subject to Section 10.01(f)) 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 as set forth in Section 860G(d) of the Code). Section 11.09. Allocation of Voting Rights. As provided in Section 11.09 of the Series Supplement. Section 11.10. No Petition. As provided in Section 11.10 of the Series Supplement. -------------------------------------------------------------------------------- ARTICLE XII COMPLIANCE WITH REGULATION AB Section 12.01. Intent of the Parties; Reasonableness. The Company, the Trustee and the Master Servicer acknowledge and agree that the purpose of this Article XII is to facilitate compliance by the Company with the provisions of Regulation AB and related rules and regulations of the Commission. The Company shall not exercise its right to request delivery of information or other performance under these provisions other than in good faith, or for purposes other than compliance with the Securities Act, the Exchange Act and the rules and regulations of the Commission under the Securities Act and the Exchange Act. Each of the Master Servicer and the Trustee acknowledges that interpretations of the requirements of Regulation AB may change over time, whether due to interpretive guidance provided by the Commission or its staff, consensus among participants in the mortgage-backed securities markets, advice of counsel, or otherwise, and agrees to comply with reasonable requests made by the Company in good faith for delivery of information under these provisions on the basis of evolving interpretations of Regulation AB. Each of the Master Servicer and the Trustee shall cooperate reasonably with the Company to deliver to the Company (including any of its assignees or designees), any and all disclosure, statements, reports, certifications, records and any other information necessary in the reasonable, good faith determination of the Company to permit the Company to comply with the provisions of Regulation AB. Section 12.02. Additional Representations and Warranties of the Trustee. (a)....The Trustee shall be deemed to represent and warrant to the Company as of the date hereof and on each date on which information is provided to the Company under Sections 12.01, 12.02(b) or 12.03 that, except as disclosed in writing to the Company prior to such date: (i) it is not aware and has not received notice that any default, early amortization or other performance triggering event has occurred as to any other Securitization Transaction due to any default of the Trustee; (ii) there are no aspects of its financial condition that could have a material adverse effect on the performance by it of its trustee obligations under this Agreement or any other Securitization Transaction as to which it is the trustee; (iii) there are no material legal or governmental proceedings pending (or known to be contemplated) against it that would be material to Certificateholders; (iv) there are no relationships or transactions (as described in Item 1119(b) of Regulation AB) relating to the Trustee with respect to the Company or any sponsor, issuing entity, servicer, trustee, originator, significant obligor, enhancement or support provider or other material transaction party (as each of such terms are used in Regulation AB) relating to the Securitization Transaction contemplated by the Agreement, as identified by the Company to the Trustee in writing as of the Closing Date (each, a "Transaction Party") that are outside the ordinary course of business or on terms other than would be obtained in an arm's length transaction with an unrelated third party, apart from the Securitization Transaction, and that are material to the investors' understanding of the Certificates; and (v) the Trustee is not an affiliate (as contemplated by Item 1119(a) of Regulation AB) of any Transaction Party. The Company shall notify the Trustee of any change in the identity of a Transaction Party after the Closing Date. (b)....If so requested by the Company on any date following the Closing Date, the Trustee shall, within five Business Days following such request, confirm in writing the accuracy of the representations and warranties set forth in paragraph (a) of this Section or, if any such representation and warranty is not accurate as of the date of such confirmation, provide the pertinent facts, in writing, to the Company. Any such request from the Company shall not be given more than once each calendar quarter, unless the Company shall have a reasonable basis for questioning the accuracy of any of the representations and warranties. Section 12.03. Information to Be Provided by the Trustee. For so long as the Certificates are outstanding, for the purpose of satisfying the Company's reporting obligation under the Exchange Act with respect to any class of Certificates, the Trustee shall provide to the Company a written description of (a) any litigation or governmental proceedings pending against the Trustee as of the last day of each calendar month that would be material to Certificateholders, and (b) any affiliations or relationships (as described in Item 1119 of Regulation AB) that develop following the Closing Date between the Trustee and any Transaction Party of the type described in Section 12.02(a)(iv) or 12.02(a)(v) as of the last day of each calendar year. Any descriptions required with respect to legal proceedings, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than five Business Days prior to the Determination Date following the month in which the relevant event occurs, and any notices and descriptions required with respect to affiliations, as well as updates to previously provided descriptions, under this Section 12.03 shall be given no later than January 31 of the calendar year following the year in which the relevant event occurs. As of the related Distribution Date with respect to each Report on Form 10-D with respect to the Certificates filed by or on behalf of the Company, and as of March 15 preceding the date each Report on Form 10-K with respect to the Certificates is filed, the Trustee shall be deemed to represent and warrant that any information previously provided by the Trustee under this Article XII is materially correct and does not have any material omissions unless the Trustee has provided an update to such information. The Company will allow the Trustee to review any disclosure relating to material litigation against the Trustee prior to filing such disclosure with the Commission to the extent the Company changes the information provided by the Trustee. Section 12.04. Report on Assessment of Compliance and Attestation. On or before March 15 of each calendar year, the Trustee shall: (a) deliver to the Company a report (in form and substance reasonably satisfactory to the Company) 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 signed by an authorized officer of the Trustee, and shall address each of the Servicing Criteria specified on Exhibit R hereto; and (b) deliver to the Company a report of a registered public accounting firm satisfying the requirements of Rule 2-01 of Regulation S-X under the Securities Act and the Exchange Act that attests to, and reports on, the assessment of compliance made by the Trustee and delivered pursuant to the preceding paragraph. Such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act. Section 12.05. Indemnification; Remedies. (a) The Trustee shall indemnify the Company, each affiliate of the Company, the Master Servicer and each affiliate of the Master Servicer, and the respective present and former directors, officers, employees and agents of each of the foregoing, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon: ......................(i)(A) any untrue statement of a material fact contained or alleged to be contained in any information, report, certification, accountants' attestation or other material provided under this Article XII by or on behalf of the Trustee (collectively, the "Trustee Information"), or (B) the omission or alleged omission to state in the Trustee Information a material fact required to be stated in the Trustee Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or ......................(ii) any failure by the Trustee to deliver any information, report, certification or other material when and as required under this Article XII, other than a failure by the Trustee to deliver an accountants' attestation. (b) In the case of any failure of performance described in clause (ii) of Section 12.05(a), as well as a failure to deliver an accountants' attestation, the Trustee shall (i) promptly reimburse the Company for all costs reasonably incurred by the Company in order to obtain the information, report, certification, accountants' attestation or other material not delivered by the Trustee as required and (ii) cooperate with the Company to mitigate any damages that may result from such failure. (c) The Company and the Master Servicer shall indemnify the Trustee, each affiliate of the Trustee and the respective present and former directors, officers, employees and agents of the Trustee, and shall hold each of them harmless from and against any losses, damages, penalties, fines, forfeitures, legal fees and expenses and related costs, judgments, and any other costs, fees and expenses that any of them may sustain arising out of or based upon (i) any untrue statement of a material fact contained or alleged to be contained in any information provided under this Agreement by or on behalf of the Company or Master Servicer for inclusion in any report filed with Commission under the Exchange Act (collectively, the "RFC Information"), or (ii) the omission or alleged omission to state in the RFC Information a material fact required to be stated in the RFC Information or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) Notwithstanding any provision in this Section 12.05 to the contrary, the parties agree that none of the Trustee, the Company or the Master Servicer shall be liable to the other for any consequential or punitive damages whatsoever, whether in contract, tort (including negligence and strict liability), or any other legal or equitable principle; provided, however, that such limitation shall not be applicable with respect to third party claims made against a party. -------------------------------------------------------------------------------- EXHIBIT A FORM OF CLASS A CERTIFICATE, [PRINCIPAL ONLY/CLASS A-P] CERTIFICATE AND [INTEREST ONLY/CLASS A-V] 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. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS ___________ __, ____. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT [___]% OF THE PREPAYMENT SPEED ASSUMPTION (AS DESCRIBED IN THE PROSPECTUS SUPPLEMENT), [AND ASSUMING A CONSTANT PASS-THROUGH RATE EQUAL TO THE INITIAL PASS-THROUGH RATE,] THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $[ ] OF OID PER [$1,000] [$100,000] OF [INITIAL CERTIFICATE PRINCIPAL BALANCE] [NOTIONAL AMOUNT], THE YIELD TO MATURITY IS [ ]% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $[ ] PER [$1,000] [$100,000] OF [INITIAL CERTIFICATE PRINCIPAL BALANCE] [NOTIONAL AMOUNT], COMPUTED USING THE APPROXIMATE METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE PREPAYMENT SPEED ASSUMPTION OR AT ANY OTHER RATE OR AS TO THE CONSTANCY OF THE PASS-THROUGH RATE.] Certificate No. [ %][Variable] Pass-Through Rate [based on a Notional Amount] Class A- Senior Date of Pooling and Servicing [Percentage Interest: %] Agreement and Cut-off Date: ___________ 1, ____ Aggregate Initial [Certificate Principal Balance] [[Interest Only/Class A-V] Notional First Distribution Date: Amount] [Subclass Notional Amount] of the _________ 25, ____ Class A- Certificates: Master Servicer: [Initial] [Certificate Principal Residential Funding Balance] [Interest Only/Class A-V] [Subclass] Corporation Notional Amount] of this Certificate: $ ] Assumed Final Distribution Date: CUSIP 76110F- ___________ 25, ____ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE SERIES ____-___ evidencing a percentage interest in the distributions allocable to the Class A- Certificates with respect to a Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that is the registered owner of the Percentage Interest evidenced by this Certificate [(obtained by dividing the [Initial Certificate Principal Balance] [Initial [Interest Only/Class A-V] Notional Amount] of this Certificate by the aggregate [Initial Certificate Principal Balance of all Class A- Certificates] [Initial [Interest Only/Class A-V] Notional Amounts of all [Interest Only/Class A-V] Certificates], both as specified above)] in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of [conventional one- to four-family fixed interest rate first mortgage loans] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and __________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount [(of interest and principal, if any)] required to be distributed to Holders of Class A- Certificates on such Distribution Date. [The [Interest Only/Class A-V] Notional Amount of the [Interest Only/Class A-V] Certificates as of any date of determination is equal to the aggregate Stated Principal Balance of the Mortgage Loans corresponding to the Uncertificated REMIC Regular Interests represented by such [Interest Only/Class A-V] Certificates.] [The Subclass Notional Amount of the [Interest Only/Class A-V]- Certificates as of any date of determination is equal to the aggregate Stated Principal Balance of the Mortgage Loans corresponding to the Uncertificated REMIC Regular Interests represented by such [Interest Only/Class A-V]- Certificates immediately prior to such date.] [The [Interest Only/Class A-V][- ] Certificates have no Certificate Principal Balance.] Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The [Initial Certificate Principal Balance] [Initial [Interest Only/Class A-V] Notional Amount] [initial Subclass Notional Amount] of this Certificate is set forth above.] [The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto.] This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT A-1 FORM OF CLASS X 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. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. -------------------------------------------------------------------------------- Certificate No. ____ Variable Pass-Through Rate Class X Senior Date of Pooling and Servicing Agreement Percentage Interest: 100% and Cut-off Date: __________ 1, ____ Master Servicer: Aggregate Initial Notional Amount of the Residential Funding Corporation Class X Certificates: $__________ First Distribution Date: Initial Notional Amount of this Certificate: __________ 25, ____ $_____________ Assumed Final Distribution Date: CUSIP ________ _____________ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE SERIES ____-____ Evidencing a percentage interest in the distributions allocable to the Class X Certificates with respect to a Trust Fund consisting primarily of a pool of [one- to four-family residential, payment-option, adjustable-rate first lien mortgage loans with a negative amortization feature] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that _________________________ is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Initial Notional Amount of this Certificate by the Aggregate Notional Amount of all Class X Certificates, both as specified above) in certain distributions with respect to the Trust Fund consisting primarily of an interest in a pool of [one- to four-family residential, payment-option, adjustable-rate first lien mortgage loans with a negative amortization feature] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and ________________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount required to be distributed to Holders of Class X Certificates on such Distribution Date. The Class X Certificates have no Certificate Principal Balance. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Notional Amount of this Certificate is set forth above. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT B FORM OF CLASS M CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE SENIOR CERTIFICATES [CLASS M-1 CERTIFICATES] [AND CLASS M-2 CERTIFICATES] AS DESCRIBED IN THE AGREEMENT (AS DEFINED BELOW). 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"). UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS ___________ __, ____. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT [___]% OF THE PREPAYMENT SPEED ASSUMPTION (AS DESCRIBED IN THE PROSPECTUS SUPPLEMENT), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $[____] OF OID PER $[1,000] OF INITIAL CERTIFICATE PRINCIPAL BALANCE, THE YIELD TO MATURITY IS [_____]% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $[____] PER $[1,000] OF INITIAL CERTIFICATE PRINCIPAL BALANCE, COMPUTED UNDER THE APPROXIMATE METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE PREPAYMENT SPEED ASSUMPTION OR AT ANY OTHER RATE. ANY TRANSFEREE OF THIS CERTIFICATE WILL BE DEEMED TO HAVE REPRESENTED BY VIRTUE OF ITS PURCHASE OR HOLDING OF THIS CERTIFICATE (OR INTEREST HEREIN) THAT EITHER (A) SUCH TRANSFEREE IS NOT AN INVESTMENT MANAGER, A NAMED FIDUCIARY OR A TRUSTEE OF ANY PLAN, OR ANY OTHER PERSON, ACTING, DIRECTLY OR INDIRECTLY, ON BEHALF OF OR PURCHASING ANY CERTIFICATE WITH "PLAN ASSETS" OF ANY PLAN (A "PLAN INVESTOR"), (B) IT HAS ACQUIRED AND IS HOLDING SUCH CERTIFICATE IN RELIANCE ON PROHIBITED TRANSACTION EXEMPTION ("PTE") 94-29, AS MOST RECENTLY AMENDED, PTE 2002-41, 67 FED. REG. 54487 (AUGUST 22, 2002) (THE "RFC EXEMPTION"), AND THAT IT UNDERSTANDS THAT THERE ARE CERTAIN CONDITIONS TO THE AVAILABILITY OF THE RFC EXEMPTION INCLUDING THAT SUCH CERTIFICATE MUST BE RATED, AT THE TIME OF PURCHASE, NOT LOWER THAN "BBB-" (OR ITS EQUIVALENT) BY STANDARD & POOR'S, FITCH OR MOODY'S OR (C) (I) THE TRANSFEREE IS AN INSURANCE COMPANY, (II) THE SOURCE OF FUNDS TO BE USED BY IT TO PURCHASE THE CERTIFICATE IS AN "INSURANCE COMPANY GENERAL ACCOUNT" (WITHIN THE MEANING OF U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 95-60), AND (III) THE CONDITIONS SET FORTH IN SECTIONS I AND III OF PTCE 95-60 HAVE BEEN SATISFIED (EACH ENTITY THAT SATISFIES THIS CLAUSE (C), A "COMPLYING INSURANCE COMPANY). IF THIS CERTIFICATE (OR ANY INTEREST HEREIN) IS ACQUIRED OR HELD BY ANY PERSON THAT DOES NOT SATISFY THE CONDITIONS DESCRIBED IN THE PRECEDING PARAGRAPH, THEN THE LAST PRECEDING TRANSFEREE THAT EITHER (I) IS NOT A PLAN INVESTOR, (II) ACQUIRED SUCH CERTIFICATE IN COMPLIANCE WITH THE RFC EXEMPTION, OR (III) IS A COMPLYING INSURANCE COMPANY SHALL BE RESTORED, TO THE EXTENT PERMITTED BY LAW, TO ALL RIGHTS AND OBLIGATIONS AS CERTIFICATE OWNER THEREOF RETROACTIVE TO THE DATE OF SUCH TRANSFER OF THIS CERTIFICATE. THE TRUSTEE SHALL BE UNDER NO LIABILITY TO ANY PERSON FOR MAKING ANY PAYMENTS DUE ON THIS CERTIFICATE TO SUCH PRECEDING TRANSFEREE. ANY PURPORTED CERTIFICATE OWNER WHOSE ACQUISITION OR HOLDING OF THIS CERTIFICATE (OR INTEREST HEREIN) WAS EFFECTED IN VIOLATION OF THE RESTRICTIONS IN SECTION 5.02(e) OF THE POOLING AND SERVICING AGREEMENT SHALL INDEMNIFY AND HOLD HARMLESS THE COMPANY, THE TRUSTEE, THE MASTER SERVICER, ANY SUBSERVICER, AND THE TRUST FUND FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, COSTS OR EXPENSES INCURRED BY SUCH PARTIES AS A RESULT OF SUCH ACQUISITION OR HOLDING. Certificate No. [ ]% Pass-Through Rate Class M- Subordinate Aggregate Certificate Principal Balance Date of Pooling and Servicing of the Class M Certificates: Agreement and Cut-off Date: $ ___________ 1, ____ Initial Certificate Principal First Distribution Date: Balance of this Certificate: _________ 25, ____ $ Master Servicer: CUSIP: 76110F- Residential Funding Corporation Assumed Final Distribution Date: ___________ 25, ____ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE, SERIES ____-___ evidencing a percentage interest in any distributions allocable to the Class M- Certificates with respect to the Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Certificate Principal Balance of this Certificate by the aggregate Certificate Principal Balance of all Class M- Certificates, both as specified above) in certain distributions with respect to a Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and __________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class M- Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of the distributions allocable to principal and any Realized Losses allocable hereto. Any transferee of this Certificate will be deemed to have represented by virtue of its purchase or holding of this Certificate (or interest herein) that either (a) such transferee is not an investment manager, a named fiduciary or a trustee of any plan, or any other person, acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any plan (a "plan investor"), (b) it has acquired and is holding such Certificate in reliance on prohibited transaction exemption ("PTE") 94-29, as most recently amended, PTE 2002-41, 67 fed. Reg. 54487 (August 22, 2002) (the "RFC Exemption"), and that it understands that there are certain conditions to the availability of the RFC Exemption including that such Certificate must be rated, at the time of purchase, not lower than "BBB-" (or its equivalent) by Standard & Poor's, Fitch or Moody's or (c) (i) the transferee is an insurance company, (ii) the source of funds to be used by it to purchase the Certificate is an "insurance company general account" (within the meaning of U.S. Department of Labor prohibited transaction class exemption ("PTCE") 95-60), and (iii) the conditions set forth in Sections I and III of PTCE 95-60 have been satisfied (each entity that satisfies this clause (c), a "complying insurance company). If this Certificate (or any interest herein) is acquired or held by any person that does not satisfy the conditions described in the preceding paragraph, then the last preceding transferee that either (i) is not a plan investor, (ii) acquired such Certificate in compliance with the RFC Exemption, or (iii) is a complying insurance company shall be restored, to the extent permitted by law, to all rights and obligations as Certificate owner thereof retroactive to the date of such transfer of this Certificate. The Trustee shall be under no liability to any person for making any payments due on this Certificate to such preceding transferee. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT C FORM OF CLASS B CERTIFICATE THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE SENIOR CERTIFICATES AND CLASS M CERTIFICATES [AND CLASS B-1] [CLASS B-2 CERTIFICATES] DESCRIBED IN THE AGREEMENT (AS DEFINED 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 WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE AGREEMENT. NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO ANY PERSON, UNLESS THE TRANSFEREE PROVIDES EITHER A CERTIFICATION PURSUANT TO SECTION 5.02(e) OF THE AGREEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE MASTER SERVICER, THE COMPANY AND THE TRUSTEE THAT THE PURCHASE OF THIS CERTIFICATE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE AND WILL NOT SUBJECT THE MASTER SERVICER, THE COMPANY OR THE TRUSTEE TO ANY OBLIGATION OR LIABILITY IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT. 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 CODE. THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID") RULES TO THIS CERTIFICATE. THE ISSUE DATE OF THIS CERTIFICATE IS ___________ __, ____. ASSUMING THAT THE MORTGAGE LOANS PREPAY AT 100% OF THE PREPAYMENT SPEED ASSUMPTION (AS DESCRIBED IN THE PROSPECTUS SUPPLEMENT), THIS CERTIFICATE HAS BEEN ISSUED WITH NO MORE THAN $[ ] OF OID PER $[1,000] OF INITIAL CERTIFICATE PRINCIPAL BALANCE, THE YIELD TO MATURITY IS [ ]% AND THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO MORE THAN $[ ] PER $[1,000] OF INITIAL CERTIFICATE PRINCIPAL BALANCE, COMPUTED UNDER THE APPROXIMATE METHOD. NO REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE PREPAYMENT SPEED ASSUMPTION OR AT ANY OTHER RATE. Certificate No. [ ]% Pass-Through Rate Class B- Subordinate Aggregate Certificate Principal Balance Date of Pooling and Servicing of the Class B- Agreement and Cut-off Date: Certificates as of ___________ 1, ____ the Cut-off Date: $ First Distribution Date: _________ 25, ____ Initial Certificate Principal Balance of this Certificate: Master Servicer: $ Residential Funding Corporation Assumed Final Distribution Date: ___________ 25, ____ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE, SERIES ____-___ evidencing a percentage interest in any distributions allocable to the Class B- Certificates with respect to the Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that Residential Accredit Loans, Inc. is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Certificate Principal Balance of this Certificate by the aggregate Certificate Principal Balance of all Class B- Certificates, both as specified above) in certain distributions with respect to a Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and __________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing on the first Distribution Date specified above, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month next preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class B Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of the distributions allocable to principal and any Realized Losses allocable hereto. No transfer of this Class B Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Company may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. In connection with any such transfer, the Trustee will also require either (i) an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer with respect to the permissibility of such transfer under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code (the "Code") and stating, among other things, that the transferee's acquisition of a Class B Certificate will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or (ii) a representation letter, in the form as described by Section 5.02(e) of the Agreement, either stating that the transferee is not an employee benefit or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (a "Plan"), or any other person (including an investment manager, a named fiduciary or a trustee of any Plan) acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any Plan, or stating that the transferee is an insurance company, the source of funds to be used by it to purchase the Certificate is an "insurance company general account" (within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 95-60), and the purchase is being made in reliance upon the availability of the exemptive relief afforded under Sections I and III of PTCE 95-60.. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT C-I FORM OF CLASS P CERTIFICATE THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE AGREEMENT). NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO ANY PERSON, UNLESS THE TRANSFEREE PROVIDES EITHER A CERTIFICATION PURSUANT TO SECTION 5.02(e) OF THE AGREEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE MASTER SERVICER, THE COMPANY AND THE TRUSTEE THAT THE PURCHASE OF THIS CERTIFICATE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE AND WILL NOT SUBJECT THE MASTER SERVICER, THE COMPANY OR THE TRUSTEE TO ANY OBLIGATION OR LIABILITY IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT. -------------------------------------------------------------------------------- C-I-6 Certificate No. ___ Prepayment Charge Class P - Prepayment Charge Aggregate Certificate Principal Balance of the Class P Date of Pooling and Servicing Certificates as of Agreement and Cut-off Date: the Cut-off Date: __________ 1, ____ $0.00 First Distribution Date: Initial Certificate Principal Balance of this __________ 25, ____ Certificate: $____ Master Servicer: Percentage Interest of this Certificate: Residential Funding Corporation 100% Assumed Final Distribution Date: CUSIP: __________ __________ 25, ____ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE, SERIES ____-___ evidencing a percentage interest in any distributions allocable to the Class P Certificates with respect to the Trust Fund consisting primarily of a pool of [one- to four-family residential, payment-option, adjustable-rate first lien mortgage loans with a negative amortization feature] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that ____________________________ is the registered owner of the Percentage Interest evidenced by this Certificate (as specified above) in certain distributions with respect to a Trust Fund consisting primarily of a pool of [one- to four-family residential, payment-option, adjustable-rate first lien mortgage loans with a negative amortization feature] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and ____________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing on the first Distribution Date specified above, to the Person in whose name this Certificate at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (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 Holders of Class P Certificates on such Distribution Date. Distributions on this Certificate will be made either by the Master Servicer acting on behalf of the Trustee or by a Paying Agent appointed by the Trustee in immediately available funds (by wire transfer or otherwise) for the account of the Person entitled thereto if such Person shall have so notified the Master Servicer or such Paying Agent, or by check mailed to the address of the Person entitled thereto, as such name and address shall appear on the Certificate Register. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. No transfer of this Class P Certificate will be made unless such transfer is exempt from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws or is made in accordance with said Act and laws. In the event that such a transfer is to be made, (i) the Trustee or the Company may require an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee and the Company that such transfer is exempt (describing the applicable exemption and the basis therefor) from or is being made pursuant to the registration requirements of the Securities Act of 1933, as amended, and of any applicable statute of any state and (ii) the transferee shall execute an investment letter in the form described by the Agreement. The Holder hereof desiring to effect such transfer shall, and does hereby agree to, indemnify the Trustee, the Company, the Master Servicer and the Certificate Registrar acting on behalf of the Trustee against any liability that may result if the transfer is not so exempt or is not made in accordance with such Federal and state laws. In connection with any such transfer, the Trustee will also require either (i) an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer with respect to the permissibility of such transfer under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code (the "Code") and stating, among other things, that the transferee's acquisition of a Class P Certificate will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or (ii) a representation letter, in the form as described by Section 5.02(e) of the Agreement, either stating that the transferee is not an employee benefit or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (a "Plan"), or any other person (including an investment manager, a named fiduciary or a trustee of any Plan) acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any Plan. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT D FORM OF CLASS R CERTIFICATE THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES PERSON OR A DISQUALIFIED ORGANIZATION (AS DEFINED BELOW). SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE "CODE"). NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO ANY PERSON, UNLESS THE TRANSFEREE PROVIDES EITHER A CERTIFICATION PURSUANT TO SECTION 5.02(e) OF THE AGREEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE MASTER SERVICER, THE COMPANY AND THE TRUSTEE THAT THE PURCHASE OF THIS CERTIFICATE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE CODE AND WILL NOT SUBJECT THE MASTER SERVICER, THE COMPANY OR THE TRUSTEE TO ANY OBLIGATION OR LIABILITY IN ADDITION TO THOSE UNDERTAKEN IN THE AGREEMENT. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES A TRANSFER AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH TRANSFEREE IS NOT (A) THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN AN INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF ITS ACTIVITIES ARE SUBJECT TO TAX AND EXCEPT FOR FREDDIE MAC, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH GOVERNMENTAL UNIT), (B) A FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF EITHER OF THE FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS' COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS EXEMPT FROM THE TAX IMPOSED BY CHAPTER 1 OF THE CODE UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE CODE (INCLUDING THE TAX IMPOSED BY SECTION 511 OF THE CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) RURAL ELECTRIC AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(a)(2)(C) OF THE CODE, (E) AN ELECTING LARGE PARTNERSHIP UNDER SECTION 775(a) OF THE CODE (ANY SUCH PERSON DESCRIBED IN THE FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREIN REFERRED TO AS A "DISQUALIFIED ORGANIZATION"), OR (F) AN AGENT OF A DISQUALIFIED ORGANIZATION, (2) NO PURPOSE OF SUCH TRANSFER IS TO IMPEDE THE ASSESSMENT OR COLLECTION OF TAX AND (3) SUCH TRANSFEREE SATISFIES CERTAIN ADDITIONAL CONDITIONS RELATING TO THE FINANCIAL CONDITION OF THE PROPOSED TRANSFEREE. NOTWITHSTANDING THE REGISTRATION IN THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER DISPOSITION OF THIS CERTIFICATE TO A DISQUALIFIED ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE. EACH HOLDER OF THIS CERTIFICATE BY ACCEPTANCE OF THIS CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS OF THIS PARAGRAPH. Certificate No. [ ]% Pass-Through Rate Class R Senior Aggregate Initial Certificate Principal Balance of the Date of Pooling and Servicing Class R Certificates: Agreement and Cut-off Date: $100.00 ___________ 1, ____ Initial Certificate Principal First Distribution Date: Balance of this Certificate: _________ 25, ____ $ Master Servicer: Percentage Interest: Residential Funding Corporation % Assumed Final Distribution Date: CUSIP 76110F- ___________ 25, ____ MORTGAGE ASSET-BACKED PASS-THROUGH CERTIFICATE, SERIES ____-___ evidencing a percentage interest in any distributions allocable to the Class R Certificates with respect to the Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] formed and sold by RESIDENTIAL ACCREDIT LOANS, INC. This Certificate is payable solely from the assets of the Trust Fund, and does not represent an obligation of or interest in Residential Accredit Loans, Inc., the Master Servicer, the Trustee referred to below or GMAC Mortgage Group, Inc. or any of their affiliates. Neither this Certificate nor the underlying Mortgage Loans are guaranteed or insured by any governmental agency or instrumentality or by Residential Accredit Loans, Inc., the Master Servicer, the Trustee or GMAC Mortgage Group, Inc. or any of their affiliates. None of the Company, the Master Servicer, GMAC Mortgage Group, Inc. or any of their affiliates will have any obligation with respect to any certificate or other obligation secured by or payable from payments on the Certificates. This certifies that is the registered owner of the Percentage Interest evidenced by this Certificate (obtained by dividing the Initial Certificate Principal Balance of this Certificate by the aggregate Initial Certificate Principal Balance of all Class R Certificates, both as specified above) in certain distributions with respect to the Trust Fund consisting primarily of a pool of [conventional one- to four-family fixed interest rate first mortgage loans] (the "Mortgage Loans"), formed and sold by Residential Accredit Loans, Inc. (hereinafter called the "Company," which term includes any successor entity under the Agreement referred to below). The Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as specified above (the "Agreement") among the Company, the Master Servicer and __________________, as trustee (the "Trustee"), a summary of certain of the pertinent provisions of which is set forth hereafter. To the extent not defined herein, the capitalized terms used herein have the meanings assigned in the Agreement. This Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement, to which Agreement the Holder of this Certificate by virtue of the acceptance hereof assents and by which such Holder is bound. Pursuant to the terms of the Agreement, a distribution will be made on the 25th day of each month or, if such 25th day is not a Business Day, the Business Day immediately following (the "Distribution Date"), commencing as described in the Agreement, to the Person in whose name this Certificate is registered at the close of business on the last day (or if such last day is not a Business Day, the Business Day immediately preceding such last day) of the month immediately preceding the month of such distribution (the "Record Date"), from the Available Distribution Amount in an amount equal to the product of the Percentage Interest evidenced by this Certificate and the amount (of interest and principal, if any) required to be distributed to Holders of Class R Certificates on such Distribution Date. Each Holder of this Certificate will be deemed to have agreed to be bound by the restrictions set forth in the Agreement to the effect that (i) each person holding or acquiring any Ownership Interest in this Certificate must be a United States Person and a Permitted Transferee, (ii) the transfer of any Ownership Interest in this Certificate will be conditioned upon the delivery to the Trustee of, among other things, an affidavit to the effect that it is a United States Person and Permitted Transferee, (iii) any attempted or purported transfer of any Ownership Interest in this Certificate in violation of such restrictions will be absolutely null and void and will vest no rights in the purported transferee, and (iv) if any person other than a United States Person and a Permitted Transferee acquires any Ownership Interest in this Certificate in violation of such restrictions, then the Company will have the right, in its sole discretion and without notice to the Holder of this Certificate, to sell this Certificate to a purchaser selected by the Company, which purchaser may be the Company, or any affiliate of the Company, on such terms and conditions as the Company may choose. Notwithstanding the above, the final distribution on this Certificate will be made after due notice of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency appointed by the Trustee for that purpose in the City and State of New York. The Initial Certificate Principal Balance of this Certificate is set forth above. The Certificate Principal Balance hereof will be reduced to the extent of distributions allocable to principal and any Realized Losses allocable hereto. Notwithstanding the reduction of the Certificate Principal Balance hereof to zero, this Certificate will remain outstanding under the Agreement and the Holder hereof may have additional obligations with respect to this Certificate, including tax liabilities, and may be entitled to certain additional distributions hereon, in accordance with the terms and provisions of the Agreement. No transfer of this Class R Certificate will be made unless the Trustee has received either (i) an opinion of counsel acceptable to and in form and substance satisfactory to the Trustee, the Company and the Master Servicer with respect to the permissibility of such transfer under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code (the "Code") and stating, among other things, that the transferee's acquisition of a Class R Certificate will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or (ii) a representation letter, in the form as described by the Agreement, stating that the transferee is not an employee benefit or other plan subject to the prohibited transaction provisions of ERISA or Section 4975 of the Code (a "Plan"), or any other person (including an investment manager, a named fiduciary or a trustee of any Plan) acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any Plan. This Certificate is one of a duly authorized issue of Certificates issued in several Classes designated as Mortgage Asset-Backed Pass-Through Certificates of the Series specified hereon (herein collectively called the "Certificates"). The Certificates are limited in right of payment to certain collections and recoveries respecting the Mortgage Loans, all as more specifically set forth herein and in the Agreement. In the event Master Servicer funds are advanced with respect to any Mortgage Loan, such advance is reimbursable to the Master Servicer, to the extent provided in the Agreement, from related recoveries on such Mortgage Loan or from other cash that would have been distributable to Certificateholders. As provided in the Agreement, withdrawals from the Custodial Account and/or the Certificate Account created for the benefit of Certificateholders may be made by the Master Servicer from time to time for purposes other than distributions to Certificateholders, such purposes including without limitation reimbursement to the Company and the Master Servicer of advances made, or certain expenses incurred, by either of them. The Agreement permits, with certain exceptions therein provided, the amendment of the Agreement and the modification of the rights and obligations of the Company, the Master Servicer and the Trustee and the rights of the Certificateholders under the Agreement at any time by the Company, the Master Servicer and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66% of the Percentage Interests of each Class of Certificates affected thereby. Any such consent by the Holder of this Certificate shall be conclusive and binding on such Holder and upon all future holders of this Certificate and of any Certificate issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent is made upon the Certificate. The Agreement also permits the amendment thereof in certain circumstances without the consent of the Holders of any of the Certificates and, in certain additional circumstances, without the consent of the Holders of certain Classes of Certificates. As provided in the Agreement and subject to certain limitations therein set forth, the transfer of this Certificate is registrable in the Certificate Register upon surrender of this Certificate for registration of transfer at the offices or agencies appointed by the Trustee in the City and State of New York, duly endorsed by, or accompanied by an assignment in the form below or other written instrument of transfer in form satisfactory to the Trustee and the Certificate Registrar duly executed by the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest will be issued to the designated transferee or transferees. The Certificates are issuable only as registered Certificates without coupons in Classes and in denominations specified in the Agreement. As provided in the Agreement and subject to certain limitations therein set forth, Certificates are exchangeable for new Certificates of authorized denominations evidencing the same Class and aggregate Percentage Interest, as requested by the Holder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company, the Master Servicer, the Trustee and the Certificate Registrar and any agent of the Company, the Master Servicer, the Trustee or the Certificate Registrar may treat the Person in whose name this Certificate is registered as the owner hereof for all purposes, and neither the Company, the Master Servicer, the Trustee nor any such agent shall be affected by notice to the contrary. This Certificate shall be governed by and construed in accordance with the laws of the State of New York. The obligations created by the Agreement in respect of the Certificates and the Trust Fund created thereby shall terminate upon the payment to Certificateholders of all amounts held by or on behalf of the Trustee and required to be paid to them pursuant to the Agreement following the earlier of (i) the maturity or other liquidation of the last Mortgage Loan subject thereto or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan and (ii) the purchase by the Master Servicer from the Trust Fund of all remaining Mortgage Loans and all property acquired in respect of such Mortgage Loans, thereby effecting early retirement of the Certificates. The Agreement permits, but does not require, the Master Servicer to (i) purchase at a price determined as provided in the Agreement all remaining Mortgage Loans and all property acquired in respect of any Mortgage Loan or (ii) purchase in whole, but not in part, all of the Certificates from the Holders thereof; provided, that any such option may only be exercised if the Pool Stated Principal Balance of the Mortgage Loans as of the Distribution Date upon which the proceeds of any such purchase are distributed is less than ten percent of the Cut-off Date Principal Balance of the Mortgage Loans. Reference is hereby made to the further provisions of this Certificate set forth on the reverse hereof, which further provisions shall for all purpose have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Certificate Registrar, by manual signature, this Certificate shall not be entitled to any benefit under the Agreement or be valid for any purpose. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed. Dated: __________________ [_________________________], as Trustee By: ________________________ Authorized Signatory CERTIFICATE OF AUTHENTICATION This is one of the Class A- Certificates referred to in the within-mentioned Agreement. [___________________________], as Certificate Registrar By: __________________________ Authorized Signatory -------------------------------------------------------------------------------- ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto ___________________________________________________________________________(Please print or typewrite name and address including postal zip code of assignee) a Percentage Interest evidenced by the within Mortgage Asset-Backed Pass-Through Certificate and hereby authorizes the transfer of registration of such interest to assignee on the Certificate Register of the Trust Fund. I (We) further direct the Certificate Registrar to issue a new Certificate of a like denomination and Class, to the above named assignee and deliver such Certificate to the following address: ______________________________________________________________________________________________________________ Dated: _______________________ _________________________________________ Signature by or on behalf of assignor _________________________________________ Signature Guaranteed DISTRIBUTION INSTRUCTIONS The assignee should include the following for purposes of distribution: Distributions shall be made, by wire transfer or otherwise, in immediately available 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. -------------------------------------------------------------------------------- EXHIBIT E FORM OF SELLER/SERVICER CONTRACT This Seller/Servicer Contract (as may be amended, supplemented or otherwise modified from time to time, this "Contract") is made this ____________ day of _____________________, 20 __________, by and between Residential Funding Corporation, its successors and assigns ("Residential Funding") and _________________________________________ (the "Seller/Servicer," and, together with Residential Funding, the "parties" and each, individually, a "party"). WHEREAS, the Seller/Servicer desires to sell Loans to, and/or service Loans for, Residential Funding, and Residential Funding desires to purchase Loans from the Seller/Servicer and/or have the Seller/Servicer service various of its Loans, pursuant to the terms of this Contract and the Residential Funding Seller and Servicer Guides incorporated herein by reference, as amended, supplemented or otherwise modified, from time to time (together, the "Guides"). NOW, THEREFORE, in consideration of the premises, and the terms, conditions and agreements set forth below, the parties agree as follows: 1. INCORPORATION OF GUIDES BY REFERENCE. The Seller/Servicer acknowledges that it has received and read the Guides. All provisions of the Guides are incorporated by reference into and made a part of this Contract, and shall be binding upon the parties; provided, however, that the Seller/Servicer shall be entitled to sell Loans to and/or service Loans for Residential Funding only if and for so long as it shall have been authorized to do so by Residential Funding in writing. Specific reference in this Contract to particular provisions of the Guides and not to other provisions does not mean that those provisions of the Guides not specifically cited in this Contract are not applicable. All terms used herein shall have the same meanings as such terms have in the Guides, unless the context clearly requires otherwise. 2. AMENDMENTS. This Contract may not be amended or modified orally, and no provision of this Contract may be waived or amended except in writing signed by the party against whom enforcement is sought. Such a written waiver or amendment must expressly reference this Contract. However, by their terms, the Guides may be amended or supplemented by Residential Funding from time to time. Any such amendment(s) to the Guides shall be binding upon the parties hereto. 3. REPRESENTATIONS AND WARRANTIES. a. Reciprocal Representations and Warranties. The Seller/Servicer and Residential Funding each represents and warrants to the other that as of the date of this Contract: (1) Each party is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, is qualified, if necessary, to do business and in good standing in each jurisdiction in which it is required to be so qualified, and has the requisite power and authority to enter into this Contract and all other agreements which are contemplated by this Contract and to carry out its obligations hereunder and under the Guides and under such other agreements. (2) This Contract has been duly authorized, executed and delivered by each party and constitutes a valid and legally binding agreement of each party enforceable in accordance with its terms. (3) There is no action, proceeding or investigation pending or threatened, and no basis therefor is known to either party, that could affect the validity or prospective validity of this Contract. (4) Insofar as its capacity to carry out any obligation under this Contract is concerned, neither party is in violation of any charter, articles of incorporation, bylaws, mortgage, indenture, indebtedness, agreement, instrument, judgment, decree, order, statute, rule or regulation and none of the foregoing adversely affects its capacity to fulfill any of its obligations under this Contract. Its execution of, and performance pursuant to, this Contract will not result in a violation of any of the foregoing. b. Seller/Servicer's Representations, Warranties and Covenants. In addition to the representations, warranties and covenants made by the Seller/Servicer pursuant to subparagraph (a) of this paragraph 3, the Seller/Servicer makes the representations, warranties and covenants set forth in the Guides and, upon request, agrees to deliver to Residential Funding the certified Resolution of Board of Directors which authorizes the execution and delivery of this Contract. 4. REMEDIES OF RESIDENTIAL FUNDING. If an Event of Seller Default or an Event of Servicer Default shall occur, Residential Funding may, at its option, exercise one or more of those remedies set forth in the Guides. 5. SELLER/SERVICER'S STATUS AS INDEPENDENT CONTRACTOR. At no time shall the Seller/Servicer represent that it is acting as an agent of Residential Funding. The Seller/Servicer shall, at all times, act as an independent contractor. 6. PRIOR AGREEMENTS SUPERSEDED. This Contract restates, amends and supersedes any and all prior Seller Contracts or Servicer Contracts between the parties except that any subservicing agreement executed by the Seller/Servicer in connection with any loan-security exchange transaction shall not be affected. 7. ASSIGNMENT. This Contract may not be assigned or transferred, in whole or in part, by the Seller/Servicer without the prior written consent of Residential Funding. Residential Funding may sell, assign, convey, hypothecate, pledge or in any other way transfer, in whole or in part, without restriction, its rights under this Contract and the Guides with respect to any Commitment or Loan. 8. NOTICES. All notices, requests, demands or other communications that are to be given under this Contract shall be in writing, addressed to the appropriate parties and sent by telefacsimile or by overnight courier or by United States mail, postage prepaid, to the addresses and telefacsimile numbers specified below. However, another name, address and/or telefacsimile number may be substituted by the Seller/Servicer pursuant to the requirements of this paragraph 8, or Residential Funding pursuant to an amendment to the Guides. If to Residential Funding, notices must be sent to the appropriate address or telefacsimile number specified in the Guides. If to the Seller/Servicer, notice must be sent to: Attention: Telefacsimile Number: (________) _____-____________ 9. JURISDICTION AND VENUE. Each of the parties irrevocably submits to the jurisdiction of any state or federal court located in Hennepin County, Minnesota, over any action, suit or proceeding to enforce or defend any right under this Contract or otherwise arising from any loan sale or servicing relationship existing in connection with this Contract, and each of the parties irrevocably agrees that all claims in respect of any such action or proceeding may be heard or determined in such state or federal court. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of any such action or proceeding and any other substantive or procedural rights or remedies it may have with respect to the maintenance of any such action or proceeding in any such forum. Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Each of the parties further agrees not to institute any legal actions or proceedings against the other party or any director, officer, employee, attorney, agent or property of the other party, arising out of or relating to this Contract in any court other than as hereinabove specified in this paragraph 9. 10. MISCELLANEOUS. This Contract, including all documents incorporated by reference herein, constitutes the entire understanding between the parties hereto and supersedes all other agreements, covenants, representations, warranties, understandings and communications between the parties, whether written or oral, with respect to the transactions contemplated by this Contract. All paragraph headings contained herein are for convenience only and shall not be construed as part of this Contract. Any provision of this Contract 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 portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, and, to this end, the provisions hereof are severable. This Contract shall be governed by, and construed and enforced in accordance with, applicable federal laws and the laws of the State of Minnesota. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the duly authorized officers of the Seller/Servicer and Residential Funding have executed this Seller/Servicer Contract as of the date first above written. ATTEST: SELLER/SERVICER [Corporate Seal] (Name of Seller/Servicer) By: By: (Signature) (Signature) By: By: (Typed Name) (Typed Name) Title: Title: ======================================= ========================================================= ATTEST: RESIDENTIAL FUNDING CORPORATION [Corporate Seal] By: By: (Signature) (Signature) By: By: (Typed Name) (Typed Name) Title: Title: -------------------------------------------------------------------------------- EXHIBIT F FORMS OF REQUEST FOR RELEASE DATE: TO: RE: REQUEST FOR RELEASE OF DOCUMENTS In connection with the administration of the pool of Mortgage Loans held by you for the referenced pool, we request the release of the Mortgage Loan File described below. Pooling and Servicing Agreement Dated: Series#: Account#: Pool#: Loan#: MIN#: Borrower Name(s): Reason for Document Request: (circle one) Mortgage Loan Prepaid in Full Mortgage Loan Repurchased "We hereby certify that all amounts received or to be received in connection with such payments which are required to be deposited have been or will be so deposited as provided in the Pooling and Servicing Agreement." Residential Funding Corporation Authorized Signature ****************************************************************************** TO CUSTODIAN/TRUSTEE: Please acknowledge this request, and check off documents being enclosed with a copy of this form. You should retain this form for your files in accordance with the terms of the Pooling and Servicing Agreement. Enclosed Documents: [ ] Promissory Note [ ] Primary Insurance Policy [ ] Mortgage or Deed of Trust [ ] Assignment(s) of Mortgage or Deed of Trust [ ] Title Insurance Policy [ ] Other: Name: _______________________ Title: Date: -------------------------------------------------------------------------------- EXHIBIT G-1 FORM OF TRANSFER AFFIDAVIT AND AGREEMENT STATE OF ) ) ss.: COUNTY OF ) [NAME OF OFFICER], being first duly sworn, deposes and says: 1. That he is [Title of Officer] of [Name of Owner] (record or beneficial owner of the Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, Class R (the "Owner")), a [savings institution] [corporation] duly organized and existing under the laws of [the State of ____________________________] [the United States], on behalf of which he makes this affidavit and agreement. 2. That the Owner (i) is not and will not be a "disqualified organization" or an electing large partnership as of [date of transfer] within the meaning of Sections 860E(e)(5) and 775, respectively, of the Internal Revenue Code of 1986, as amended (the "Code") or an electing large partnership under Section 775(a) of the Code, (ii) will endeavor to remain other than a disqualified organization for so long as it retains its ownership interest in the Class R Certificates, and (iii) is acquiring the Class R Certificates for its own account or for the account of another Owner from which it has received an affidavit and agreement in substantially the same form as this affidavit and agreement. (For this purpose, a "disqualified organization" means an electing large partnership under Section 775 of the Code, the United States, any state or political subdivision thereof, any agency or instrumentality of any of the foregoing (other than an instrumentality all of the activities of which are subject to tax and, except for the Federal Home Loan Mortgage Corporation, a majority of whose board of directors is not selected by any such governmental entity) or any foreign government, international organization or any agency or instrumentality of such foreign government or organization, any rural electric or telephone cooperative, or any organization (other than certain farmers' cooperatives) that is generally exempt from federal income tax unless such organization is subject to the tax on unrelated business taxable income). 3. That the Owner is aware (i) of the tax that would be imposed on transfers of Class R Certificates to disqualified organizations or electing large partnerships, under the Code, that applies to all transfers of Class R Certificates after March 31, 1988; (ii) that such tax would be on the transferor (or, with respect to transfers to electing large partnerships, on each such partnership), or, if such transfer is through an agent (which person includes a broker, nominee or middleman) for a disqualified organization, on the agent; (iii) that the person (other than with respect to transfers to electing large partnerships) otherwise liable for the tax shall be relieved of liability for the tax if the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization and, at the time of transfer, such person does not have actual knowledge that the affidavit is false; and (iv) that the Class R Certificates may be "noneconomic residual interests" within the meaning of Treasury regulations promulgated pursuant to the Code and that the transferor of a noneconomic residual interest will remain liable for any taxes due with respect to the income on such residual interest, unless no significant purpose of the transfer was to impede the assessment or collection of tax. 4. That the Owner is aware of the tax imposed on a "pass-through entity" holding Class R Certificates if either the pass-through entity is an electing large partnership under Section 775 of the Code or if at any time during the taxable year of the pass-through entity a disqualified organization is the record holder of an interest in such entity. (For this purpose, a "pass through entity" includes a regulated investment company, a real estate investment trust or common trust fund, a partnership, trust or estate, and certain cooperatives.) 5. The Owner is either (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or a partnership for U.S. federal income tax purposes and created or organized in or under the laws of the United States, any state thereof or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), (iii) an estate that is described in Section 7701(a)(30)(D) of the Code, or (iv) a trust that is described in Section 7701(a)(30)(E) of the Code. 6. The Owner hereby agrees that it will not cause income from the Class R Certificates to be attributable to a foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of the Owner or another United States taxpayer. 7. That the Owner is aware that the Trustee will not register the transfer of any Class R Certificates unless the transferee, or the transferee's agent, delivers to it an affidavit and agreement, among other things, in substantially the same form as this affidavit and agreement. The Owner expressly agrees that it will not consummate any such transfer if it knows or believes that any of the representations contained in such affidavit and agreement are false. 8. That the Owner has reviewed the restrictions set forth on the face of the Class R Certificates and the provisions of Section 5.02(f) of the Pooling and Servicing Agreement under which the Class R Certificates were issued (in particular, clause (iii)(A) and (iii)(B) of Section 5.02(f) which authorize the Trustee to deliver payments to a person other than the Owner and negotiate a mandatory sale by the Trustee in the event the Owner holds such Certificates in violation of Section 5.02(f)). The Owner expressly agrees to be bound by and to comply with such restrictions and provisions. 9. That the Owner consents to any additional restrictions or arrangements that shall be deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R Certificates will only be owned, directly or indirectly, by an Owner that is not a disqualified organization. 10. The Owner's Taxpayer Identification Number is ______________________________. 11. This affidavit and agreement relates only to the Class R Certificates held by the Owner and not to any other holder of the Class R Certificates. The Owner understands that the liabilities described herein relate only to the Class R Certificates. 12. That no purpose of the Owner relating to the transfer of any of the Class R Certificates by the Owner is or will be to impede the assessment or collection of any tax; in making this representation, the Owner warrants that the Owner is familiar with (i) Treasury Regulation Section 1.860E-1(c) and recent amendments thereto, effective as of July 19, 2002, and (ii) the preamble describing the adoption of the amendments to such regulation, which is attached hereto as Exhibit 1. 13. That the Owner has no present knowledge or expectation that it will be unable to pay any United States taxes owed by it so long as any of the Certificates remain outstanding. In this regard, the Owner hereby represents to and for the benefit of the person from whom it acquired the Class R Certificate that the Owner intends to pay taxes associated with holding such Class R Certificate as they become due, fully understanding that it may incur tax liabilities in excess of any cash flows generated by the Class R Certificate. 14. That the Owner has no present knowledge or expectation that it will become insolvent or subject to a bankruptcy proceeding for so long as any of the Class R Certificates remain outstanding. 15. The Purchaser is not an employee benefit plan or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or an investment manager, named fiduciary or a trustee of any such plan, or any other Person acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any such plan. -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Owner has caused this instrument to be executed on its behalf, pursuant to the authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be hereunto attached, attested by its [Assistant] Secretary, this day of , 200 . [NAME OF OWNER] By: [Name of Officer] [Title of Officer] [Corporate Seal] ATTEST: [Assistant] Secretary Personally appeared before me the above-named [Name of Officer], known or proved to me to be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Owner, and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the Owner. Subscribed and sworn before me this _________ day of __________, 200__. NOTARY PUBLIC COUNTY OF __________________________ STATE OF My Commission expires the _____ day of _____, 20 . -------------------------------------------------------------------------------- EXHIBIT 1 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9004] RIN 1545-AW98 Real Estate Mortgage Investment Conduits AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. ----------------------------------------------------------------------- SUMMARY: This document contains final regulations relating to safe harbor transfers of noneconomic residual interests in real estate mortgage investment conduits (REMICs). The final regulations provide additional limitations on the circumstances under which transferors may claim safe harbor treatment. DATES: Effective Date: These regulations are effective July 19, 2002. Applicability Date: For dates of applicability, see Sec. 1.860E- (1)(c)(10). FOR FURTHER INFORMATION CONTACT: Courtney Shepardson at (202) 622-3940 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information in this final rule has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545-1675. The collection of information in this regulation is in Sec. 1.860E- 1(c)(5)(ii). This information is required to enable the IRS to verify that a taxpayer is complying with the conditions of this regulation. The collection of information is mandatory and is required. Otherwise, the taxpayer will not receive the benefit of safe harbor treatment as provided in the regulation. The likely respondents are businesses and other for-profit institutions. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC, 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by September 17, 2002. Comments are specifically requested concerning: Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the collection of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. The estimated total annual reporting burden is 470 hours, based on an estimated number of respondents of 470 and an estimated average annual burden hours per respondent of one hour. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background This document contains final regulations regarding the proposed amendments to 26 CFR part 1 under section 860E of the Internal Revenue Code (Code). The regulations provide the circumstances under which a transferor of a noneconomic REMIC residual interest meeting the investigation and representation requirements may avail itself of the safe harbor by satisfying either the formula test or the asset test. Final regulations governing REMICs, issued in 1992, contain rules governing the transfer of noneconomic REMIC residual interests. In general, a transfer of a noneconomic residual interest is disregarded for all tax purposes if a significant purpose of the transfer is to [[Page 47452]] enable the transferor to impede the assessment or collection of tax. A purpose to impede the assessment or collection of tax (a wrongful purpose) exists if the transferor, at the time of the transfer, either knew or should have known that the transferee would be unwilling or unable to pay taxes due on its share of the REMIC's taxable income. Under a safe harbor, the transferor of a REMIC noneconomic residual interest is presumed not to have a wrongful purpose if two requirements are satisfied: (1) the transferor conducts a reasonable investigation of the transferee's financial condition (the investigation requirement); and (2) the transferor secures a representation from the transferee to the effect that the transferee understands the tax obligations associated with holding a residual interest and intends to pay those taxes (the representation requirement). The IRS and Treasury have been concerned that some transferors of noneconomic residual interests claim they satisfy the safe harbor even in situations where the economics of the transfer clearly indicate the transferee is unwilling or unable to pay the tax associated with holding the interest. For this reason, on February 7, 2000, the IRS published in the Federal Register (65 FR 5807) a notice of proposed rulemaking (REG-100276-97; REG-122450-98) designed to clarify the safe harbor by adding the "formula test," an economic test. The proposed regulation provides that the safe harbor is unavailable unless the present value of the anticipated tax liabilities associated with holding the residual interest does not exceed the sum of: (1) The present value of any consideration given to the transferee to acquire the interest; (2) the present value of the expected future distributions on the interest; and (3) the present value of the anticipated tax savings associated with holding the interest as the REMIC generates losses. The notice of proposed rulemaking also contained rules for FASITs. Section 1.860H-6(g) of the proposed regulations provides requirements for transfers of FASIT ownership interests and adopts a safe harbor by reference to the safe harbor provisions of the REMIC regulations. In January 2001, the IRS published Rev. Proc. 2001-12 (2001-3 I.R.B. 335) to set forth an alternative safe harbor that taxpayers could use while the IRS and the Treasury considered comments on the proposed regulations. Under the alternative safe harbor, if a transferor meets the investigation requirement and the representation requirement but the transfer fails to meet the formula test, the transferor may invoke the safe harbor if the transferee meets a two- prong test (the asset test). A transferee generally meets the first prong of this test if, at the time of the transfer, and in each of the two years preceding the year of transfer, the transferee's gross assets exceed $100 million and its net assets exceed $10 million. A transferee generally meets the second prong of this test if it is a domestic, taxable corporation and agrees in writing not to transfer the interest to any person other than another domestic, taxable corporation that also satisfies the requirements of the asset test. A transferor cannot rely on the asset test if the transferor knows, or has reason to know, that the transferee will not comply with its written agreement to limit the restrictions on subsequent transfers of the residual interest. Rev. Proc. 2001-12 provides that the asset test fails to be satisfied in the case of a transfer or assignment of a noneconomic residual interest to a foreign branch of an otherwise eligible transferee. If such a transfer or assignment were permitted, a corporate taxpayer might seek to claim that the provisions of an applicable income tax treaty would resource excess inclusion income as foreign source income, and that, as a consequence, any U.S. tax liability attributable to the excess inclusion income could be offset by foreign tax credits. Such a claim would impede the assessment or collection of U.S. tax on excess inclusion income, contrary to the congressional purpose of assuring that such income will be taxable in all events. See, e.g., sections 860E(a)(1), (b), (e) and 860G(b) of the Code. The Treasury and the IRS have learned that certain taxpayers transferring noneconomic residual interests to foreign branches have attempted to rely on the formula test to obtain safe harbor treatment in an effort to impede the assessment or collection of U.S. tax on excess inclusion income. Accordingly, the final regulations provide that if a noneconomic residual interest is transferred to a foreign permanent establishment or fixed base of a U.S. taxpayer, the transfer is not eligible for safe harbor treatment under either the asset test or the formula test. The final regulations also require a transferee to represent that it will not cause income from the noneconomic residual interest to be attributable to a foreign permanent establishment or fixed base. Section 1.860E-1(c)(8) provides computational rules that a taxpayer may use to qualify for safe harbor status under the formula test. Section 1.860E-1(c)(8)(i) provides that the transferee is presumed to pay tax at a rate equal to the highest rate of tax specified in section 11(b). Some commentators were concerned that this presumed rate of taxation was too high because it does not take into consideration taxpayers subject to the alternative minimum tax rate. In light of the comments received, this provision has been amended in the final regulations to allow certain transferees that compute their taxable income using the alternative minimum tax rate to use the alternative minimum tax rate applicable to corporations. Additionally, Sec. 1.860E-1(c)(8)(iii) provides that the present values in the formula test are to be computed using a discount rate equal to the applicable Federal short-term rate prescribed by section 1274(d). This is a change from the proposed regulation and Rev. Proc. 2001-12. In those publications the provision stated that "present values are computed using a discount rate equal to the applicable Federal rate prescribed in section 1274(d) compounded semiannually" and that "[a] lower discount rate may be used if the transferee can demonstrate that it regularly borrows, in the course of its trade or business, substantial funds at such lower rate from an unrelated third party." The IRS and the Treasury Department have learned that, based on this provision, certain taxpayers have been attempting to use unrealistically low or zero interest rates to satisfy the formula test, frustrating the intent of the test. Furthermore, the Treasury Department and the IRS believe that a rule allowing for a rate other than a rate based on an objective index would add unnecessary complexity to the safe harbor. As a result, the rule in the proposed regulations that permits a transferee to use a lower discount rate, if the transferee can demonstrate that it regularly borrows substantial funds at such lower rate, is not included in the final regulations; and the Federal short-term rate has been substituted for the applicable Federal rate. To simplify taxpayers' computations, the final regulations allow use of any of the published short-term rates, provided that the present values are computed with a corresponding period of compounding. With the exception of the provisions relating to transfers to foreign branches, these changes generally have the proposed applicability date of February 4, 2000, but taxpayers may choose to apply the interest rate formula set forth in the proposed regulation and Rev. Proc. 2001-12 for transfers occurring before August 19, 2002. It is anticipated that when final regulations are adopted with respect to [[Page 47453]] FASITs, Sec. 1.860H-6(g) of the proposed regulations will be adopted in substantially its present form, with the result that the final regulations contained in this document will also govern transfers of FASIT ownership interests with substantially the same applicability date as is contained in this document. Effect on Other Documents Rev. Proc. 2001-12 (2001-3 I.R.B. 335) is obsolete for transfers of noneconomic residual interests in REMICs occurring on or after August 19, 2002. Special Analyses It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that it is unlikely that a substantial number of small entities will hold REMIC residual interests. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that sections 553(b) and 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. Drafting Information The principal author of these regulations is Courtney Shepardson. However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and record keeping requirements. 26 CFR Part 602 Reporting and record keeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * -------------------------------------------------------------------------------- EXHIBIT G-2 FORM OF TRANSFEROR CERTIFICATE ______________, 20 Residential Accredit Loans, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 __________________ __________________ __________________ Attention: Residential Funding Corporation Series ____-___ Re: Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, Class R Ladies and Gentlemen: This letter is delivered to you in connection with the transfer by ______________________________________________________(the "Seller") to ________________________________________________________________________________(the "Purchaser") of $ _________________________ Initial Certificate Principal Balance of Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, Class R (the "Certificates"), pursuant to Section 5.02 of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of ___________ 1, ____ among Residential Accredit Loans, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer (the "Master Servicer"), and __________________, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that: 1. No purpose of the Seller relating to the transfer of the Certificate by the Seller to the Purchaser is or will be to impede the assessment or collection of any tax. 2. The Seller understands that the Purchaser has delivered to the Trustee and the Master Servicer a transfer affidavit and agreement in the form attached to the Pooling and Servicing Agreement as Exhibit G-1. The Seller does not know or believe that any representation contained therein is false. 3. The Seller has at the time of the transfer conducted a reasonable investigation of the financial condition of the Purchaser as contemplated by Treasury Regulations Section 1.860E-1(c)(4)(i) and, as a result of that investigation, the Seller has determined that the Purchaser has historically paid its debts as they become due and has found no significant evidence to indicate that the Purchaser will not continue to pay its debts as they become due in the future. The Seller understands that the transfer of a Class R Certificate may not be respected for United States income tax purposes (and the Seller may continue to be liable for United States income taxes associated therewith) unless the Seller has conducted such an investigation. 4. The Seller has no actual knowledge that the proposed Transferee is not both a United States Person and a Permitted Transferee. Very truly yours, (Seller) By: Name: Title: -------------------------------------------------------------------------------- EXHIBIT H FORM OF INVESTOR REPRESENTATION LETTER ______________, 20 Residential Accredit Loans, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 __________________ __________________ __________________ Residential Funding Corporation 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 Attention: Residential Funding Corporation Series ____-___ RE: Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, [Class B-] Ladies and Gentlemen: ________________(the "Purchaser") intends to purchase from _____________________________________________________(the "Seller") $__________________________ Initial Certificate Principal Balance of Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, Class (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of ___________ 1, ____ among Residential Accredit Loans, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer (the "Master Servicer"), and __________________, as trustee (the "Trustee"). All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Purchaser hereby certifies, represents and warrants to, and covenants with, the Company, the Trustee and the Master Servicer that: 1. The Purchaser understands that (a) the Certificates have not been and will not be registered or qualified under the Securities Act of 1933, as amended (the "Act") or any state securities law, (b) the Company is not required to so register or qualify the Certificates, (c) the Certificates may be resold only if registered and qualified pursuant to the provisions of the Act or any state securities law, or if an exemption from such registration and qualification is available, (d) the Pooling and Servicing Agreement contains restrictions regarding the transfer of the Certificates and (e) the Certificates will bear a legend to the foregoing effect. 2. The Purchaser is acquiring the Certificates for its own account for investment only and not with a view to or for sale in connection with any distribution thereof in any manner that would violate the Act or any applicable state securities laws. 3. The Purchaser is (a) a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters, and, in particular, in such matters related to securities similar to the Certificates, such that it is capable of evaluating the merits and risks of investment in the Certificates, (b) able to bear the economic risks of such an investment and (c) an "accredited investor" within the meaning of Rule 501(a) promulgated pursuant to the Act. 4. The Purchaser has been furnished with, and has had an opportunity to review (a) [a copy of the Private Placement Memorandum, dated , 20 , relating to the Certificates (b)] a copy of the Pooling and Servicing Agreement and [b] [c] such other information concerning the Certificates, the Mortgage Loans and the Company as has been requested by the Purchaser from the Company or the Seller and is relevant to the Purchaser's decision to purchase the Certificates. The Purchaser has had any questions arising from such review answered by the Company or the Seller to the satisfaction of the Purchaser. [If the Purchaser did not purchase the Certificates from the Seller in connection with the initial distribution of the Certificates and was provided with a copy of the Private Placement Memorandum (the "Memorandum") relating to the original sale (the "Original Sale") of the Certificates by the Company, the Purchaser acknowledges that such Memorandum was provided to it by the Seller, that the Memorandum was prepared by the Company solely for use in connection with the Original Sale and the Company did not participate in or facilitate in any way the purchase of the Certificates by the Purchaser from the Seller, and the Purchaser agrees that it will look solely to the Seller and not to the Company with respect to any damage, liability, claim or expense arising out of, resulting from or in connection with (a) error or omission, or alleged error or omission, contained in the Memorandum, or (b) any information, development or event arising after the date of the Memorandum.] 5. The Purchaser has not and will not nor has it authorized or will it authorize any person to (a) offer, pledge, sell, dispose of or otherwise transfer any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) solicit any offer to buy or to accept a pledge, disposition of other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) otherwise approach or negotiate with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) make any general solicitation by means of general advertising or in any other manner or (e) take any other action, that (as to any of (a) through (e) above) would constitute a distribution of any Certificate under the Act, that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Purchaser will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. 6. The Purchaser (a) is not an employee benefit or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (a "Plan"), or any other person (including an investment manager, a named fiduciary or a trustee of any Plan) acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any Plan within the meaning of the Department of Labor ("DOL") regulation at 29 C.F.R.ss.2510.3-101; or (b) is an insurance company, the source of funds to be used by it to purchase the Certificates is an "insurance company general account" (within the meaning of DOL Prohibited Transaction Class Exemption ("PTCE") 95-60), and the purchase is being made in reliance upon the availability of the exemptive relief afforded under Sections I and III of PTCE 95-60. In addition, the Purchaser hereby certifies, represents and warrants to, and covenants with, the Company, the Trustee and the Master Servicer that the Purchaser will not transfer such Certificates to any Plan or person unless such Plan or person meets the requirements set forth in either 6(a) or (b) above. Very truly yours, By: Name: Title: -------------------------------------------------------------------------------- EXHIBIT I FORM OF TRANSFEROR REPRESENTATION LETTER _________ , 20 Residential Accredit Loans, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, MN 55437 __________________ __________________ __________________ Attention: Residential Funding Corporation Series ____-___ Re: Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, [Class B-] Ladies and Gentlemen: In connection with the sale by ________________ (the "Seller") to ___________________ (the "Purchaser") of $_____________ Initial Certificate Principal Balance of Mortgage Asset-Backed Pass-Through Certificates, Series ____-___, Class (the "Certificates"), issued pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of ___________ 1, ____ among Residential Accredit Loans, Inc., as seller (the "Company"), Residential Funding Corporation, as master servicer, and __________________, as trustee (the "Trustee"). The Seller hereby certifies, represents and warrants to, and covenants with, the Company and the Trustee that: Neither the Seller nor anyone acting on its behalf has (a) offered, pledged, sold, disposed of or otherwise transferred any Certificate, any interest in any Certificate or any other similar security to any person in any manner, (b) has solicited any offer to buy or to accept a pledge, disposition or other transfer of any Certificate, any interest in any Certificate or any other similar security from any person in any manner, (c) has otherwise approached or negotiated with respect to any Certificate, any interest in any Certificate or any other similar security with any person in any manner, (d) has made any general solicitation by means of general advertising or in any other manner, or (e) has taken any other action, that (as to any of (a) through (e) above) would constitute a distribution of the Certificates under the Securities Act of 1933 (the "Act"), that would render the disposition of any Certificate a violation of Section 5 of the Act or any state securities law, or that would require registration or qualification pursuant thereto. The Seller will not act, in any manner set forth in the foregoing sentence with respect to any Certificate. The Seller has not and will not sell or otherwise transfer any of the Certificates, except in compliance with the provisions of the Pooling and Servicing Agreement. Very truly yours, (Seller) By: Name: Title: -------------------------------------------------------------------------------- EXHIBIT J [FORM OF RULE 144A INVESTMENT REPRESENTATION] Description of Rule 144A Securities, including numbers: The undersigned seller, as registered holder (the "Seller"), intends to transfer the Rule 144A Securities described above to the undersigned buyer (the "Buyer"). 1. In connection with such transfer and in accordance with the agreements pursuant to which the Rule 144A Securities were issued, the Seller hereby certifies the following facts: Neither the Seller nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the Securities Act of 1933, as amended (the "1933 Act"), or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, and that the Seller has not offered the Rule 144A Securities to any person other than the Buyer or another "qualified institutional buyer" as defined in Rule 144A under the 1933 Act. 2. The Buyer warrants and represents to, and covenants with, the Seller, the Trustee and the Master Servicer (as defined in the Pooling and Servicing Agreement (the "Agreement"), dated as of ___________ 1, ____ among Residential Funding Corporation as Master Servicer, Residential Accredit Loans, Inc. as depositor pursuant to Section 5.02 of the Agreement and __________________, as trustee, as follows: (a) The Buyer understands that the Rule 144A Securities have not been registered under the 1933 Act or the securities laws of any state. (b) The Buyer considers itself a substantial, sophisticated institutional investor having such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Rule 144A Securities. (c) The Buyer has been furnished with all information regarding the Rule 144A Securities that it has requested from the Seller, the Trustee or the Servicer. (d) Neither the Buyer nor anyone acting on its behalf has offered, transferred, pledged, sold or otherwise disposed of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security to, or solicited any offer to buy or accept a transfer, pledge or other disposition of the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security from, or otherwise approached or negotiated with respect to the Rule 144A Securities, any interest in the Rule 144A Securities or any other similar security with, any person in any manner, or made any general solicitation by means of general advertising or in any other manner, or taken any other action, that would constitute a distribution of the Rule 144A Securities under the 1933 Act or that would render the disposition of the Rule 144A Securities a violation of Section 5 of the 1933 Act or require registration pursuant thereto, nor will it act, nor has it authorized or will it authorize any person to act, in such manner with respect to the Rule 144A Securities. (e) The Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the 1933 Act and has completed either of the forms of certification to that effect attached hereto as Annex 1 or Annex 2. The Buyer is aware that the sale to it is being made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A Securities for its own account or the accounts of other qualified institutional buyers, understands that such Rule 144A Securities may be resold, pledged or transferred only (i) to a person reasonably believed to be a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (ii) pursuant to another exemption from registration under the 1933 Act. [3. The Buyer [(a) is not an employee benefit or other plan subject to the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (a "Plan"), or any other person (including an investment manager, a named fiduciary or a trustee of any Plan) acting, directly or indirectly, on behalf of or purchasing any Certificate with "plan assets" of any Plan within the meaning of the Department of Labor ("DOL") regulation at 29 C.F.R.ss.2510.3-101](1); or (b) is an insurance company, the source of funds to be used by it to purchase the Certificates is an "insurance company general account" (within the meaning of DOL Prohibited Transaction Class Exemption ("PTCE") 95-60), and the purchase is being made in reliance upon the availability of the exemptive relief afforded under Sections I and III of PTCE 95-60.](2) 4. This document may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same document. IN WITNESS WHEREOF, each of the parties has executed this document as of the date set forth below. Print Name of Seller Print Name of Buyer By: By: Name: Name: Title: Title: Taxpayer Identification Taxpayer Identification: No. No: Date: Date: -------------------------------------------------------------------------------- ANNEX 1 TO EXHIBIT J QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers Other Than Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 1. As indicated below, the undersigned is the President, Chief Financial Officer, Senior Vice President or other executive officer of the Buyer. 2. In connection with purchases by the Buyer, the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a discretionary basis $_________________________________________ in securities (except for the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) the Buyer satisfies the criteria in the category marked below. -- Corporation, etc. The Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. -- Bank. The Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. -- Savings and Loan. The Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institutions or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements. -- Broker-Dealer. The Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. -- Insurance Company. The Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State or territory or the District of Columbia. -- State or Local Plan. The Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees. -- ERISA Plan. The Buyer is an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974. -- Investment Adviser. The Buyer is an investment adviser registered under the Investment Advisers Act of 1940. -- SBIC. The Buyer is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. -- Business Development Company. The Buyer is a business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940. -- Trust Fund. The Buyer is a trust fund whose trustee is a bank or trust company and whose participants are exclusively (a) plans established and maintained by a State, its political subdivisions, or any agency or instrumentality of the State or its political subdivisions, for the benefit of its employees, or (b) employee benefit plans within the meaning of Title I of the Employee Retirement Income Security Act of 1974, but is not a trust fund that includes as participants individual retirement accounts or H.R. 10 plans. 3. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer, (ii) securities that are part of an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. 4. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis by the Buyer, the Buyer used the cost of such securities to the Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, the Buyer may have included securities owned by subsidiaries of the Buyer, but only if such subsidiaries are consolidated with the Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under the Buyer's direction. However, such securities were not included if the Buyer is a majority-owned, consolidated subsidiary of another enterprise and the Buyer is not itself a reporting company under the Securities Exchange Act of 1934. 5. The Buyer acknowledges that it is familiar with Rule 144A and understands that the seller to it and other parties related to the Certificates are relying and will continue to rely on the statements made herein because one or more sales to the Buyer may be in reliance on Rule 144A. Will the Buyer be purchasing the Rule 144A Yes No Securities only for the Buyer's own account? 6. If the answer to the foregoing question is "no", the Buyer agrees that, in connection with any purchase of securities sold to the Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, the Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, the Buyer agrees that the Buyer will not purchase securities for a third party unless the Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. 7. The Buyer will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice is given, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification as of the date of such purchase. Print Name of Buyer By: __________________________________ Name: Title: Date: -------------------------------------------------------------------------------- ANNEX 2 TO EXHIBIT J QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A [For Buyers That Are Registered Investment Companies] The undersigned hereby certifies as follows in connection with the Rule 144A Investment Representation to which this Certification is attached: 8. As indicated below, the undersigned is the President, Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), is such an officer of the Adviser. 9. In connection with purchases by Buyer, the Buyer is a "qualified institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an investment company registered under the Investment Company Act of 1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year. For purposes of determining the amount of securities owned by the Buyer or the Buyer's Family of Investment Companies, the cost of such securities was used. -- The Buyer owned $______________________________________________ in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). -- The Buyer is part of a Family of Investment Companies which owned in the aggregate $_______________________in securities (other than the excluded securities referred to below) as of the end of the Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). 10. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). 11. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with the Buyer or are part of the Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates of deposit, (iii) loan participations, (iv) repurchase agreements, (v) securities owned but subject to a repurchase agreement and (vi) currency, interest rate and commodity swaps. 12. The Buyer is familiar with Rule 144A and understands that each of the parties to which this certification is made are relying and will continue to rely on the statements made herein because one or more sales to the Buyer will be in reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's own account. 13. The undersigned will notify each of the parties to which this certification is made of any changes in the information and conclusions herein. Until such notice, the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of this certification by the undersigned as of the date of such purchase. Print Name of Buyer By:_____________________________________ Name: Title: IF AN ADVISER: Print Name of Buyer Date: -------------------------------------------------------------------------------- EXHIBIT K [TEXT OF AMENDMENT TO POOLING AND SERVICING AGREEMENT PURSUANT TO SECTION 11.01(E) FOR A LIMITED GUARANTY] ARTICLE XIII Subordinate Certificate Loss Coverage; Limited Guaranty Section 13.01. Subordinate Certificate Loss Coverage; Limited Guaranty. (a) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether it or any Sub-Servicer will be entitled to any reimbursement pursuant to Section 4.02(a) on such Distribution Date for Advances or Sub-Servicer Advances previously made, (which will not be Advances or Sub-Servicer Advances that were made with respect to delinquencies which were subsequently determined to be Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or Extraordinary Losses) and, if so, the Master Servicer shall demand payment from Residential Funding of an amount equal to the amount of any Advances or Sub-Servicer Advances reimbursed pursuant to Section 4.02(a), to the extent such Advances or Sub-Servicer Advances have not been included in the amount of the Realized Loss in the related Mortgage Loan, and shall distribute the same to the Class B Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02(a). (b) Subject to subsection (c) below, prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date, the Master Servicer shall determine whether any Realized Losses (other than Excess Special Hazard Losses, Excess Bankruptcy Losses, Excess Fraud Losses and Extraordinary Losses) will be allocated to the Class B Certificates on such Distribution Date pursuant to Section 4.05, and, if so, the Master Servicer shall demand payment from Residential Funding of the amount of such Realized Loss and shall distribute the same to the Class B Certificateholders in the same manner as if such amount were to be distributed pursuant to Section 4.02(a); provided, however, that the amount of such demand in respect of any Distribution Date shall in no event be greater than the sum of (i) the additional amount of Accrued Certificate Interest that would have been paid for the Class B Certificateholders on such Distribution Date had such Realized Loss or Losses not occurred plus (ii) the amount of the reduction in the Certificate Principal Balances of the Class B Certificates on such Distribution Date due to such Realized Loss or Losses. Notwithstanding such payment, such Realized Losses shall be deemed to have been borne by the Certificateholders for purposes of Section 4.05. Excess Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses and Extraordinary Losses allocated to the Class B Certificates will not be covered by the Subordinate Certificate Loss Obligation. (c) Demands for payments pursuant to this Section shall be made prior to the later of the third Business Day prior to each Distribution Date or the related Determination Date by the Master Servicer with written notice thereof to the Trustee. The maximum amount that Residential Funding shall be required to pay pursuant to this Section on any Distribution Date (the "Amount Available") shall be equal to the lesser of (X) minus the sum of (i) all previous payments made under subsections (a) and (b) hereof and (ii) all draws under the Limited Guaranty made in lieu of such payments as described below in subsection (d) and (Y) the then outstanding Certificate Principal Balances of the Class B Certificates, or such lower amount as may be established pursuant to Section 13.02. Residential Funding's obligations as described in this Section are referred to herein as the "Subordinate Certificate Loss Obligation." (d) The Trustee will promptly notify General Motors Acceptance Corporation of any failure of Residential Funding to make any payments hereunder and shall demand payment pursuant to the limited guaranty (the "Limited Guaranty"), executed by General Motors Acceptance Corporation, of Residential Funding's obligation to make payments pursuant to this Section, in an amount equal to the lesser of (i) the Amount Available and (ii) such required payments, by delivering to General Motors Acceptance Corporation a written demand for payment by wire transfer, not later than the second Business Day prior to the Distribution Date for such month, with a copy to the Master Servicer. (e) All payments made by Residential Funding pursuant to this Section or amounts paid under the Limited Guaranty shall be deposited directly in the Certificate Account, for distribution on the Distribution Date for such month to the Class B Certificateholders. (f) The Company shall have the option, in its sole discretion, to substitute for either or both of the Limited Guaranty or the Subordinate Certificate Loss Obligation another instrument in the form of a corporate guaranty, an irrevocable letter of credit, a surety bond, insurance policy or similar instrument or a reserve fund; provided that (i) the Company obtains (subject to the provisions of Section 10.01(f) as if the Company was substituted for the Master Servicer solely for the purposes of such provision) an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that obtaining such substitute corporate guaranty, irrevocable letter of credit, surety bond, insurance policy or similar instrument or reserve fund will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860(F)(a)(1) of the Code or on "contributions after the startup date" under Section 860(G)(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding, and (ii) no such substitution shall be made unless (A) the substitute Limited Guaranty or Subordinate Certificate Loss Obligation is for an initial amount not less than the then current Amount Available and contains provisions that are in all material respects equivalent to the original Limited Guaranty or Subordinate Certificate Loss Obligation (including that no portion of the fees, reimbursements or other obligations under any such instrument will be borne by the Trust Fund), (B) the long term debt obligations of any obligor of any substitute Limited Guaranty or Subordinate Certificate Loss Obligation (if not supported by the Limited Guaranty) shall be rated at least the lesser of (a) the rating of the long term debt obligations of General Motors Acceptance Corporation as of the date of issuance of the Limited Guaranty and (b) the rating of the long term debt obligations of General Motors Acceptance Corporation at the date of such substitution and (C) the Company obtains written confirmation from each nationally recognized credit rating agency that rated the Class B Certificates at the request of the Company that such substitution shall not lower the rating on the Class B Certificates below the lesser of (a) the then-current rating assigned to the Class B Certificates by such rating agency and (b) the original rating assigned to the Class B Certificates by such rating agency. Any replacement of the Limited Guaranty or Subordinate Certificate Loss Obligation pursuant to this Section shall be accompanied by a written Opinion of Counsel to the substitute guarantor or obligor, addressed to the Master Servicer and the Trustee, that such substitute instrument constitutes a legal, valid and binding obligation of the substitute guarantor or obligor, enforceable in accordance with its terms, and concerning such other matters as the Master Servicer and the Trustee shall reasonably request. Neither the Company, the Master Servicer nor the Trustee shall be obligated to substitute for or replace the Limited Guaranty or Subordinate Certificate Loss Obligation under any circumstance. Section 13.02. Amendments Relating to the Limited Guaranty. Notwithstanding Sections 11.01 or 13.01: (i) the provisions of this Article XIII may be amended, superseded or deleted, (ii) the Limited Guaranty or Subordinate Certificate Loss Obligation may be amended, reduced or canceled, and (iii) any other provision of this Agreement which is related or incidental to the matters described in this Article XIII may be amended in any manner; in each case by written instrument executed or consented to by the Company and Residential Funding but without the consent of any Certificateholder and without the consent of the Master Servicer or the Trustee being required unless any such amendment would impose any additional obligation on, or otherwise adversely affect the interests of, the Master Servicer or the Trustee, as applicable; provided that the Company shall also obtain a letter from each nationally recognized credit rating agency that rated the Class B Certificates at the request of the Company to the effect that such amendment, reduction, deletion or cancellation will not lower the rating on the Class B Certificates below the lesser of (a) the then-current rating assigned to the Class B Certificates by such rating agency and (b) the original rating assigned to the Class B Certificates by such rating agency, unless (A) the Holder of 100% of the Class B Certificates is Residential Funding or an Affiliate of Residential Funding, or (B) such amendment, reduction, deletion or cancellation is made in accordance with Section 11.01(e) and, provided further that the Company obtains (subject to the provisions of Section 10.01(f) as if the Company was substituted for the Master Servicer solely for the purposes of such provision), in the case of a material amendment or supercession (but not a reduction, cancellation or deletion of the Limited Guaranty or the Subordinate Certificate Loss Obligation), an Opinion of Counsel (which need not be an opinion of Independent counsel) to the effect that any such amendment or supercession will not cause either (a) any federal tax to be imposed on the Trust Fund, including without limitation, any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or on "contributions after the startup date" under Section 860G(d)(1) of the Code or (b) the Trust Fund to fail to qualify as a REMIC at any time that any Certificate is outstanding. A copy of any such instrument shall be provided to the Trustee and the Master Servicer together with an Opinion of Counsel that such amendment complies with this Section 13.02. -------------------------------------------------------------------------------- EXHIBIT L [FORM OF LIMITED GUARANTY] LIMITED GUARANTY RESIDENTIAL ACCREDIT LOANS, INC. Mortgage Asset-Backed Pass-Through Certificates Series ____-___ _____________, 200 __________________ __________________ __________________ Attention: Residential Funding Corporation Series ____-___ Ladies and Gentlemen: WHEREAS, Residential Funding Corporation, a Delaware corporation ("Residential Funding"), an indirect wholly-owned subsidiary of General Motors Acceptance Corporation, a New York corporation ("GMAC"), plans to incur certain obligations as described under Section 13.01 of the Pooling and Servicing Agreement dated as of ___________ 1, ____ (the "Servicing Agreement"), among Residential Accredit Loans, Inc. (the "Company"), Residential Funding and __________________ (the "Trustee") as amended by Amendment No. thereto, dated as of , with respect to the Mortgage Asset-Backed Pass-Through Certificates, Series ____-___ (the "Certificates"); and WHEREAS, pursuant to Section 13.01 of the Servicing Agreement, Residential Funding agrees to make payments to the Holders of the Class B Certificates with respect to certain losses on the Mortgage Loans as described in the Servicing Agreement; and WHEREAS, GMAC desires to provide certain assurances with respect to the ability of Residential Funding to secure sufficient funds and faithfully to perform its Subordinate Certificate Loss Obligation; NOW THEREFORE, in consideration of the premises herein contained and certain other good and valuable consideration, the receipt of which is hereby acknowledged, GMAC agrees as follows: 1. Provision of Funds. (a) GMAC agrees to contribute and deposit in the Certificate Account on behalf of Residential Funding (or otherwise provide to Residential Funding, or to cause to be made available to Residential Funding), either directly or through a subsidiary, in any case prior to the related Distribution Date, such moneys as may be required by Residential Funding to perform its Subordinate Certificate Loss Obligation when and as the same arises from time to time upon the demand of the Trustee in accordance with Section 13.01 of the Servicing Agreement. (b) The agreement set forth in the preceding clause (a) shall be absolute, irrevocable and unconditional and shall not be affected by the transfer by GMAC or any other person of all or any part of its or their interest in Residential Funding, by any insolvency, bankruptcy, dissolution or other proceeding affecting Residential Funding or any other person, by any defense or right of counterclaim, set-off or recoupment that GMAC may have against Residential Funding or any other person or by any other fact or circumstance. Notwithstanding the foregoing, GMAC's obligations under clause (a) shall terminate upon the earlier of (x) substitution for this Limited Guaranty pursuant to Section 13.01(f) of the Servicing Agreement, or (y) the termination of the Trust Fund pursuant to the Servicing Agreement. 2. Waiver. GMAC hereby waives any failure or delay on the part of Residential Funding, the Trustee or any other person in asserting or enforcing any rights or in making any claims or demands hereunder. Any defective or partial exercise of any such rights shall not preclude any other or further exercise of that or any other such right. GMAC further waives demand, presentment, notice of default, protest, notice of acceptance and any other notices with respect to this Limited Guaranty, including, without limitation, those of action or nonaction on the part of Residential Funding or the Trustee. 3. Modification, Amendment and Termination. This Limited Guaranty may be modified, amended or terminated only by the written agreement of GMAC and the Trustee and only if such modification, amendment or termination is permitted under Section 13.02 of the Servicing Agreement. The obligations of GMAC under this Limited Guaranty shall continue and remain in effect so long as the Servicing Agreement is not modified or amended in any way that might affect the obligations of GMAC under this Limited Guaranty without the prior written consent of GMAC. 4. Successor. Except as otherwise expressly provided herein, the guarantee herein set forth shall be binding upon GMAC and its respective successors. 5. Governing Law. This Limited Guaranty shall be governed by the laws of the State of New York. 6. Authorization and Reliance. GMAC understands that a copy of this Limited Guaranty shall be delivered to the Trustee in connection with the execution of Amendment No. 1 to the Servicing Agreement and GMAC hereby authorizes the Company and the Trustee to rely on the covenants and agreements set forth herein. 7. Definitions. Capitalized terms used but not otherwise defined herein shall have the meaning given them in the Servicing Agreement. 8. Counterparts. This Limited Guaranty may be executed in any number of counterparts, each of which shall be deemed to be an original and such counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, GMAC has caused this Limited Guaranty to be executed and delivered by its respective officers thereunto duly authorized as of the day and year first above written. GENERAL MOTORS ACCEPTANCE CORPORATION By: _______________________ Name: Title: Acknowledged by: __________________, as Trustee By: Name: Title: RESIDENTIAL ACCREDIT LOANS, INC. By: Name: Title: -------------------------------------------------------------------------------- EXHIBIT M FORM OF LENDER CERTIFICATION FOR ASSIGNMENT OF MORTGAGE LOAN _____________, 20 Residential Accredit Loans, Inc. 8400 Normandale Lake Boulevard Suite 250 Minneapolis, Minnesota 55437 __________________ __________________ __________________ Attention: Residential Funding Corporation Series ____-___ Re: Mortgage Asset-Backed Pass-Through Certificates, Series ____-___ Assignment of Mortgage Loan Ladies and Gentlemen: This letter is delivered to you in connection with the assignment by ___________________________________(the "Trustee") to _______________________________________________ (the "Lender") of ______________________________ (the "Mortgage Loan") pursuant to Section 3.13(d) of the Pooling and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of ___________ 1, ____ among Residential Accredit Loans, Inc., as seller (the "Company"), Residential Funding Corporation, as Master Servicer, and the Trustee. All terms used herein and not otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Lender hereby certifies, represents and warrants to, and covenants with, the Master Servicer and the Trustee that: (i) the Mortgage Loan is secured by Mortgaged Property located in a jurisdiction in which an assignment in lieu of satisfaction is required to preserve lien priority, minimize or avoid mortgage recording taxes or otherwise comply with, or facilitate a refinancing under, the laws of such jurisdiction; (ii) the substance of the assignment is, and is intended to be, a refinancing of such Mortgage Loan and the form of the transaction is solely to comply with, or facilitate the transaction under, such local laws; (iii) the Mortgage Loan following the proposed assignment will be modified to have a rate of interest at least 0.25 percent below or above the rate of interest on such Mortgage Loan prior to such proposed assignment; and (iv) such assignment is at the request of the borrower under the related Mortgage Loan. Very truly yours, (Lender) By: ______________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT N FORM OF REQUEST FOR EXCHANGE [DATE] __________________ __________________ __________________ Re: Residential Accredit Loans, Inc., Mortgage Asset-Backed Pass-Through Certificates, Series ____-___ Residential Funding Corporation, as the Holder of a _________% Percentage Interest of the [Interest Only/Class A-V][-1] Certificates, hereby requests the Trustee to exchange the above-referenced Certificates for the Subclasses referred to below: 1. [Interest Only/Class A-V]- Certificates, corresponding to the following Uncertificated REMIC Regular Interests: [List numbers corresponding to the related loans and Pool Strip Rates from the Mortgage Loan Schedule]. The initial Subclass Notional Amount and the Initial Pass-Through Rate on the [Interest Only/Class A-V]- Certificates will be $ ___________________ and __________%, respectively. 2. [Repeat as appropriate.] The Subclasses requested above will represent in the aggregate all of the Uncertificated REMIC Regular Interests represented by the [Interest Only/Class A-V][-1] Certificates surrendered for exchange. All capitalized terms used but not defined herein shall have the meanings set forth in the Pooling and Servicing Agreement, dated as of ___________ 1, ____, among Residential Accredit Loans, Inc., Residential Funding Corporation and __________________, as trustee. RESIDENTIAL FUNDING CORPORATION By: __________________________ Name: Title: -------------------------------------------------------------------------------- EXHIBIT O Form of Form 10-K Certification I, [identify the certifying individual], certify that: 1. 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") created pursuant to the Series Supplement dated ___________________ to the Standard Terms of Pooling and Servicing Agreement dated ____________________ (together, the "P&S Agreement") among Residential Accredit Loans, Inc., Residential Funding Corporation (the "Master Servicer") and [Name of Trustee] (the "Trustee"); 2. Based on my knowledge, the 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; 3. 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; 4. I am responsible for reviewing the activities performed by the Master 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 a disclosed in the Exchange Act periodic reports, the Master Servicer has fulfilled its obligations under the P&S 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 the information provided to me by the following unaffiliated parties: [the Trustee]. Date:_______________________ ____________________________* [Signature] [Title:] * to be signed by the senior officer in charge of the servicing functions of the Master Servicer -------------------------------------------------------------------------------- EXHIBIT P [FORM OF BACK-UP CERTIFICATION TO FORM 10-K CERTIFICATE] The undersigned, a Responsible Officer of [_________] (the "Trustee") certifies that: (a) The Trustee has performed all of the duties specifically required to be performed by it pursuant to the provisions of the Pooling and Servicing Agreement dated as of [_________], 20[__] (the "Agreement") by and among [__________], as depositor, Residential Funding Corporation, as Master Servicer, and the Trustee in accordance with the standards set forth therein. (b) Based on my knowledge, the list of Certificateholders as shown on the Certificate Register as of the end of each calendar year that is provided by the Trustee pursuant to the Agreement is accurate as of the last day of the 20[__] calendar year. Capitalized terms used and not defined herein shall have the meanings given such terms in the Agreement. IN WITNESS WHEREOF, I have duly executed this certificate as of _________, 20__.] Name:______________________________ Title: -------------------------------------------------------------------------------- EXHIBIT Q INFORMATION TO BE PROVIDED BY THE MASTER SERVICER TO THE RATING AGENCIES RELATING TO REPORTABLE MODIFIED MORTGAGE LOANS Account number Transaction Identifier Unpaid Principal Balance prior to Modification Next Due Date Monthly Principal and Interest Payment Total Servicing Advances Current Interest Rate Original Maturity Date Original Term to Maturity (Months) Remaining Term to Maturity (Months) Trial Modification Indicator Mortgagor Equity Contribution Total Servicer Advances Trial Modification Term (Months) Trial Modification Start Date Trial Modification End Date Trial Modification Period Principal and Interest Payment Trial Modification Interest Rate Trial Modification Term Rate Reduction Indicator Interest Rate Post Modification Rate Reduction Start Date Rate Reduction End Date Rate Reduction Term Term Modified Indicator Modified Amortization Period Modified Final Maturity Date Total Advances Written Off Unpaid Principal Balance Written Off Other Past Due Amounts Written Off Write Off Date Unpaid Principal Balance Post Write Off Capitalization Indicator Mortgagor Contribution Total Capitalized Amount Modification Close Date Unpaid Principal Balance Post Capitalization Modification Next Payment Due Date per Modification Plan Principal and Interest Payment Post Modification Interest Rate Post Modification Payment Made Post Capitalization Delinquency Status to Modification Plan -------------------------------------------------------------------------------- EXHIBIT R SERVICING CRITERIA TO BE ADDRESSED IN ASSESSMENT OF COMPLIANCE The assessment of compliance to be delivered by the Trustee shall address, at a minimum, the criteria identified as below as "Applicable Servicing Criteria": -------------------------------------------------------------------------- ------------------ APPLICABLE SERVICING SERVICING CRITERIA CRITERIA -------------------------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ REFERENCE CRITERIA ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ GENERAL SERVICING CONSIDERATIONS ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(i) Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(ii) If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party's performance and compliance with such servicing activities. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(iii) Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(1)(iv) A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ CASH COLLECTION AND ADMINISTRATION ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(i) Payments on pool assets are deposited into the |X| (as to appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days accounts held by specified in the transaction agreements. Trustee) ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(ii) Disbursements made via wire transfer on behalf of an |X| (as to obligor or to an investor are made only by authorized investors only) personnel. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(iii) Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of |X| (as to overcollateralization, are separately maintained accounts held by (e.g., with respect to commingling of cash) as set Trustee) 1122(d)(2)(iv) forth in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(v) Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements. For purposes of this criterion, "federally insured depository institution" with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) of the Securities Exchange Act. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(vi) Unissued checks are safeguarded so as to prevent unauthorized access. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(2)(vii) Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts. These reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items. These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ INVESTOR REMITTANCES AND REPORTING ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(3)(i) Reports to investors, including those to be filed with the Commission, are maintained in accordance with the transaction agreements and applicable Commission requirements. Specifically, such reports (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the Commission as required by its rules and regulations; and (D) agree with investors' or the trustee's records as to the total unpaid principal balance and number of pool assets serviced by the servicer. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(3)(ii) Amounts due to investors are allocated and remitted in |X| accordance with timeframes, distribution priority and other terms set forth in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ Disbursements made to an investor are posted within two business days to the servicer's investor records, or such other number of days specified in the |X| 1122(d)(3)(iii) transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, |X| 1122(d)(3)(iv) or custodial bank statements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ POOL ASSET ADMINISTRATION ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(i) Collateral or security on pool assets is maintained as required by the transaction agreements or related asset pool documents. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ Pool assets and related documents are safeguarded as 1122(d)(4)(ii) required by the transaction agreements ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(iii) Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(iv) Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer's obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(v) The servicer's records regarding the pool assets agree with the servicer's records with respect to an obligor's unpaid principal balance. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(vi) Changes with respect to the terms or status of an obligor's pool asset (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(vii) Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(viii) Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements. Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity's activities in monitoring delinquent pool assets including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment). ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(ix) Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(x) Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor's pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool asset, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xi) Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xii) Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer's funds and not charged to the obligor, unless the late payment was due to the obligor's error or omission. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ Disbursements made on behalf of an obligor are posted within two business days to the obligor's records maintained by the servicer, or such other number of 1122(d)(4)(xiii) days specified in the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ 1122(d)(4)(xiv) Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements. ----------------- -------------------------------------------------------- ------------------ ----------------- -------------------------------------------------------- ------------------ Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the |X| 1122(d)(4)(xv) transaction agreements. ----------------- -------------------------------------------------------- ------------------

Exhibit 10.2 -------------------------------------------------------------------------------- TRUST INDENTURE BETWEEN GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY AND WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE DATED AS OF OCTOBER 1, 2006 $60,000,000 GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY ENVIRONMENTAL FACILITIES REVENUE BONDS (MICROGY HOLDINGS PROJECT) SERIES 2006   -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TRUST INDENTURE TABLE OF CONTENTS   PREAMBLE       1 ARTICLE I DEFINITIONS SECTION 1.1.    Definitions    3 ARTICLE II THE BONDS SECTION 2.1.    Amount, Terms, and Issuance of Bonds    8 SECTION 2.2.    Designation, Denominations, Maturity and Form    8 SECTION 2.3.    Registered Bonds Required; Bond Registrar and Bond Register    9 SECTION 2.4.    Transfer and Exchange    9 SECTION 2.5.    Execution    10 SECTION 2.6.    Authentication; Authenticating Agent    10 SECTION 2.7.    Payment of Principal and Interest; Interest Rights Preserved    11 SECTION 2.8.    Persons Deemed Owners    12 SECTION 2.9.    Mutilated, Destroyed, Lost or Stolen Bonds    12 SECTION 2.10.    Temporary Bonds    13 SECTION 2.11.    Cancellation of Surrendered Bonds    13 SECTION 2.12.    Limited Obligation    13 SECTION 2.13.    Book Entry System    14 SECTION 2.14.    Payments to Securities Depository    15 SECTION 2.15.    CUSIP Numbers    15 ARTICLE III APPLICATION OF BOND PROCEEDS SECTION 3.1    Application of Original Bond Proceeds    16 ARTICLE IV DEBT SERVICE RESERVE FUND SECTION 4.1    Creation of Debt Service Reserve Fund    17 SECTION 4.2    Replenishment of Debt Service Reserve Fund    17 ARTICLE V CONSTRUCTION FUND SECTION 5.1.    Creation of Construction Fund    17 SECTION 5.2.    Disbursements from Construction Fund    17 SECTION 5.3.    Balance in Construction Fund    17 -------------------------------------------------------------------------------- SECTION 5.4.    Acceleration of Bonds    17 ARTICLE VI BOND FUND SECTION 6.1.    Revenues to be Paid Over to the Trustee    18 SECTION 6.2.    Bond Fund    18 SECTION 6.3.    Revenues to Be Held for All Bondholders; Certain Exceptions    18 SECTION 6.4.    Amounts Remaining in Bond Fund    18 ARTICLE VII [RESERVED] ARTICLE VIII INVESTMENT OR DEPOSIT OF MONEYS SECTION 8.1.    Deposits    19 SECTION 8.2.    Investment or Deposit of Bond Fund    19 SECTION 8.3.    Investment of Moneys in the Construction Fund    19 SECTION 8.4.    No Liability for Investments    20 SECTION 8.5.    Covenants Regarding Rebate.    21 ARTICLE IX REDEMPTION OF BONDS SECTION 9.1.    Bonds Subject to Redemption    22 SECTION 9.2.    Company Direction of Optional Redemption    24 SECTION 9.3.    Selection of Bonds to be Called for Redemption; Partial Redemption    24 SECTION 9.4.    Notice of Redemption    24 ARTICLE X COVENANTS OF THE ISSUER SECTION 10.1.    Payment of Principal of, Redemption premium, if any, and Interest on Bonds; Appointment of Paying Agent    26 SECTION 10.2.    Compliance with Laws    26 SECTION 10.3.    Enforcement of Agreement; Prohibition Against Amendments of Agreement; Notice of Default    27 SECTION 10.4.    Further Assurances    27 SECTION 10.5.    Administration Expenses    27 SECTION 10.6.    Moneys to be Held in Trust    27 SECTION 10.7.    Rights of Company Under Loan Agreement    27 -------------------------------------------------------------------------------- ARTICLE XI EVENTS OF DEFAULT AND REMEDIES SECTION 11.1.    Events of Default Defined    28 SECTION 11.2.    Acceleration and Annulment Thereof    28 SECTION 11.3.    Other Remedies    29 SECTION 11.4.    Legal Proceedings by Trustee    29 SECTION 11.5.    Discontinuance of Proceedings by Trustee    29 SECTION 11.6.    Majority Holders May Direct Proceedings    29 SECTION 11.7.    Limitations on Actions by Bondholders    30 SECTION 11.8.    Trustee May Enforce Rights Without Possession of Bonds    30 SECTION 11.9.    Remedies Not Exclusive    30 SECTION 11.10.    Delays and Omissions Not to Impair Rights    30 SECTION 11.11.    Application of Moneys in Event of Default    30 SECTION 11.12.    Trustee and Bondholders Entitled to All Remedies Under the Act    31 ARTICLE XII THE TRUSTEE SECTION 12.1.    Acceptance of Trust    32 SECTION 12.2.    No Responsibility for Recitals, etc    32 SECTION 12.3.    Trustee May Act Through Agents; Answerable Only for Willful Misconduct or Negligence    32 SECTION 12.4.    Compensation    32 SECTION 12.5.    Notice of Default; Right to Investigate    33 SECTION 12.6.    Obligation to Act    33 SECTION 12.7.    Reliance    33 SECTION 12.8.    Trustee May Deal in Bonds    33 SECTION 12.9.    Resignation of Trustee    33 SECTION 12.10.    Removal of Trustee    33 SECTION 12.11.    Appointment of Successor Trustee    34 SECTION 12.12.    Qualification of Successor    34 SECTION 12.13.    Instruments of Succession    34 SECTION 12.14.    Merger of Trustee    34 SECTION 12.15.    Trustee Not Required to Expend or Risk Own Funds    34 SECTION 12.16.    Right of Trustee to Pay Taxes and Other Charges    34 SECTION 12.17.    Trust Estate may be Vested in Separate or Co-Trustee    35 SECTION 12.18.    Reliance Upon Counsel    35 SECTION 12.19.    No Implied Duties    35 SECTION 12.20.    No Responsibility for Securities Laws    35 SECTION 12.21.    No Responsibility for Yield Covenants    35 SECTION 12.22.    No Responsibility for Filings    36 ARTICLE XIII THE PAYING AGENT SECTION 13.1.    The Paying Agent    36 SECTION 13.2.    Notices    36 -------------------------------------------------------------------------------- ARTICLE XIV ACTS OF BONDHOLDERS; EVIDENCE OF OWNERSHIP SECTION 14.1.    Acts of Bondholders; Evidence of Ownership    37 ARTICLE XV AMENDMENTS AND SUPPLEMENTS SECTION 15.1.    Amendments and Supplements Without Bondholders’ Consent    37 SECTION 15.2.    Amendments With Bondholders’ Consent    38 SECTION 15.3.    Amendment of Agreement    38 SECTION 15.4.    Amendment of Guarantee    38 SECTION 15.5.    Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel    38 SECTION 15.6.    Consent of Company    39 ARTICLE XVI DEFEASANCE SECTION 16.1.    Defeasance    39 ARTICLE XVII MISCELLANEOUS SECTION 17.1.    No Personal Recourse    40 SECTION 17.2.    Deposit of Funds for Payment of Bonds    40 SECTION 17.3.    No Rights Conferred on Others    40 SECTION 17.4.    Severability    40 SECTION 17.5.    Notices    40 SECTION 17.6.    Successors and Assigns    42 SECTION 17.7.    Headings for Convenience Only    42 SECTION 17.8.    Counterparts    42 SECTION 17.9.    Applicable Law    42 SECTION 17.10.    Notice of Change    42 SECTION 17.11.    Payments Due on non-Business Days    42 EXHIBIT A Form of Bond -------------------------------------------------------------------------------- TRUST INDENTURE This TRUST INDENTURE dated as of October 1, 2006, is by and between the GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY, a nonstock, nonprofit industrial development corporation existing under the laws of the State of Texas (herein called the “Issuer”) including particularly the Development Corporation Act of 1979, as amended, Article 5190.6, V.A.T.C.S. (the “Act”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (in its capacity herein, together with any successors in such capacity, called the “Trustee”), WITNESSETH : WHEREAS, pursuant to law, and particularly the Act, the Issuer is authorized to acquire, construct, and improve certain solid waste disposal facilities and to issue its revenue bonds for such purpose; WHEREAS, a Loan Agreement, dated as of October 1, 2006 (the “Agreement”), relating to the Bonds (hereinafter defined) which has been duly executed between the Issuer and Microgy Holdings, LLC, a limited liability company organized and existing under and by virtue of the laws of the State of Delaware (the “Company”); WHEREAS, the recitals and provisions of the Agreement are incorporated herein as if set forth in their entirety, and the capitalized terms of this Indenture not otherwise defined herein shall have the same meanings, and shall be defined, as set forth in the Agreement and the Bond Resolution (hereinafter defined); WHEREAS, pursuant to the Agreement, the Board of Directors of the Issuer duly adopted a Resolution Authorizing Gulf Coast Industrial Development Authority Environmental Facilities Revenue Bonds (Microgy Holdings, LLC Project) Series 2006; the execution of a Trust Indenture, a Loan Agreement, and an Bond Purchase Agreement; approval of a Limited Offering Memorandum; and other matters in connection therewith (together with any amendment or supplement to such resolution as authorized therein, hereinafter called the “Bond Resolution”); WHEREAS, the Bond Resolution authorized the issuance of Gulf Coast Industrial Development Authority Environmental Facilities Revenue Bonds (Microgy Holdings Project) Series 2006 (the “Bonds”) for the purpose of making a loan to the Company to pay the costs of acquiring, constructing, and improving certain solid waste disposal facilities described in Exhibit A to the Agreement; WHEREAS, the Bonds, and the interest thereon, are and shall be payable from and secured by a first and superior lien on and pledge of the payments designated as “Loan Payments” to be made by the Company pursuant to the Agreement in amounts sufficient to pay and redeem, and provide for the payment of the principal of, premium, if any, and interest on the Bonds, when due, and the fees and expenses of and other amounts due to the Trustee and any paying agent for the Bonds, all as required by the Bond Resolution; WHEREAS, pursuant to a Guarantee Agreement, dated as of October 1, 2006 (the “Guarantee”‘) the Company, MST Production Ltd., MST GP, LLC, MST Estates, LLC, Rio Leche Estates, L.L.C., Mission Biogas, L.L.C., and Hereford Biogas, L.L.C. (the “Subsidiary Guarantors”) have, jointly and severally, unconditionally guaranteed to the Trustee the payment, when due, of the principal of, redemption premium, if any, and interest on the Bonds. WHEREAS, the Trustee has agreed to accept the trusts herein created upon the terms herein set forth; and -------------------------------------------------------------------------------- WHEREAS, all other things necessary to make the Bonds, when issued, executed and delivered by the Issuer and authenticated pursuant to this Indenture, the valid, legal and binding obligations of the Issuer, and to constitute this Indenture a valid pledge of the Revenues (as hereinafter defined) and other amounts pledged hereunder as security for the payment of the principal of, redemption premium, if any, and interest on the Bonds authenticated and delivered under this Indenture, have been performed, and the creation, execution and delivery of this Indenture and the creation, execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH that to provide for the payment of principal of, redemption premium, if any, and interest on all Bonds issued and outstanding under this Indenture, and in order to secure the rights of the Bondholders and the performance of the covenants contained in the Bonds, the Agreement, and herein, the Issuer does hereby pledge, transfer and assign unto the Trustee, its successors in the trust and its assigns forever (i) all of the right, title and interest of the Issuer in and to the Revenues, (ii) the Agreement and all right, title and interest of the Issuer under and pursuant to the Agreement, insofar as they relate to all Bonds issued and outstanding under this Indenture (except for the Unassigned Rights (as defined herein)), including, without limitation, all of the right, title, and interest of the Issuer in and to payments to be received under and pursuant to and subject to the provisions of the Agreement, and (iii) all amounts on deposit in the Bond Fund, the Construction Fund, the Debt Service Reserve Fund or other funds created under this Indenture other than the Rebate Fund which are not pledged hereunder and do not constitute security for the Bonds (collectively, the “Trust Estate”); provided, however, that nothing in the Bonds or in this Indenture shall be construed as pledging the general credit of the Issuer or the State of Texas, nor shall this Indenture or the Bonds give rise to a pecuniary liability of the Issuer. TO HAVE AND TO HOLD all of the same hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and its successors in said trust and to it and its assigns forever. IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all holders and owners of the Bonds issued under and secured by this Indenture without privilege, preference, priority or distinction as to the lien or otherwise of any of the Bonds over any of the other Bonds. PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, redemption premium, if any, and interest on the Bonds due or to become due thereon, at the times and in the manner mentioned in the Bonds, according to the true intent and meaning thereof, and shall cause the payments to be made into the Bond Fund as required under Article VI hereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of this Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments this Indenture and the rights hereby granted shall cease, terminate and be void; otherwise this Indenture to be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all said Revenues and receipts hereby pledged and assigned are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective holders and owners, from time to time, of the Bonds, as follows (provided that, in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur for the payment of   -2- -------------------------------------------------------------------------------- money shall not be a general debt on its part or a charge against its general credit but shall be payable solely from the Trust Estate, including the Revenues): ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Unless otherwise defined herein, all words and phrases defined in the preamble hereto or in Article I of the Agreement shall have the same meaning in this Indenture. In this Indenture and any indenture supplemental hereto (except as otherwise expressly provided for or unless the context otherwise requires) the singular includes the plural, the masculine includes the feminine, and each of the following terms shall have the following meanings: “Act” means the Development Corporation Act of 1979, Article 5190.6, Vernon’s Texas Civil Statutes, as amended. “Administration Expenses” means amounts payable pursuant to Sections 5.04 and 5.07 of the Agreement. “Affiliate” of any Person means any other Person who, directly or indirectly, controls or is controlled by or is under common control with such other Person. “Agreement” means the Loan Agreement, dated as of October 1, 2006, between the Company and the Issuer which relates to the Bonds, as amended from time to time. “Approval Certificate” means the certificate of the President or Secretary of the Issuer approving certain terms of the Bonds, which certificate is incorporated by reference herein for all purposes. “Authenticating Agent” means the Trustee and any agent so designated in and appointed pursuant to Section 2.6 hereof. “Authorized Company Representative” means the Company’s Chief Executive Officer, its President, its Chief Financial Officer, its Treasurer, or any Assistant Treasurer or persons at any time designated to act on behalf of the Company, such designation in each case, to be evidenced by a certificate furnished to the Issuer and the Trustee containing the specimen signature of such person or persons and signed on behalf of the Company by its Chief Executive Officer, its President, its Chief Financial Officer, its Treasurer, or any Assistant Treasurer authorized to act on behalf of the Company. Such certificate may designate an alternate or alternates. “Authorized Denominations” means the denominations for the Bonds set forth in Section 2.2 hereof. “Bond” means any bond or bonds authenticated and delivered under this Indenture. “Bond Counsel” means McCall, Parkhurst & Horton L.L.P. or such other firm of attorneys of nationally recognized standing in the field of law relating to municipal bond law and the excludability of interest on state or local bonds from gross income of the owners of the Bonds for purposes of federal income taxation, selected by the Issuer and acceptable to the Trustee and the Company.   -3- -------------------------------------------------------------------------------- “Bond Fund” means the trust fund so designated which is established pursuant to Section 6.2 hereof. “Bond Owner,” “Bondowner,” “Owner,” “owner,” “Bondholder,” “bondholder, “ “holder,” “Registered Owner,” “registered owner,” or “owner of Bonds” means the person listed on the Bond Register as the registered owner of any Bond. “Bond Register” and “Bond Registrar” shall have the respective meanings specified in Section 2.3 hereof. “Business Day” or “business day” means any day other than (i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the City of New York, New York or in the cities in which the Principal Offices of the Trustee or the Paying Agent are located are authorized or required by law or executive order to close or (ii) a day on which the New York Stock Exchange is closed. “Code” means the Internal Revenue Code of 1986, as amended, and the rulings and regulations (including temporary and proposed regulations) promulgated thereunder or, to the extent applicable, under the Internal Revenue Code of 1954, as amended. “Collateral Trust Agreement” means the Collateral Trust Agreement, dated as of October 1, 2006, among the Collateral Trustee, the Company, and the Subsidiary Guarantors, as amended from time to time. “Collateral Trustee” means Wells Fargo Bank, National Association, as collateral trustee under the Collateral Trust Agreement, and any successor trustee or co-trustee thereunder. “Company” means Microgy Holdings, LLC, a Delaware limited liability company, and its successors and assigns as permitted under the Agreement. “Counsel” means an attorney at law or law firm (who may be counsel for the Issuer or the Company). “Debt Service Reserve Fund” means the fund by that name created and established in Section 4.1 of this Indenture. “Debt Service Reserve Requirement” means $5,151,500. “Default” means any event which with the giving of notice or the lapse of time or both would constitute an Event of Default. “Division” means the Texas Economic Development and Tourism Office, an office within the Offices of the Governor of the State and any successor to its functions and duties. “DTC” means The Depository Trust Company, New York, New York. “DTC Letter of Representations” means the blanket letter of representations from the Issuer to DTC. “DTC Participant” means (i) any person for which, from time to time, DTC, or, in the event that a successor Securities Depository to DTC is acting as such under Section 2.13 hereof, such successor   -4- -------------------------------------------------------------------------------- Securities Depository effectuates book-entry transfers and pledges of securities pursuant to the book-entry system referred to in Section 2.13 hereof or (ii) any securities broker or dealer, bank, trust company or other person that clears through or maintains a custodial relationship with the person referred to in (i). “Electronic Notice” means notice transmitted through a time-sharing terminal (promptly confirmed in writing) or facsimile machine, if operative as between any two parties, or if not operative, in writing or by telephone (promptly confirmed in writing). “Event of Default” means any of the events specified in Section 11.1 hereof to be an Event of Default. “Facility” or “Facilities” means one or more, as the case may be, of the solid waste disposal facilities identified on Exhibit A to the Agreement. “Favorable Opinion” means an opinion of Bond Counsel addressed to the Issuer, the Company and the Trustee and stating, unless otherwise specified herein, that the action proposed to be taken is authorized or permitted by the Act and this Indenture and will not, in and of itself, adversely affect the excludability from gross income for federal income tax purposes of interest on the Bonds (other than as held by a “substantial user” of the Project or a “related person” within the meaning of the Code). “Governmental Obligations” means (i) direct obligations of the United States of America, (ii) obligations the timely payment of the principal of and interest on which is fully and unconditionally guaranteed by the United States of America, and (iii) certificates, depositary receipts or other instruments which evidence a direct ownership interest in obligations described in clause (i) and (ii) above or in any specific interest or principal payments due in respect thereof; provided, however, that the custodian of such obligations or specific interest or principal payments shall be a bank or trust company organized under the laws of the United States of America or of any state or territory thereof or of the District of Columbia, with a combined capital stock, surplus and undivided profits of at least $50,000,000; and provided, further, that except as may be otherwise required by law, such custodian shall be obligated to pay to the holders of such certificates, depositary receipts or other instruments the full amount received by such custodian in respect of such obligations or specific payments and shall not be permitted to make any deduction therefrom. “Governmental Unit” means the Gulf Coast Waste Disposal Authority and any successor to its functions and duties. “Guarantee” means the Guarantee Agreement, dated as of October 1, 2006, among the Company, the Subsidiary Guarantors, and the Trustee. “Indenture” means this Trust Indenture as amended or supplemented. “Interest Payment Date” means each June 1 and December 1, commencing June 1, 2007. “Issue Date” means the date on which the Bonds are first authenticated and delivered to the Underwriter against payment therefor. “Issuer” means the Gulf Coast Industrial Development Authority, a nonstock, nonprofit industrial development corporation existing under the laws of the State of Texas, including particularly, the Act. “Majority Holders” means the owners of a majority in principal amount of the Bonds Outstanding.   -5- -------------------------------------------------------------------------------- “Maturity Date” or “Maturity Dates” means the date or dates specified as such in the Approval Certificate. “Moody’s” means Moody’s Investors Service, Inc. or any successor thereto maintaining a rating on the Bonds. “Outstanding” or “outstanding”, in connection with Bonds means, as of the time in question, all Bonds authenticated and delivered under this Indenture, except: (i) Bonds theretofore cancelled or required to be cancelled under Section 2.11 hereof; (ii) Bonds which are deemed to have been paid in accordance with Article XVI hereof; (iii) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant to Article II hereof and Bonds paid pursuant to Section 2.9(a) hereof; (iv) Bonds registered in the name of the Issuer; (v) For purposes of any consent, request, demand, authorization, direction, notice, waiver or other action to be taken by the holders of a specified percentage of outstanding Bonds hereunder, all Bonds held by or for the account of the Issuer or the Company, except that for purposes of any such consent, request, demand, authorization, direction, notice, waiver or action the Trustee shall be obligated to consider as not being outstanding only Bonds known by a Responsible Officer of the Trustee by actual notice thereof to be so held. In determining whether the owners of a requisite aggregate principal amount of Bonds outstanding have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions hereof, Bonds owned by the Company (unless all of the outstanding Bonds are then owned by the Company) shall be disregarded for the purpose of any such determination. Notwithstanding the foregoing, Bonds so owned which have been pledged in good faith shall not be disregarded as aforesaid if the pledgee has established to the satisfaction of the Bond Registrar the pledgee’s right so to act with respect to such Bonds and that the pledgee is not the Company or an Affiliate thereof. “Paying Agent” or “paying agent” means any national banking association, bank and trust company or trust company appointed pursuant to Section 10.1 hereof. “Person” means an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization, a governmental body or a political subdivision, a municipal corporation, a public corporation or any other group or organization of individuals. “Principal Office of the Paying Agent” means the office thereof designated in Section 17.5 or such other office as may be designated in writing to the Trustee. “Principal Office of the Trustee” means the business address designated in writing to the Issuer and the Company as its principal office for its duties hereunder, and which initially shall be as specified in Section 17.5 hereof. “Project” means all of the Facilities to the extent financed with proceeds of the Bonds.   -6- -------------------------------------------------------------------------------- “Rating Service” means S&P and/or Moody’s, according to which of such rating agencies then rates the Bonds; and provided that if neither of such rating agencies then rates the Bonds, the term “Rating Service” shall refer to any national rating service (if any) which provides such rating “Rebate Fund” means the fund by that name created and established in Section 8.5 of this Indenture. “Record Date” means, as the case may be, the applicable Regular or Special Record Date. “Regular Record Date” means the close of business on the fifteenth day (whether or not a Business Day) of the calendar month immediately preceding the Interest Payment Date. “Responsible Officer” means an officer of the Trustee who customarily handles corporate trusts and is assigned to supervise this Indenture, and any other officer of the Trustee to whom a matter is referred because of his knowledge of and familiarity with the particular subject. “Revenues” means (i) all amounts payable to the Trustee with respect to the principal of, redemption price, if any, and interest on the Bonds (A) on deposit in the Bond Fund, the Construction Fund, and the Debt Service Reserve Fund from the proceeds of the Bonds or obligations of the Issuer issued to refund the Bonds or from any other source and (B) paid by the Company as Loan Payments under the Agreement or to replenish any deficiency in the Debt Service Reserve Fund, (ii) all receipts of the Trustee credited under the provisions of this Indenture against amounts described in clause (i); (iii) investment income with respect to any moneys held by the Trustee in the Bond Fund, the Construction Fund, and the Debt Service Reserve Fund; (iv) amounts paid to the Trustee by the Company or the Subsidiary Guarantors pursuant to the Guarantee; and (v) amounts paid to the Trustee by the Collateral Trustee pursuant to the Collateral Trust Agreement. “S&P” means Standard & Poor’s Credit Market Services, a division of The McGraw-Hill Companies, Inc. or any successor thereto maintaining a rating on the Bonds. “Securities Depository” means any “clearing agency” registered under Section 17A of the Securities Exchange Act of 1934, as amended. “Special Record Date” means such date as may be fixed for the payment of defaulted interest in accordance with Section 2.7 hereof. “State” means the State of Texas. “Subsidiary” means any corporation, partnership, association or other business entity of which 50% or more of the Voting Stock or other equity interests, as appropriate, is at the time directly or indirectly owned by the Company, by the Company and one or more other Subsidiaries, or by one or more other Subsidiaries. “Subsidiary Guarantors” mean each of MST Production Ltd., MST GP, LLC, MST Estates, LLC, Rio Leche Estates, L.L.C., Mission Biogas, L.L.C., and Hereford Biogas, L.L.C. “Tax Letter of Representation” means the letter of representation regarding the use of the proceeds of the Bonds and other facts that are within the Company’s knowledge, furnished by the Company to the Issuer and Bond Counsel in connection with the issuance of the Bonds.   -7- -------------------------------------------------------------------------------- “Trustee” means Wells Fargo Bank, National Association, and any successor trustee or co-trustee serving as such hereunder. “Unassigned Rights” means the rights of the Issuer under Sections 5.04, 6.03 and 7.03(a) of the Agreement and the right to receive notices thereunder. “Underwriter” means the initial underwriter of the Bonds, Ziegler Capital Markets Group. “Voting Stock” means, with respect to any corporation, any class of shares of stock of such corporation having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency). The words “hereof”, “herein”, “hereto”, “hereby” and “hereunder” (except in the form of Bond) refer to the entire Indenture. Unless otherwise noted, all Section and Article references are to sections and articles in this Indenture. ARTICLE II THE BONDS SECTION 2.1. Amount, Terms, and Issuance of Bonds. The Bonds shall, except as provided in Section 2.9 hereof, be in the aggregate principal amount set forth in the Approval Certificate, but in no event to exceed $60,000,000 and shall contain substantially the terms recited in the form of bond attached hereto as Exhibit A with such changes and variations as may be necessary to conform to the provisions thereof. The Bonds shall be issued for the purpose of providing a portion of the funds necessary to pay the costs of acquiring, constructing, and improving the Project, as provided herein and in the Agreement. The Bonds may have such additional legends thereon as shall be customary in the industry. No bonds other than the Bonds may be issued under this Indenture. No Bonds may be issued under this Indenture except in accordance with this Article. Pursuant to recommendations promulgated by the Committee on Uniform Security Identification Procedures, “CUSIP” numbers may be printed on the Bonds. The Bonds may bear such endorsement or legend satisfactory to the Trustee as may be required to conform to usage or law with respect thereto. The Issuer may issue the Bonds upon the execution of this Indenture, and the Trustee shall, at the Issuer’s written direction, authenticate the Bonds and deliver them as specified in the direction. SECTION 2.2. Designation, Denominations, Maturity and Form. The Bonds shall be designated “Gulf Coast Industrial Development Authority Environmental Facilities Revenue Bonds (Microgy Holdings Project) Series 2006”. Unless otherwise directed by the Issuer, the Bonds shall be numbered from R-1 upward, unless otherwise determined by the Trustee. Temporary Bonds issued pursuant to Section 2.10 hereof shall be numbered from TR-1 upward, unless otherwise determined by the Trustee. All Bonds shall be dated as of October 1, 2006, but shall initially bear interest from the Issue Date.   -8- -------------------------------------------------------------------------------- The Bonds shall mature on their respective Maturity Dates. All Bonds shall be issued in denominations of $100,000 and integral multiples of $5,000 in excess thereof. SECTION 2.3. Registered Bonds Required; Bond Registrar and Bond Register. All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent transfer or exchange as provided in this Indenture. The Issuer shall designate, at the direction of the Company, one or more persons to act as “Bond Registrar” for the Bonds provided that the Bond Registrar appointed for the Bonds shall be either the Trustee, the Paying Agent or a person which would meet the requirements for qualification as a successor trustee imposed by Section 12.13. The Issuer hereby appoints the Trustee as the initial Bond Registrar. Any Person other than the Trustee undertaking to act as Bond Registrar shall first execute a written agreement, in form satisfactory to the Trustee and the Company, to perform the duties of a Bond Registrar under this Indenture, which agreement shall be filed with the Trustee and the Company. The Paying Agent and Bond Registrar, in performing their respective duties hereunder, shall be entitled to the same protective provisions in the performance of their respective duties as are specified in Article XII of this Indenture with respect to the Trustee hereunder to the same extent and as fully for all intents and purposes as though the Paying Agent and Bond Registrar had been expressly named therein in place of such Trustee and as though the applicable provisions of Article XII of this Indenture had been set forth herein at length. The Bond Registrar shall act as registrar and transfer agent for the Bonds. The Issuer shall cause to be kept at an office of the Bond Registrar a register (herein sometimes referred to as the “Bond Register”) in which, subject to such reasonable regulations as it, the Trustee or the Bond Registrar may prescribe, the Issuer shall provide for the registration of the Bonds and for the registration of transfers of the Bonds. The Issuer shall cause the Bond Registrar to designate, by a written notification to the Trustee, a specific office location (which may be changed from time to time, upon similar notification) at which the Bond Register is kept. The Bond Registrar shall at any time as reasonably requested by the Trustee, the Paying Agent, or the Company certify and furnish to the Trustee, the Paying Agent, the Company and any Paying Agent as the Trustee shall specify, the names, addresses, and holdings of Bondholders and any other relevant information reflected in the Bond Register, and the Trustee, the Remarketing Agent and any such Paying Agent shall for all purposes be fully entitled to rely upon the information so furnished to them and shall have no liability or responsibility in connection with the preparation thereof. SECTION 2.4. Transfer and Exchange. Upon surrender for registration of transfer of any Bond at the designated office of the Bond Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of authorized denomination for the aggregate principal amount which the Registered Owner is entitled to receive. At the option of the owner, Bonds may be exchanged for other Bonds of any other authorized denomination, of a like aggregate principal amount and accruing interest at the same Interest Rate, upon surrender of the Bonds to be exchanged at the designated office of the Bond Registrar. Whenever any Bonds are so surrendered for exchange, the Issuer shall execute, and the Trustee or the Authenticating Agent shall authenticate and deliver, the Bonds which the Bondholder making the exchange is entitled to receive.   -9- -------------------------------------------------------------------------------- All Bonds presented for registration of transfer or exchange shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Bond Registrar, duly executed by the owner or by his attorney duly authorized in writing, and such documentation as the Bond Registrar shall reasonably require. No service charge shall be made to a Bondholder for any exchange or registration of transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. New Bonds delivered upon any registration of transfer or exchange shall be valid obligations of the Issuer, evidencing the same debt as the Bonds surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered. Except as provided above, the Trustee shall not be required to effect any transfer or exchange during the 15 days immediately preceding the date of mailing of any notice of redemption or at any time following the mailing of any such notice in the case of Bonds selected for such redemption. SECTION 2.5. Execution. All the Bonds shall, from time to time, be executed on behalf of the Issuer by the manual or facsimile signature of the President of the Issuer, its seal (which may be in facsimile) shall be thereunto affixed (or printed or engraved or otherwise reproduced thereon if in facsimile), and attested by the manual or facsimile signature of the Secretary of the Issuer. If any of the officers whose manual or facsimile signatures shall be upon the Bonds shall cease to be such officers of the Issuer before such Bonds shall have been actually authenticated by the Trustee or delivered by the Issuer, such Bonds nevertheless may be authenticated, issued and delivered with the same force and effect as though the person or persons whose signature shall be upon such Bonds had not ceased to be such officer or officers of the Issuer; and also any such Bonds may be signed and sealed on behalf of the Issuer by those persons who, at the actual date of the execution of such Bond, shall be the proper officers of the Issuer, although at the nominal date of such Bonds any such person shall not have been such officer of the Issuer. SECTION 2.6. Authentication; Authenticating Agent. No Bond shall be valid for any purpose until either (i) the Certificate of Authentication substantially in the form set forth in Exhibit A attached hereto has been duly executed in accordance herewith by the Trustee or (ii) in the case of Bonds initially delivered to the Underwriter, a Comptroller’s Registration Certificate attached to or endorsed on such Bond has been duly executed. Such executed Certificate of Authentication or Comptroller’s Registration Certificate, as the case may be, shall be conclusive proof that such Bond has been duly authenticated and delivered under this Indenture and that the owner thereof is entitled to the benefit of the trust hereby created. If the Bond Registrar is other than the Trustee, the Trustee may appoint the Bond Registrar as an Authenticating Agent with the power to act on the Trustee’s behalf and subject to its direction in the authentication and delivery of Bonds in connection with the registration of transfers and exchanges under Section 2.4 hereof, and the authentication and delivery of Bonds by an Authenticating Agent pursuant to this Section shall, for all purposes of this Indenture, be deemed to be the authentication and delivery “by the Trustee”. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the   -10- -------------------------------------------------------------------------------- corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible as a Bond Registrar under Section 2.3, without the execution or filing or any further act on the part of the parties hereto or the Authenticating Agent or such successor corporation. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee, the Issuer and the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent, the Issuer and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the Trustee may, with the consent of the Company (which shall not be unreasonably withheld) appoint a successor Authenticating Agent, shall give written notice of such appointment to the Issuer, and shall mail notice of such appointment to all owners of Bonds as the names and addresses of such owners appear on the Bond Register. SECTION 2.7. Payment of Principal and Interest; Interest Rights Preserved. (a) Subject to the provisions relating to book-entry only set forth in Section 2.13 hereof, the principal or redemption price of any Bond shall be payable upon presentation and surrender of such Bond to the Principal Office of the Paying Agent. The principal or redemption price of the Bonds shall be payable in immediately available funds. Such payments shall be made to the Registered Owner of the Bond so delivered, as shown in the Bond Register maintained by the Bond Registrar. (b) Each Bond shall accrue interest and be payable as to interest as follows: (i) The Bonds shall accrue interest until their respective Maturity Dates or prior redemption at the rate or rates set forth in the Approval Certificate initially from the Issue Date, and thereafter (A) from the date of authentication, if authenticated on an Interest Payment Date to which interest has been paid or duly provided for, or (B) from the last preceding Interest Payment Date to which interest has been paid in full or duly provided for (or the Issue Date if no interest thereon has been paid or duly provided for) in all other cases. (ii) Subject to the provisions of paragraph (c) below, the interest due on any Bond on any Interest Payment Date shall be paid to the Registered Owner of such Bond as shown on the Bond Register as of the Regular Record Date. The amount of interest so payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. (iii) All payments of interest on the Bonds shall be paid to the Registered Owners entitled thereto in immediately available funds by wire transfer to a bank within the continental United States or deposited to a designated account if such account is maintained with the Paying Agent as directed by the Registered Owner in writing or as otherwise directed in writing by the Registered Owner at least five Business Days prior to each Interest Payment Date. (iv) Interest due at the maturity or redemption of a Bond shall be paid only upon presentation and surrender of each Bond. (v) Interest on any Bond which 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 Bond is registered on the Regular Record Date for such interest.   -11- -------------------------------------------------------------------------------- (c) Any interest on any Bond which is payable, but is not punctually paid or provided for, on any Interest Payment Date and within any applicable grace period (herein called “Defaulted Interest”) shall forthwith cease to be payable to the owner of such Bond on the relevant Regular Record Date by virtue of having been such owner, and such Defaulted Interest shall be paid to the person in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be no more than 15 nor fewer than 10 days prior to the date of proposed payment. The Trustee 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 Bondholder at his address as it appears in the Bond Register, not fewer than 10 days prior to such Special Record Date. (d) Subject to the foregoing provisions of this Section, each Bond delivered under this Indenture upon registration of transfer of or exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. SECTION 2.8. Persons Deemed Owners. The Issuer, the Trustee, any Paying Agent, the Bond Registrar and any Authenticating Agent may deem and treat the person in whose name any Bond is registered in the Bond Register as the absolute owner thereof (whether or not such Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Issuer, the Trustee, any Paying Agent, the Bond Registrar or the Authenticating Agent) for the purpose of receiving payment of or on account of the principal of, redemption premium, if any, and (subject to Section 2.7) interest on, such Bond, and for all other purposes, and neither the Issuer, the Trustee, any Paying Agent, the Bond Registrar, nor the Authenticating Agent shall be affected by any notice to the contrary. All such payments so made to any such Registered Owner, or upon his order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Bonds. (a) If any Bond shall become mutilated, lost, stolen or destroyed, the affected Bondholder shall be entitled to the issuance of a substitute Bond only as follows: (i) in the case of a lost, stolen or destroyed Bond, the Bondholder shall (A) provide written notice of the loss, theft or destruction to the Trustee within a reasonable time after the Bondholder becomes aware of the loss, theft or destruction, (B) request the issuance of a substitute Bond and (C) provide evidence, satisfactory to the Trustee, of the ownership and the loss, theft or destruction of the affected Bond; (ii) in the case of a mutilated Bond, the Bondholder shall surrender the Bond to the Trustee for cancellation; (iii) in all cases, the Bondholder shall provide indemnity against any and all claims arising out of or otherwise related to the issuance of substitute Bonds pursuant to this Section 2.9 satisfactory to the Issuer, the Trustee and the Company; and (iv) in all cases, upon payment by the affected Bondholder of the fees and expenses of the Trustee and the Issuer in connection with the issuance of any such substitute Bond. Upon compliance with the foregoing, a substitute Bond of like tenor and denomination, executed by the Issuer, shall be authenticated by the Trustee or Authenticating Agent and delivered to the Bondholder.   -12- -------------------------------------------------------------------------------- Notwithstanding the foregoing, the Trustee or Authenticating Agent shall not be required to authenticate and deliver any substitute Bond for a Bond which has been called for redemption or which has matured or is about to mature and, in any such case, the principal, redemption price or Purchase Price and interest then due or becoming due shall be paid by the Trustee or a Paying Agent in accordance with the terms of the mutilated, lost, stolen or destroyed Bond without substitution therefor. (b) Every substituted Bond issued pursuant to this Section shall constitute an additional contractual obligation of the Issuer and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. (c) All Bonds shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Bonds, and shall preclude any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or investment or other securities without their surrender. SECTION 2.10. Temporary Bonds. Pending preparation of definitive Bonds, or by agreement with the purchasers of all Bonds, the Issuer may issue, and, upon its request, the Trustee or Authenticating Agent shall authenticate, in lieu of definitive Bonds one or more temporary printed or typewritten Bonds of substantially the tenor recited above in any Authorized Denomination. Upon written request of the Issuer, the Trustee shall authenticate definitive Bonds in exchange for and upon surrender of an equal principal amount of temporary Bonds. Until so exchanged, temporary Bonds shall have the same rights, remedies and security hereunder as definitive Bonds. SECTION 2.11. Cancellation of Surrendered Bonds. Bonds surrendered for payment, redemption, transfer or exchange and Bonds surrendered to the Trustee by the Issuer or by the Company for cancellation shall be cancelled by the Trustee and such cancelled Bonds shall be delivered to the Company. SECTION 2.12. Limited Obligation. The Bonds are not and never shall become general obligations of the Issuer, but are limited obligations payable by the Issuer solely and only from the payments received under or with respect to the documents executed by the Company (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or income from the temporary investment of such funds or other funds held hereunder), which amounts, together with any other security provided herein, are hereby specifically assigned and pledged to such purposes, in the manner and to the extent provided herein. The Bonds shall be deemed not to constitute a debt of the State, the Governmental Unit, or of any other political corporation, subdivision, or agency of the State or a pledge of the faith and credit of any of them. No recourse shall be had for any claim based on the Agreement, the Indenture, or the Bonds against any member, officer or employee, past, present or future, of the Issuer, or of any successor body thereto, either directly or through the Issuer, or any such successor body, under any constitutional provision, statute or rule of law or by the enforcement of any assessment or penalty or otherwise. Neither the State, the Governmental Unit nor any political corporation, subdivision, or agent of the State shall be obligated to pay the Bonds and neither the faith and credit nor the taxing power of the State, the Governmental Unit, or any other political corporation, subdivision, or agency is pledged to the payment of the principal of, redemption premium, if any, or interest on the Bonds. The Bonds are special revenue obligations of the Issuer payable solely from the sources described herein and therein and the holder thereof shall never have the right to demand payment from moneys derived by taxation or any revenues of the Issuer except the funds pledged to the payment thereof.   -13- -------------------------------------------------------------------------------- SECTION 2.13. Book Entry System. (a) DTC will act as the initial Securities Depository for the Bonds. The Bonds shall be initially issued in the form of a single fully registered Bond registered in the name of Cede & Co. (DTC’s nominee). So long as Cede & Co. is the Registered Owner of the Bonds, as nominee of DTC, references herein to Registered Owners, Bondholders or holders of the Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. (b) While DTC is the Securities Depository, the ownership interest of each of the beneficial owners of the Bonds will be recorded through the records of a DTC Participant. Transfers of beneficial ownership interests in the Bonds which are registered in the name of Cede & Co. will be accompanied by book entries made by DTC and, in turn, by the DTC Participants who act on behalf of the beneficial owners of the Bonds. (c) With respect to Bonds registered in the name of the Securities Depository, the Issuer, the Company, the Bond Registrar, the Paying Agent, and the Trustee shall have no responsibility or obligation to any person on behalf of whom such Securities Depository holds an interest in the Bonds, except as provided in this Indenture. Without limiting the immediately preceding sentence, the Issuer, the Bond Registrar, the Paying Agent, and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Securities Depository with respect to any ownership interest in the Bonds, (ii) the delivery to any person, other than a Bondholder, as shown on the Bond Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any person, other than a Registered Owner, as shown in the Bond Register of any amount with respect to principal of, redemption premium, if any, or interest on, the Bonds. (d) Notwithstanding any other provisions of this Indenture to the contrary, the Issuer, the Bond Registrar, the Paying Agent, and the Trustee shall be entitled to treat and consider the person in whose name each Bond is registered in the Bond Register as the absolute owner of such Bond for the purpose of payment of principal, redemption premium, if any, and interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent shall pay all principal of, redemption premium, if any, and interest on the Bonds only to or upon the order of the respective owners, as shown in the Bond Register as provided in this Indenture, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Issuer’s obligations with respect to payment of principal of, redemption premium, if any, and interest on, the Bonds to the extent of the sum or sums so paid. (e) No person other than a Registered Owner, as shown in the registration books, shall receive a Bond certificate evidencing the obligation of the Issuer to make payments of principal, redemption premium, if any, and interest, pursuant to this Indenture. (f) Any provision of this Indenture permitting or requiring the delivery of Bonds shall, while the book-entry system is in effect, be satisfied by the notation on the books of the Securities Depository, of the transfer of the beneficial owner’s interest in such Bond. (g) So long as the book-entry system is in effect, the Trustee, the Paying Agent and the Bond Registrar shall comply with the terms of the Letter of Representations. (h) The Securities Depository may determine to discontinue providing its service with respect to the Bonds at any time by giving reasonable notice and all relevant information on the beneficial owners of the Bonds to the Issuer or the Trustee. If there is no successor Securities Depository appointed by the   -14- -------------------------------------------------------------------------------- Issuer, the Trustee shall authenticate and deliver Bonds to the beneficial owners thereof. In the event that the Company determines that the Securities Depository is incapable of discharging its responsibilities described herein or in any agreement among the Issuer, the Trustee and the Securities Depository and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certificated Bonds, the Issuer, at the direction of the Company, shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the securities and Exchange Act of 1934, as amended, notify the Securities Depository of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify the Securities Depository and owners, identified by the Securities Depository, of the availability through the Securities Depository of Bonds and transfer one or more separate Bonds to owners, identified by the Securities Depository, having Bonds credited to their accounts. In such event, the Bonds shall no longer be restricted to being registered in the Bond Register in the name of the Securities Depository, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Indenture. Upon the written consent of 100% of the beneficial owners of the Bonds, the Trustee, in accordance with any agreement among the Issuer, the Trustee, and the Securities Depository, shall withdraw the Bonds from the Securities Depository, and authenticate and deliver Bonds fully registered to the assignees of the Securities Depository or its nominee. If the request for such withdrawal is not the result of any Issuer action or inaction, such withdrawal, authentication and delivery shall be at the cost and expense (including costs of printing, preparing and delivering such Bonds) of the persons requesting such withdrawal, authentication and delivery. SECTION 2.14. Payments to Securities Depository; Payments to Beneficial Owners. (a) Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, redemption premium, if any, Purchase Price, and interest on, such Bond and all notices with respect to such Bond shall be made and given, respectively, pursuant to DTC’s rules and procedures, or in the case of a successor Securities Depository, pursuant to any agreement among the Issuer, the Trustee, the Bond Registrar, and the Securities Depository. (b) With respect to Bonds registered in the name of a Securities Depository (or its nominee) neither the Trustee, the Issuer nor the Company shall have any obligation to any of its members or participants or to any person on behalf of whom an interest is held in the Bonds. SECTION 2.15. CUSIP Numbers. The Issuer in issuing the Bonds may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Bondholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.   -15- -------------------------------------------------------------------------------- ARTICLE III APPLICATION OF BOND PROCEEDS SECTION 3.1. Application of Original Proceeds of Bonds. Proceeds received from the issuance and sale of the Bonds shall, on the Issue Date, be deposited by the Trustee as follows: (a) an amount equal to the Debt Service Reserve Requirement to the Debt Service Reserve Fund; and (b) the balance of such proceeds to the Construction Fund.   -16- -------------------------------------------------------------------------------- ARTICLE IV DEBT SERVICE RESERVE FUND SECTION 4.1 Creation of Debt Service Reserve Fund. There is hereby created by the Issuer and ordered to be established with the Trustee a Debt Service Reserve Fund. The Debt Service Reserve Fund shall be used, and the Trustee is hereby authorized to use the Debt Service Reserve Fund, solely for the purposes of (i) finally retiring the last of the outstanding Bonds or (ii) paying principal of and interest on any outstanding Bonds when and to the extent the amount in the Bond Fund is insufficient for such purpose on the date such payment is due. In the event that on the Business Day prior to the due date thereof, amounts on deposit in the Bond Fund are insufficient to pay the principal and/or interest due on the Bonds, the Trustee shall draw upon the Debt Service Reserve Fund to the extent necessary to make such payments. SECTION 4.2. Replenishment of Debt Service Reserve Fund. Out of proceeds of the Bonds, there shall be deposited to the credit of the Debt Service Reserve Fund an amount sufficient, together with other monies provided therefor, to result in there being on deposit in the Debt Service Reserve Fund money and/or investments at least equal in market value to the Debt Service Reserve Requirement. No deposits shall be made into the Debt Service Reserve Fund as long as the money and investments in the Debt Service Reserve Fund are at least equal in market value to the Debt Service Reserve Requirements; but if and whenever the market value of money and investments in the Debt Service Reserve Fund is reduced below the Debt Service Reserve Requirements for any reason, the Company shall pay, in accordance with the Agreement, to the Trustee for deposit into the Debt Service Reserve Fund amounts sufficient to replenish any such deficiency. ARTICLE V CONSTRUCTION FUND SECTION 5.1. Creation of Construction Fund. There is hereby created and ordered to be established with the Trustee a Construction Fund. SECTION 5.2. Disbursements from Construction Fund. Moneys in the Construction Fund shall be disbursed by the Trustee to pay Project Costs or to reimburse the Company for Project Costs paid by it, all in accordance with and pursuant to the provisions of the Agreement. The Trustee shall keep and maintain adequate records pertaining to the Construction Fund and all disbursements therefrom and shall file an accounting thereof if and when requested by the Issuer or the Company. SECTION 5.3. Balance in Construction Fund. Any amounts remaining in the Construction Fund after delivery of the Completion Certificate (as defined in the Agreement) for the Project shall be used by the Trustee as provided in Section 3.03(e) of the Agreement. SECTION 5.4. Acceleration of Bonds. In the event that the principal of the Bonds shall have become due and payable pursuant to Section 11.2 hereof, subject to Section 8.5(e) hereof, any amounts held in or on deposit in the Construction Fund shall be transferred by the Trustee to the Bond Fund.   -17- -------------------------------------------------------------------------------- ARTICLE VI BOND FUND SECTION 6.1. Revenues to be Paid Over to the Trustee. The Issuer has caused the Revenues to be paid directly to the Trustee. SECTION 6.2. Bond Fund. (a) There is hereby created and ordered to be established with the Trustee a Bond Fund. (b) The Trustee shall maintain the Bond Fund as follows: (i) The Trustee shall deposit into the Bond Fund (A) all Loan Payments; (B) amounts received from the Collateral Trustee under the Collateral Trust Agreement; (C) amounts paid by the Guarantors pursuant to the Guarantee; and (D) and, when accompanied by directions from the Person depositing such moneys that such moneys are to be paid into the Bond Fund, all other amounts received by the Trustee from the Company or for the account of the Company pursuant to the Agreement and all payments under and pursuant to the provisions of this Indenture or any of the provisions of the Agreement. (ii) Moneys in the Bond Fund shall be applied solely to the payment when due of principal of, redemption premium, if any, and interest on the Bonds. (iii) In the event of an annulment pursuant to Section 11.2 hereof, any amounts transferred by the Trustee from the Construction Fund to the Bond Fund pursuant to Section 5.4 hereof shall be transferred by the Trustee back to the Construction Fund. SECTION 6.3. Revenues to Be Held for All Bondholders; Certain Exceptions. Until applied as provided in this Indenture to the payment of Bonds or transferred to the Company pursuant to Section 6.4 or Section 17.2, Revenues shall be held by the Trustee in trust in the Bond Fund for the benefit of the owners of all Outstanding Bonds, except that any portion of the Revenues representing principal or redemption price, and interest on any Bonds previously matured or called for redemption in accordance with Article IX of this Indenture, shall be held for the benefit of the owners or the former owners of such Bonds only. SECTION 6.4. Amounts Remaining in Bond Fund. Any amounts remaining in the Bond Fund after payment in full of (i) the Bonds (or the provision for payment thereof having been made in accordance with the provisions hereof), (ii) all Administration Expenses, and (iii) all other amounts required to be paid under the Agreement and this Indenture, subject to any applicable provisions of Texas law, including Title 6 of the Texas Property Code, shall be paid to the Company pursuant to its written instructions. ARTICLE VII [RESERVED]   -18- -------------------------------------------------------------------------------- ARTICLE VIII INVESTMENT OR DEPOSIT OF MONEYS SECTION 8.1. Deposits. (a) All moneys received by the Trustee under this Indenture shall be deposited with the Trustee, until or unless invested or deposited as provided in Sections 8.2 or 8.3, as applicable, or as otherwise provided herein. All deposits with the Trustee shall be secured as required by applicable law for such trust deposits. The Trustee may deposit such moneys with any other depository which is authorized to receive them and is subject to supervision by public banking authorities. (b) Obligations purchased as an investment of moneys in any fund or account shall be deemed at all times a part of such fund or account. Any profit and income realized from such investments shall be credited to such fund or account and any loss shall be charged to such fund or account. SECTION 8.2. Investment of Bond Fund and Debt Service Reserve Fund. At the written direction of the Authorized Company Representative, the Trustee shall invest moneys held in the Bond Fund and the Debt Service Reserve Fund, in Governmental Obligations, specified by the Authorized Company Representative in such direction, maturing not later than the date or dates when the payments for which such moneys are held are to become due. Any such investments shall be held by or under the control of the Trustee and shall be deemed at all times a part of the Bond Fund or the Debt Service Reserve Fund, as the case may be. Upon the occurrence of, and during the continuation of, an Event of Default, the Trustee shall no longer take investment instructions from the Company, but from a representative of the Majority Holders. The interest and income received upon such investments of the Bond Fund and any interest paid by the Trustee or any other depository and any profit or loss resulting from the sale of any investment shall be added or charged to the extent received or paid and available for payment of amounts due on the Bonds, to the payment of the next-succeeding payment due on account of the Bonds and to the extent so applied, shall constitute payment in respect of the Agreement (notice of which payment shall be given by the Trustee to the Company), and any realized loss shall be made up by the Company (the direction of the Company to make investments as aforesaid to include an agreement so to do). The interest and income received upon such investments of the Debt Service Reserve Fund shall be credited to the Debt Service Reserve Fund. SECTION 8.3. Investment of Moneys in the Construction Fund. (a) Moneys held for the credit of the Construction Fund shall, upon written direction by the Authorized Company Representative, be invested and reinvested by the Trustee as specified by the Authorized Company Representative in any one or more of the following obligations or securities, to the extent permitted by State law, on which neither the Company nor any of its Affiliates is the obligor: (i) Governmental Obligations; (ii) debt obligations which are (a) issued by any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision, and (b) at the time of purchase, rated “AAA” by S&P and rated “Aaa” by Moody’s; (iii) any bond, debenture, note, participation certificate or other similar obligation which is either (a) issued or guaranteed by the Federal National Mortgage Association, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the federal Farm Credit Bank or the Student Loan Marketing Association, or (b) backed by the full faith and credit of the United States of America; (iv) U.S. denominated deposit account, certificates of deposit and banker’s acceptances with domestic commercial banks, which have a rating on their short-term certificates of deposit on the date of purchase of “A-1” by S&P or “P-1” by Moody’s, without regard to gradation, and which matures not more than 360 days after the date of purchase; (v) commercial paper which is rated at the time of purchase within the classification or higher, “A-1” by S&P or “P-1” by Moody’s, without regard to gradation, and which matures not more than 270 days after the date of purchase; (vi) investment agreements with banks that at the time such agreement is executed are rated by S&P or Moody’s in one of the two highest rating categories assigned by S&P or Moody’s (without regard to   -19- -------------------------------------------------------------------------------- any refinement or gradation of rating category by numerical modifier or otherwise) or investment agreements with non-bank financial institutions which, (1) all of the unsecured, direct long-term debt of either the non-banking financial institution or the related guarantor of such non-bank financial institution is rated by S&P or Moody’s at the time such agreement is executed in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) for obligations of that nature; or (2) if such non-bank financial institutions have no outstanding long-term debt that is rated, all of the short-term debt of either the non-banking financial institution or the related guarantor of such non-bank financial institution is rated by S&P or Moody’s in the highest rating category (without regard to any refinement or gradation fo the rating category by numerical modifier or otherwise) assigned to short term indebtedness by S&P or Moody’s, provided that if at any time after purchase the provider of the investment agreement drops below the two highest rating categories assigned by S&P or Moody’s, the investment agreement must, within 30 days, either (1) be assigned to a provider rated in one of the two highest rating categories or (2) be secured by the provider with collateral securities the fair market value of which, in relation to the amount of the investment agreement including principal and interest, is equal to at least 102%; investment agreements with banks or non-bank financial institutions shall not be permitted if no rating is available with respect to debt of the investment agreement provider or the related guarantor of such provider; (vii) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clause (ii) and (iii) above, which agreements may be entered into with a bank (including without limitation the Trustee), a trust company, financial services firm or a broker dealer which is a member of the Securities Investors Protection Corporation, provided that (a) the Trustee or a custodial agent of the Trustee has possession of the collateral and that the collateral is free and clear of third-party claims, (b) a master repurchase agreement or specific written repurchase agreement governs the transaction, (c) the collateral securities are valued no less frequently than monthly, and (d) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%, and (e) such obligations must be held in the custody of the Trustee or the Trustee’s agent; and (ix) shares of a fixed income mutual fund, Exchange Traded Fund or other collective investment fund registered under the federal Investment Company Act of 1940 whose shares are registered under the Securities Act of 1933, and whose investments consist solely of Investments described in paragraphs (i) through (viii) above, including money market mutual funds from which the Trustee or its affiliates derive a fee for investment advisory or other services to the fund. Such investments shall have maturity dates, or shall be subject to redemption by the holder at the option of the holder, on or prior to the dates the moneys invested therein will be needed as reflected by a statement of the Authorized Company Representative, which statement must be on file with the Trustee prior to any investment. The Trustee shall be entitled to assume that any investment which at the time of purchase is a permitted investment hereunder remains a permitted investment thereafter, absent receipt of written notice or actual knowledge of information to the contrary. (b) All interest, income, or other gain from the investment of moneys in the Construction Fund shall be retained therein and any loss resulting from the sale of any investment shall be charged to such Fund. SECTION 8.4. No Liability for Investments. (a) The Trustee may make any and all investments under this Article VIII through its own investment department or that of its affiliates or subsidiaries. (b) The Trustee shall have no responsibility with respect to the compliance by the Company with respect to any covenant herein regarding investments made in accordance with this Article VIII, other than to use its best reasonable efforts to comply with instructions from the Company regarding such investments. Since the making of such investments will be subject to the Company’s direction, the Trustee specifically disclaims any obligation to the Company for any loss, fee, or other charge arising from, or tax consequences of, investments, reinvestments, and liquidation of investments pursuant to the provisions of this Section.   -20- -------------------------------------------------------------------------------- SECTION 8.5. Covenants Regarding Rebate. (a) A special Rebate Fund is hereby established by the Issuer with the Trustee. The Rebate Fund shall be for the sole benefit of the United States of America and shall not be subject to the claim of any other person, including without limitation the Bondholders. The Rebate Fund is established for the purpose of complying with section 148 of the Code and the Treasury Regulations promulgated pursuant thereto. The money deposited in the Rebate Fund, together with all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this section. The Rebate Fund is not a portion of the Trust Estate and is not subject to the lien of this Indenture. Notwithstanding the foregoing, the Trustee with respect to the Rebate Fund is afforded all the rights, protections and immunities otherwise accorded to it hereunder. (b) Unless the Bonds qualify for an exception to rebate under Section 148 of the Code, within ten days after the close of each “Bond Year,” the Trustee shall receive from the Company a computation in the form of a certificate of an Authorized Company Representative of the amount of “Excess Earnings,” if any, for the period beginning on the date of delivery of the Bonds and ending at the close of such “Bond Year” and the Company shall pay to the Trustee for deposit into the Rebate Fund an amount equal to the difference, if any, between the amount then in the Rebate Fund and the Excess Earnings so computed. The term “Bond Year” means with respect to the Bonds each one-year period ending on the anniversary of the date of delivery of the Bonds or such other period as may be elected by the Issuer in accordance with the Regulations and notice of which election has been given to the Trustee. If, at the close of any Bond Year, the amount in the Rebate Fund exceeds the amount that would be required to be paid to the United States of America under paragraph (d) below if the Bonds had been paid in full, such excess may be transferred from the Rebate Fund and paid to the Company, and the Company shall use such excess for such purposes for which, or to be redeposited to such fund from which, such amounts were originally derived. (c) In general, “Excess Earnings” for any period of time means the sum of (i) the excess of — (A) the aggregate amount earned during such period of time on all “Nonpurpose Investments” (including gains on the disposition of such obligations) in which “Gross Proceeds” of the issue are invested (other than amounts attributable to an excess described in this subparagraph (c)(i)), over (B) the amount that would have been earned during such period of time if the “Yield” on such Nonpurpose Investments (other than amounts attributable to an excess described in this subparagraph (c)(i)) had been equal to the yield on the issue, plus (ii) any income during such period of time attributable to the excess described in subparagraph (c)(i) above. The terms Nonpurpose Investments, Gross Proceeds, and Yield shall have the meanings given to such terms in section 148 of the Code and the Regulations promulgated pursuant to such section. (d) The Trustee shall pay to the United States of America at least once every five years, to the extent that funds are available in the Rebate Fund or otherwise provided by the Company, an amount that ensures that at least 90 percent of the Excess Earnings from the date of delivery of the Bonds to the close of the period for which the payment is being made will have been paid. The Trustee shall pay to the United States of America not later than 60 days after the Bonds have been paid in full, to the extent that funds are   -21- -------------------------------------------------------------------------------- available in the Rebate Fund or otherwise provided by the Company, 100 percent of the amount then required to be paid under section 148(f) of the Code as a result of Excess Earnings, unless the Bonds qualify for the exception to rebate set forth in Section 148(f)(4)(B) of the Code or the Regulations thereunder. (e) The amounts to be computed, paid, deposited or disbursed under this section shall be determined by the Company acting on behalf of the Issuer within ten days after (i) each Bond Year after the date of issuance of each issue or series of Bonds and (ii) the date on which the Bonds have been paid in full, unless the Trustee shall have been provided a Favorable Opinion with respect to the noncompliance with such requirements. By such date, the Company shall also notify, in writing, the Trustee and the Issuer of the determinations the Company has made and the payment to be made pursuant to the provisions of this section. All such determinations shall be conclusive and binding on the Trustee and the Issuer. Upon written request of any registered owner of Bonds, the Company shall furnish to such registered owner of Bonds a certificate (supported by reasonable documentation, which may include calculation by Bond Counsel or by some other service organization) showing compliance with this section and other applicable provisions of section 148 of the Code. (f) The Trustee shall maintain a record of the periodic determinations by the Company of the Excess Earnings for a period beginning on the first anniversary date of the issuance of the Bonds and ending on the date of the final retirement of the Bonds. Such records shall state each such anniversary date and contain a summary prepared by the Company of the manner in which the Excess Earnings, if any, was determined. The Trustee shall provide to the Company periodic statements of transactions and investments with respect to the various funds and accounts created pursuant to this Indenture. Such statements shall be provided as part of the ordinary services contemplated herein. In the event that the Company requests the Trustee to provide copies of the statements to a rebate consultant or other person for the purpose of performing analysis or calculations relating to arbitrage rebate as required under this Indenture (or other financing agreement) or for any other reason, then the Trustee shall be entitled to additional compensation for its services with respect to providing such additional statements. (g) If the Trustee shall declare the principal of the Bonds and the interest accrued thereon immediately due and payable as the result of an Event of Default specified in the Indenture, or if the Bonds are optionally or mandatorily prepaid or redeemed prior to maturity as a whole in accordance with their terms, any amount remaining in any of the funds shall be transferred to the Rebate Fund to the extent that the amount therein is less than the Excess Earnings computed by the Company as of the date of such acceleration or redemption, and the balance of such amount shall be used immediately by the Trustee for the purpose of paying principal of, redemption premium, if any, and interest on the Bonds when due. In furtherance of such intention, the Issuer hereby authorizes and directs its President to execute any documents, certificates or reports required by the Code and to make such elections, on behalf of the Issuer, which may be permitted by the Code as are consistent with the purpose for the issuance of the Bonds. ARTICLE IX REDEMPTION OF BONDS SECTION 9.1. Bonds Subject to Redemption. The Bonds shall be subject to redemption prior to maturity as set forth below: (a) Optional Redemption. The Bonds shall be subject to redemption at the option of the Issuer, at the direction of the Company, in whole or in part, and if in part, in Authorized Denominations from funds available for such purpose in the Bond Fund, on December 1, 2016, and on any date thereafter, at a redemption price equal to the principal amount of the Bonds to be redeemed and accrued interest, if any, to the date of redemption.   -22- -------------------------------------------------------------------------------- (b) Mandatory Redemption. The outstanding Bonds are subject to mandatory redemption and shall be redeemed by the Issuer, in part, prior to their scheduled maturity, with money from the Bond Fund, at a redemption price equal to the principal amount thereof and accrued interest, if any, to the date of redemption, on December 1 of each of the following years, in the principal amounts, respectively, as shown in the following schedule:   Redemption Year   Principal Amount 2012   $ 950,000 2013     1,015,000 2014     1,085,000 2015     1,165,000 2016     1,245,000 2017     1,330,000 2018     1,425,000 2019     1,525,000 2020     1,630,000 2021     1,745,000 2022     1,865,000 2023     1,995,000 2024     2,135,000 2025     2,285,000 2026     2,445,000 2027     2,620,000 2028     2,800,000 2029     2,995,000 2030     3,205,000 2031     3,430,000 2032     3,670,000 2033     3,930,000 2034     4,205,000 2035     4,495,000 2036     4,810,000 The principal amount of the Bonds so required to be redeemed on any such mandatory redemption date shall be reduced by the principal amount of any Bonds which, at least 45 days prior such redemption date, (1) shall have been acquired by the Trustee at the direction of the Company, at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase thereof and delivered to the Trustee for cancellation, or (2) shall have been redeemed pursuant to any other redemption provision herein and not previously so credited. (c) Extraordinary Mandatory Redemption. (i) Taxability. The Bonds shall be subject to mandatory redemption, at a redemption price equal to 106% the principal amount being redeemed plus accrued interest to the redemption date on the one hundred eightieth day (or such earlier date as may be designated by the Company) after a final determination by a court of competent jurisdiction or an administrative agency (including the Internal Revenue Service), or receipt by the Company of an opinion of Bond Counsel obtained by the Company, to the effect the interest payable on the Bonds is or will be included in the gross income of the owners thereof for federal income tax purposes, other than any Owner who is a “substantial user” of the Project or a “related person” within the meaning of Section 147(a) of the Code. Subject to the foregoing provisions of this Section 9.1(c)(i), the Bonds shall be redeemed in whole unless, in the opinion of Bond Counsel mutually acceptable to the Issuer, the Trustee and the Company, the redemption of a portion of such Bonds would have the result that interest payable on the Bonds remaining outstanding after such redemption would not be includable in the gross income for federal income tax purposes of any owner of any such Bonds. Any such partial redemption shall be in such amount as is necessary to accomplish such result; and   -23- -------------------------------------------------------------------------------- (ii) Excess Proceeds. The Bonds are subject to mandatory redemption, in part, on any date, to the extent that proceeds of the Bonds are transferred to the Bond Fund pursuant to Section 5.3 hereof, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date. (d) Extraordinary Optional Redemption. The Bonds shall be subject to optional redemption by the Issuer, at the written direction of the Company, in part, in each case in an amount not to exceed twenty-five percent (25%) of the original principal amount of the Bonds, at any time and from time to time, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date, if: (i) the Company shall have determined that the continued construction or operation of a Facility is impracticable, uneconomical or undesirable due to (A) the imposition of taxes, other than ad valorem taxes currently levied upon privately owned property used for the same general purpose as such Facility, or other liabilities or burdens with respect to such Facility or the operation thereof, (B) changes in technology, in environmental standards or legal requirements or in the economic availability of materials, supplies, equipment or labor or (C) destruction of or damage to all or part of such Facility; (ii) all or substantially all of a Facility shall have been condemned or taken by eminent domain; (iii) the construction or operation of a Facility shall have been enjoined or shall have otherwise been prohibited by any order, decree, rule or regulation of any court or of any federal, state or local regulatory body, administrative agency or other governmental body; or (iv) a Facility or portion thereof shall have been sold and the proceeds of sale shall not have been reinvested as provided in the Guarantee. SECTION 9.2. Company Direction of Optional Redemption. The Trustee shall call Bonds for optional redemption when and only when it shall have been notified by the Company to do so. The Company will give written notice of any optional redemption to the Trustee and the Issuer as provided in Section 9.4 of this Indenture. SECTION 9.3. Selection of Bonds to be Called for Redemption; Partial Redemption. Except as otherwise provided herein or in the Bonds, the particular Bonds to be called for redemption shall be selected by the Trustee by lot or any other customary random method determined by the Trustee to be fair and reasonable provided that a portion of a Bond may be redeemed only in Authorized Denominations. If less than all the Bonds are to be redeemed, such redemption must be in an amount which will result in the Bonds that remain outstanding being in Authorized Denominations. SECTION 9.4. Notice of Redemption. (a) The Company shall deliver notice to the Trustee and the Issuer of its intention to prepay the principal of, redemption premium, if any, and interest on the Bonds and cause the Bonds to be called for optional redemption at least ten (10) Business Days prior to the date the Trustee gives notice to the Registered Owners of the Bonds of the proposed redemption of the Bonds. The Trustee shall cause notice of any redemption of Bonds hereunder, which notice shall be prepared by the Company, to be mailed by first class mail, postage prepaid (except when DTC or a Securities Depository is the Registered Owner of all of the Bonds and except for any person or entity owning or providing evidence of ownership satisfactory to the Trustee of a legal or beneficial ownership in at least $1,000,000 of principal   -24- -------------------------------------------------------------------------------- amount of Bonds who so requests, in which cases, by certified mail, return receipt requested), to the Registered Owners of all Bonds to be redeemed at the registered addresses appearing in the Bond Register kept for such purpose pursuant to Article II hereof. Each such notice shall (i) be mailed at least 30 days prior to the redemption date for Bonds, (ii) identify the Bonds to be redeemed if less than all Bonds are to be redeemed (specifying the CUSIP numbers, if any, assigned to the Bonds), (iii) specify the redemption date and the redemption price, (iv) state whether the notice is conditional or not as permitted by paragraph (b) hereof, and (v) state that on the redemption date the Bonds called for redemption will be payable at the office of the Trustee designated in such notice, that from that date, provided funds have been deposited with the Trustee sufficient for redemption, interest will cease to accrue and that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds; provided, however, that the Bonds are registered with DTC or a successor Securities Depository, redemption notices will be sent to Cede & Co. pursuant to the procedures set forth in the DTC Letter of Representations or the procedures of such successor Securities Depository. Any failure on the part of DTC or a successor Securities Depository , a direct participant or indirect participant to give such notice to the Owner or any defect therein shall not affect the sufficiency or validity of any proceedings for the redemption of the Bonds. No defect affecting any Bond, whether in the notice of redemption or mailing thereof (including any failure to mail such notice), shall affect the validity of the redemption proceedings for any other Bonds. (b) Conditional Notice. If at the time of mailing of notice of an optional redemption there shall not have been deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional, that is, subject to the deposit of the redemption moneys with the Trustee on or prior to the redemption date, and such notice shall be of no effect unless such moneys are so deposited on or prior to the redemption date. If such redemption is not effectuated, the Trustee shall, at the expense of the Company, within five days thereafter, give notice in the manner in which the notice of redemption was given that such moneys were not so received and shall rescind the redemption. (c) Additional Notice of Redemption. In addition to the redemption notice required above, if there is more than one Registered Owner of the Bonds, further notice (the “Additional Notice”) shall be given by the Trustee as set out below. No defect in the Additional Notice nor any failure to give all or any portion of the Additional Notice shall in any manner defeat the effectiveness of a call for redemption if notice is given as prescribed in paragraph (a) above. (i) Each Additional Notice shall contain the information required in paragraph (a) above for an official notice of redemption plus (A) the date of the Bonds as originally issued; (B) the interest rate borne by each Bond being redeemed; (C) the maturity date of each Bond being redeemed; and (D) any other descriptive information needed to identify accurately the Bonds being redeemed. (ii) Each Additional Notice shall be published one time in a financial newspaper or journal which regularly carries notices of redemption of other obligations similar to the Bonds, such publication to be made at least 30 days prior to the date fixed for redemption. (iii) Upon the payment of the redemption price of the Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer, provided that neither the Issuer, the Company, nor the Trustee shall be deemed to have made any representation as to the correctness of such CUSIP number. (iv) Each Additional Notice shall be sent at least 30 days before the redemption date by registered or certified mail, facsimile, or overnight delivery service to the following registered   -25- -------------------------------------------------------------------------------- securities depositories: The Depository Trust Company of New York, New York and Philadelphia Depository Trust Company of Philadelphia, Pennsylvania and to such other registered securities depositories as may be specified by the Company to the Trustee in writing and to one or more national information services that disseminate notices of redemption of obligations such as the Bonds as shall be specified by the Company to the Trustee in writing. (v) The Trustee’s agreement to give the additional notices specified in this subsection (c) is made as a matter of courtesy and accommodation only and the Trustee shall incur no liability to any person for its failure to give such additional notices. ARTICLE X COVENANTS OF THE ISSUER SECTION 10.1. Payment of Principal of, Redemption Premium, if any, and Interest on Bonds; Appointment of Paying Agent. The Issuer covenants that it will promptly pay or cause to be paid, the principal of, redemption premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bond according to the true intent and meaning thereof; provided, however, that the obligation of the Issuer hereunder to make or cause to be made any payment to the Trustee in respect of the principal of, redemption premium, if any, or interest on the Bonds shall be reduced by the amount of moneys, if any, on deposit in the Bond Fund and available to be applied by the Trustee toward the payment of the principal of, redemption premium, if any, or interest on the Bonds. The principal of, redemption premium, if any, and interest (except interest paid from the proceeds from the sale of the Bonds) are payable solely from the Trust Estate, including Revenues, which Revenues are specifically pledged and assigned for the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or this Indenture should be considered as assigning or pledging any funds or assets of the Issuer other than the Trust Estate in the manner and to the extent herein specified. Anything in this Indenture to the contrary notwithstanding, it is understood that whenever the Issuer makes any covenant involving financial commitments, it pledges no funds or assets other than the Trust Estate in the manner and to the extent herein specified, but nothing herein shall be construed as prohibiting the Issuer from using any other funds or assets. The Issuer shall, with the approval of the Company, appoint one or more Paying Agents for such purpose, each such agent to be a national banking association, a bank and trust company or a trust company. The Issuer hereby appoints the Trustee as Paying Agent, such appointment and designation to remain in effect until notice of change is filed with the Trustee. The Issuer shall give prompt written notice to the Trustee of the designation of each such Paying Agent and of its designated office location for purposes of such agency, and of any change in the Paying Agent or of its designated office location. Any Paying Agent other than the Trustee shall be a person which meets the requirements for qualifications of a paying agent imposed by Section 13.2 hereof. SECTION 10.2. Compliance with Laws. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder and in all resolutions pertaining thereto. The Issuer covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue Bonds authorized hereby and to execute this Indenture and to make the pledge and covenants in the manner and to the extent herein set forth; that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken; and that the Bonds in the hands of the holders and owners thereof are and will be valid and enforceable obligations of the Issuer according to the import thereof.   -26- -------------------------------------------------------------------------------- SECTION 10.3. Enforcement of Agreement; Prohibition Against Amendments of Agreement; Notice of Default. The Issuer shall cooperate with the Trustee in enforcing the payment of all amounts under the Agreement and shall require the Company to perform its obligations under the Agreement. So long as no Event of Default hereunder shall have occurred and be continuing, the Issuer may exercise all its rights under the Agreement as amended or supplemented from time to time, including the right to amend the Agreement; provided that it shall not amend the Agreement without the consent of the Trustee pursuant to Section 15.3. The Issuer shall give prompt notice to the Trustee of any default known to the Issuer under the Agreement. SECTION 10.4. Further Assurances. Except to the extent otherwise provided in this Indenture, the Issuer shall not enter into any contract or take any action by which the rights of the Trustee, the Bondholders or the Company may be impaired and shall, from time to time, execute and deliver such further instruments and take such further action as may be required to carry out the purposes of this Indenture. SECTION 10.5. Administration Expenses. It is understood and agreed that pursuant to the provisions of Sections 5.04 and 5.07 of the Agreement, the Company agrees to pay the Administration Expenses. All such payments under the Agreement which are received by the Trustee shall not be paid into the Bond Fund, but shall be segregated by the Trustee and expended solely for the purpose for which such payments are received. SECTION 10.6. Moneys to be Held in Trust. All moneys required to be deposited with or paid to the Trustee or any Paying Agent for deposit into the Bond Fund, the Construction Fund, or the Debt Service Reserve Fund under any provision of this Indenture and all moneys withdrawn from the Bond Fund, the Construction Fund, or the Debt Service Reserve Fund and held by any Paying Agent, shall be held by the Trustee or such Paying Agent in trust, or deposited with or paid to the Trustee for the redemption of Bonds, notice of which redemption has been duly given, and for moneys deposited with or paid to the Trustee pursuant to Article XVI hereof, shall, while held by the Trustee or any Paying Agent, constitute part of the Trust Estate and be subject to the lien hereof. Any moneys received by or paid to the Trustee pursuant to any provision of the Agreement calling for the Trustee to hold, administer and disburse the same in accordance with the specific provisions of the Agreement shall be held, administered and disbursed pursuant to such provisions. The Issuer agrees that if it shall receive any moneys pursuant to applicable provisions of the Agreement, it will forthwith upon receipt thereof pay the same over to the Trustee to be held, administered and disbursed by the Trustee in accordance with the provisions of the Agreement pursuant to which the Issuer may have received the same. Furthermore, if for any reason the Agreement ceases to be in force and effect while any Bonds are outstanding, the Issuer agrees that if it shall receive any moneys derived from the Project, it will forthwith upon receipt thereof pay the same over to the Trustee to be held, administered and disbursed by the Trustee in accordance with provisions of the Agreement that would be applicable if the Agreement were then in force and effect, and if there be no such provisions which would be so applicable, then the Trustee shall hold, administer and disburse such moneys solely for the discharge of the Issuer’s obligations under this Indenture. SECTION 10.7. Rights of Company Under Agreement. Nothing herein contained shall be deemed to impair the rights and privileges of the Company set forth in the Agreement. The Issuer and the Trustee agree that the Company in its own name or in the name of the Issuer may enforce all of the rights of the Issuer, all obligations of the Trustee, and all of the Company’s rights provided for in this Indenture.   -27- -------------------------------------------------------------------------------- ARTICLE XI EVENTS OF DEFAULT AND REMEDIES SECTION 11.1. Events of Default Defined. Each of the following shall be an “Event of Default” hereunder: (a) Payment of the principal or redemption price of any Bond is not made when it becomes due and payable at maturity or upon call for redemption; or (b) Payment of any interest on any Bond is not made when it becomes due and payable; or (c) The occurrence and continuance of any “Event of Default” under the Agreement; or (d) Default in the payment of any other amount required to be paid under this Indenture or in the performance or observance of any other of the covenants, agreements or conditions contained in this Indenture, or in the Bonds issued under this Indenture, and continuance thereof for a period of 90 days after written notice specifying such failure and requesting that it be remedied shall have been given to the Issuer and the Company by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of the holders of not less than 25% in principal amount of the Bonds then outstanding, unless the Trustee, or the Trustee and holders of a principal amount of Bonds not less than the principal amount of Bonds the holders of which requested such notice, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the holders of such principal amount of Bonds, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is instituted by the Issuer, or the Company on behalf of the Issuer, within such period and is being diligently pursued; or (e) The occurrence and continuance of any “Event of Default” under, and as defined in, the Guarantee. SECTION 11.2. Acceleration and Annulment Thereof. If any Event of Default occurs and is continuing, the Trustee may, and upon written request of the owners of at least 25% in principal amount of all Bonds then Outstanding shall, by notice in writing to the Issuer and the Company, declare the principal of and accrued interest on all Bonds then Outstanding to be immediately due and payable; and upon such declaration the said principal, together with interest accrued thereon to the date of acceleration, shall become due and payable immediately at the place of payment provided therein, anything in the Indenture or in the Bonds to the contrary notwithstanding. Upon the occurrence of any acceleration hereunder, the Trustee shall immediately declare all payments under the Agreement pursuant to Section 5.03 thereof to be due and payable immediately. Immediately after any acceleration hereunder, the Trustee, to the extent it has not already done so, shall notify in writing the Issuer, the Company, and the Paying Agent of the occurrence of such acceleration. Upon the occurrence of any acceleration hereunder, the Trustee shall notify by first class mail, postage prepaid, the owners of all Bonds Outstanding of the occurrence of such acceleration. If, after the principal of the Bonds has become due and payable, all arrears of interest upon the Bonds are paid by the Issuer, and the Issuer also performs all other things in respect to which it may have been in default hereunder and pays the reasonable charges of the Trustee and the Bondholders, including reasonable and necessary attorneys’ fees and expenses, then, and in every such case, the owners of a majority in principal   -28- -------------------------------------------------------------------------------- amount of the Bonds then Outstanding, by written notice to the Issuer and to the Trustee, may annul such acceleration and its consequences, and such annulment shall be binding upon the Trustee and upon all owners of Bonds issued hereunder. No such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. The Trustee shall forward a copy of any notice from Bondholders received by it pursuant to this paragraph to the Company. Immediately upon such annulment, the Trustee shall cancel, by notice to the Company, any demand for prepayment of all amounts due under the Agreement made by the Trustee pursuant to this Section. The Trustee shall promptly give written notice of such annulment to the Issuer, the Company, the Collateral Trustee, the Paying Agent, and, if notice of the acceleration of the Bonds shall have been given to the Bondholders, shall give notice thereof to the Bondholders. SECTION 11.3. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after the principal of the Bonds becomes immediately due and payable, may enforce each and every right granted to it under the Agreement and any supplements or amendments thereto. In exercising such rights and the rights given the Trustee under this Article, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 12.6, would best serve the interests of the Bondholders. SECTION 11.4. Legal Proceedings by Trustee. If any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of the owners of a majority in principal amount of all Bonds then Outstanding and receipt of indemnity to its satisfaction shall, subject to the provisions of Article XII hereof, in its own name: (i) By mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders, including the right to require the Issuer to enforce any rights under the Agreement and to require the Issuer to carry out any other provisions of this Indenture for the benefit of the Bank and the Bondholders and to perform its duties under the Act; (ii) Bring suit to enforce the Bonds; (iii) By action or suit in equity require the Issuer to account as if it were the trustee of an express trust for the Bondholders; and (iv) By action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders. SECTION 11.5. Discontinuance of Proceedings by Trustee. If any proceeding commenced by the Trustee on account of any Event of Default is discontinued or is determined adversely to the Trustee, then the Company, the Issuer, the Trustee and the Bondholders shall be restored to their former positions and rights hereunder as though no such proceedings had been commenced. SECTION 11.6. Majority Holders May Direct Proceedings. The owners of a majority in principal amount of the Bonds then Outstanding shall have the right, after furnishing indemnity satisfactory to the Trustee, to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that (i) such directions shall not be otherwise than in accordance with law or the provisions of this Indenture and (ii) the Trustee shall have the right to decline to follow any such direction which in the reasonable opinion of the Trustee conflicts with law or with the Indenture or would be unjustly prejudicial to Bondholders not parties to such direction.   -29- -------------------------------------------------------------------------------- SECTION 11.7. Limitations on Actions by Bondholders. No Bondholder shall have any right to pursue any remedy hereunder unless: (i) the Trustee shall have been given written notice of an Event of Default, (ii) the owners of at least a majority in principal amount of all Bonds then Outstanding shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names, (iii) the Trustee shall have been offered indemnity satisfactory to it against reasonable costs, expenses and liabilities, including, without limitation, reasonable costs and expenses of its counsel, except that no offer of indemnification shall be required solely for a declaration of acceleration under Section 11.2, and (iv) the Trustee shall have failed to comply with such request within a reasonable time. Notwithstanding the foregoing provisions of this Section or any other provision of this Indenture, the obligation of the Issuer shall be absolute and unconditional to pay hereunder, but solely from the Revenues and other funds pledged under this Indenture, the principal or redemption price of, and interest on, the Bonds to the respective owners thereof on the respective due dates thereof, and nothing herein shall affect or impair the right of action, which is absolute and unconditional, of such owners to enforce such payment. SECTION 11.8. Trustee May Enforce Rights Without Possession of Bonds. All rights under the Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceeding instituted by the Trustee shall be brought in its name for the ratable benefit of the owners of the Bonds. SECTION 11.9. Remedies Not Exclusive. No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. SECTION 11.10. Delays and Omissions Not to Impair Rights. No delays or omission in respect of exercising any right or power accruing upon any default shall impair such right or power or be a waiver of such default, and every remedy given by this Article may be exercised from time to time and as often as may be deemed expedient. SECTION 11.11. Application of Moneys in Event of Default. Any moneys received by the Trustee under this Article shall be applied in the following order: (i) To the payment of the reasonable costs and expenses of the Trustee, including reasonable counsel fees and expenses, any disbursements of the Trustee with interest thereon at the prime rate of the Trustee and its reasonable compensation; and (ii) To the payment of principal or redemption price (as the case may be) and interest then owing on the Bonds, and in case such moneys shall be insufficient to pay the same in full, then to the payment of principal or redemption price and interest ratably, without preference or priority of one over another or of any installment of interest over any other installment of interest; and (iii) To the payment of reasonable costs and expenses of the Issuer, including reasonable counsel fees, incurred in connection with the Event of Default.   -30- -------------------------------------------------------------------------------- The surplus, if any, shall be paid to the Company. SECTION 11.12. Trustee and Bondholders Entitled to All Remedies Under the Act. It is the purpose of this Article to provide such remedies to the Trustee and the Bondholders as may be lawfully granted under the provisions of the Act, but should any remedy herein granted be held unlawful, the Trustee and the Bondholders shall nevertheless be entitled to every other remedy granted hereunder and every remedy provided by the Act. It is further intended that, insofar as lawfully possible, the provisions of this Article shall apply to and be binding upon any trustee or receiver appointed under applicable law.   -31- -------------------------------------------------------------------------------- ARTICLE XII THE TRUSTEE SECTION 12.1. Acceptance of Trust. The Trustee accepts and agrees to execute the trusts hereby created, but only upon the additional terms set forth in this Article XII, to all of which the Issuer, the Trustee (as Trustee, Paying Agent, and Bond Registrar), the Company and the Bondholders agree. SECTION 12.2. No Responsibility for Recitals, etc. The recitals, statements and representations in this Indenture or in the Bonds, save only the Trustee’s Certificate of Authentication upon the Bonds, have been made by the Issuer and not by the Trustee; and the Trustee shall be under no responsibility for the correctness thereof, or for the validity, priority, recording or re-recording, filing or re-filing of this Indenture or the Agreement or any financing statements or amendments thereto, other than continuation statements and amendments necessitated by factual changes of which the Trustee has actual knowledge (e.g. name changes or changes in place of incorporation), or for insuring the Project or collecting any insurance moneys, or for the validity of the execution by the Issuer of this Indenture or of any supplements thereto or instruments of further assurance, or for the validity or sufficiency of the security afforded by this Indenture or the Bonds issued hereunder or intended to be secured hereby, or as to the maintenance of the security hereof. The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Issuer or on the part of the Company hereunder or under the Agreement, except as expressly provided herein or in the Agreement. The Trustee shall not be accountable for the application of the proceeds of any Bonds authenticated or delivered hereunder which has been made by or on behalf of the Company or the Issuer. SECTION 12.3. Trustee May Act Through Agents; Answerable Only for Willful Misconduct or Negligence. The Trustee may exercise any powers hereunder and perform any duties required of it through attorneys, agents, officers or employees, and shall be entitled to rely on the advice of Counsel concerning all questions hereunder or under the Agreement. The Trustee shall not be answerable for the default, negligence or misconduct of any attorney or agent selected by it with reasonable care. Except as otherwise provided herein, the Trustee shall not be answerable for the exercise of any discretion or power under the Indenture nor for anything whatsoever in connection with the trust hereunder, except only its own willful misconduct or negligence. SECTION 12.4. Compensation. The Company shall pay to the Trustee such compensation for its services hereunder as is specified in the Agreement or such other written agreement between the Company and the Trustee, and also all its reasonable expenses and disbursements, including the reasonable fees, costs and expenses of its counsel (including in-house counsel and legal staff). If the Company shall have failed to make any such payment within a reasonable time, the Trustee shall have, in addition to any other rights hereunder, a claim, prior to the Bondholders, for the payment of its compensation and the reimbursement of its expenses (both ordinary and extraordinary) and any advances made by it upon the moneys and obligations in the Bond Fund, except for moneys or obligations held by the Trustee for the payment of particular Bonds. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 6.01(c) of the Agreement, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture.   -32- -------------------------------------------------------------------------------- SECTION 12.5. Notice of Default; Right to Investigate. The Trustee shall, within the later of (i) 30 days after the occurrence thereof, or (ii) 15 days after it obtains actual knowledge thereof, give written notice by first class mail to registered owners of Bonds of all Events of Default known to the Trustee, unless such Events of Default have been remedied. The Trustee shall not be deemed to have notice of any Event of Default under Section 11.1(c), (d), or (e) (other than payment defaults under Sections 6.01(a) of the Agreement) unless notified in writing of such default by the owners of at least 25% in principal amount of all Bonds then Outstanding or if it has actual notice thereof. The Trustee may, however, at any time require of the Issuer full information as to the performance of any covenant hereunder; and, if information satisfactory to it is not forthcoming, the Trustee may make or cause to be made, at the expense of the Company, an investigation into the affairs of the Issuer related to this Indenture. Copies of any notice required by this Section 12.5 shall also be sent to each Paying Agent. SECTION 12.6. Obligation to Act. Except during the continuance of an Event of Default, the Trustee shall undertake 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. If any Event of Default shall have occurred and be continuing, the Trustee shall exercise such of the rights and remedies vested in it by this Indenture and shall use the same degree of care in their exercise as a prudent person would exercise or use in the circumstances in the conduct of his own affairs. 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 Bondholders pursuant to this Indenture unless such Bondholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred in compliance with such request or direction. Wherever, in this Indenture provision is made for indemnity by the owners of the Bonds, if the owner providing such indemnity has an aggregate net worth or net asset value of at least $50,000,000, as set forth in its most recent audited financial statements or as otherwise satisfactorily demonstrated to the Trustee, the Trustee may not require any indemnity bond or other security for such indemnity. In any case where more than one owner is providing indemnity, such indemnity shall be several and not joint and, as to each owner, such indemnity obligations shall not exceed its percentage interest of outstanding Bonds. SECTION 12.7. Reliance. The Trustee may act on any requisition, resolution, notice, telegram, request, consent, direction, waiver, certificate, statement, affidavit, voucher, bond, or other paper or document which it in good faith believes to be genuine and to have been passed or signed by the proper persons or to have been prepared and furnished pursuant to any of the provisions of the Indenture, and the Trustee shall be under no duty to make any investigation as to any statement contained in any such instrument, but may accept the same as conclusive evidence of the accuracy of such statement. SECTION 12.8. Trustee May Deal in Bonds. The Trustee may in good faith buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Bondholders may be entitled to take with like effect as if the Trustee were not a party to this Indenture. The Trustee may also engage in or be interested in any financial or other transaction with the Issuer or the Company. SECTION 12.9. Resignation of Trustee. The Trustee may resign and be discharged of the trusts created by the Indenture by written resignation filed with the Issuer and the Company not fewer than 60 days before the date when it is to take effect. Such resignation shall take effect only upon the appointment and acceptance of a successor trustee. SECTION 12.10. Removal of Trustee. Any Trustee hereunder may be removed at any time by an instrument appointing a successor to the Trustee so removed, executed by the Majority Holders and filed with the Trustee and the Issuer. A successor Trustee may be appointed by the Majority Holders in the same instrument. Subject to Section 12.11 hereof, if a successor Trustee does not take office within 60 days after   -33- -------------------------------------------------------------------------------- the retiring Trustee resigns or is removed, the retiring Trustee, the Company, the Issuer, or the holders of at least 25% in principal amount of the outstanding Bonds may petition, at the expense of the Company, a court of competent jurisdiction for the appointment of a successor Trustee. Such removal shall take effect only upon the appointment and acceptance of a successor Trustee. SECTION 12.11. Appointment of Successor Trustee. If the Trustee or any successor trustee resigns or is removed or dissolved, or if its property or business is taken under the control of any state or federal court or administrative body, a vacancy shall forthwith exist in the office of the Trustee, and the Issuer, at the direction of the Company, shall appoint a successor and shall mail notice of such appointment to registered owners of the Bonds. If the Issuer fails to make such appointment promptly, the owners of a majority in principal amount of the Bonds then Outstanding may do so. SECTION 12.12. Qualification of Successor. A successor trustee shall be a national banking association with trust powers or a bank and trust company or a trust company having capital and surplus of at least $50,000,000 and rated Baa3/P-3 or better by Moody’s or be otherwise acceptable to Moody’s if the Bonds are then rated by Moody’s or BBB- or better by S&P or be otherwise acceptable by S&P if the Bonds are then rated by S&P, if there be one able and willing to accept the trust on reasonable and customary terms. SECTION 12.13. Instruments of Succession. Any successor trustee shall execute, acknowledge and deliver to the Issuer an instrument accepting such appointment hereunder; and thereupon such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named Trustee herein. The Trustee ceasing to act hereunder shall pay over to the successor trustee all moneys held by it hereunder; and, upon request of the successor trustee, the Trustee ceasing to act and the Issuer shall execute and deliver an instrument transferring to the successor trustee all the estates, properties, rights, powers and trusts hereunder of the Trustee ceasing to act. SECTION 12.14. Merger of Trustee. Any corporation or association into which any Trustee hereunder may be merged or with which it may be consolidated, or any corporation or association resulting from any merger or consolidation to which any Trustee hereunder shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor trustee under the Indenture, without the execution or filing of any paper or any further act on the part of the parties hereto, anything herein to the contrary notwithstanding. SECTION 12.15. Trustee Not Required to Expend or Risk Own Funds. 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. SECTION 12.16. Right of Trustee to Pay Taxes and Other Charges. In case any tax, assessment or governmental or other charge upon any part of the trust estate is not paid as required herein, the Trustee may, but shall not be required to, pay such tax, assessment or governmental or other charge, without prejudice, however, to any rights of the Trustee or the Bondholders hereunder arising in consequence of such failure; and any amount at any time so paid under this Section 12.16, with interest thereon from the date of payment at the prime rate of the Trustee, shall become so much additional indebtedness secured by this Indenture, and the same shall be paid out of the proceeds of Revenues collected from the property herein conveyed, if not otherwise caused to be paid; but the Trustee shall be under no obligation to make any such payment unless it shall have been requested to do so by the owners of at least 25% in aggregate principal amount of all Bonds then Outstanding and shall have been provided with adequate funds for the purpose of such payment.   -34- -------------------------------------------------------------------------------- SECTION 12.17. Trust Estate may be Vested in Separate or Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in case of the enforcement of either on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the trust estate, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. The expense of any separate or co-trustee shall be borne by the Company. The following provisions of this Section 12.17 are adapted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vested in such separate or co-trustee but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. Should any deed, conveyance or instrument in writing from the Issuer be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate trustee or co-trustee, or a successor to either, shall become incapable of acting, resign or be removed, all the estate properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee. No trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder. SECTION 12.18. Reliance Upon Counsel. The Trustee may consult with Counsel satisfactory to it, and the opinion of such Counsel selected by the Trustee shall be full and complete authorization and protection in respect of any action taken or suffered by such Trustee hereunder in good faith and in reliance thereon. SECTION 12.19. No Implied Duties. The Trustee shall be obligated to perform such duties and only such duties as are herein and in the Bonds specifically set forth and as are required by applicable law and no implied duties or obligations of the Trustee shall be read into this Indenture or the Bonds. The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty. SECTION 12.20. No Responsibility for Securities Laws. The Trustee shall have no responsibility with respect to any information in any offering memorandum or other disclosure material distributed with respect to the Bonds or for compliance with securities laws in connection with the issuance and sale of the Bonds. SECTION 12.21. No Responsibility for Yield Covenants. Except as specified in Section 8.5 hereof, the Trustee shall have no responsibility with respect to compliance by the Issuer or the Company with Section 148 of the Code or any covenant in this Indenture or in the Agreement regarding yields on investments.   -35- -------------------------------------------------------------------------------- SECTION.12.22. No Responsibility for Filings. The Trustee shall not be responsible for (i) the validity, priority, recording, rerecording, filing, or refiling of this Indenture or any supplemental indenture; (ii) any instrument or document of further assurance or collateral assignment; (iii) any financing statements or amendments or modifications thereto, other than continuation statements and amendments necessitated by factual changes of which the Trustee has actual knowledge (e.g. name changes or changes in place of incorporation); (iv) the validity of the execution of the Issuer of this Indenture or any supplemental indenture or documents of further assurance; (v) the sufficiency of the security of the Bonds issued hereunder; and (vi) the value of or title to the Project. ARTICLE XIII THE PAYING AGENT SECTION 13.1. The Paying Agent. (a) The Paying Agent shall agree to (i) hold all sums held by it for the payment of the principal or redemption price of, or interest on, Bonds in trust for the benefit of the owners of such Bonds until such sums shall be paid to such owners or otherwise disposed of as herein provided; (ii) at any time during the continuance of any default in the payment of principal or redemption price of or interest on the Bonds, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (iii) keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Trustee, the Bank, and the Company at all reasonable times. (b) The Paying Agent shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof, or a bank with trust powers or a trust company having a combined capital stock, surplus and undivided profits of at least $50,000,000 and authorized by law to perform all the duties imposed upon it by this Indenture. The Paying Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Issuer, the Trustee, and the Company. In the event that the Issuer, at the request of the Company, shall fail to appoint a successor Paying Agent, upon the resignation or removal of the Paying Agent, the Trustee shall either appoint a Paying Agent or itself act as Paying Agent until the appointment of a successor Paying Agent. Any successor Paying Agent shall either be rated Baa/P-3 or better by Moody’s or be otherwise acceptable to Moody’s if the Bonds are then rated by Moody’s. The Paying Agent may be removed at any time by an instrument signed by the Company, filed with the Issuer and the Trustee. In the event of the resignation or removal of the Paying Agent, the Paying Agent shall deliver any Bonds and moneys held by it in such capacity to its successor or, if there is no successor, to the Trustee. (c) The Paying Agent in performing its duties hereunder shall be entitled to the same protective provisions in the performance of its duties as are specified in Article XII of this Indenture with respect to the Trustee hereunder to the same extent and as fully for all intents and purposes as though the Paying Agent had been expressly named therein in place of such Trustee and as though the applicable provisions of Article XII of this Indenture had been set forth herein at length. SECTION 13.2. Notices. The Trustee shall, within 30 days of the resignation or removal of the Paying Agent or the appointment of a successor Paying Agent, give notice thereof by first class mail, postage prepaid, to the owners of the Bonds.   -36- -------------------------------------------------------------------------------- ARTICLE XIV ACTS OF BONDHOLDERS; EVIDENCE OF OWNERSHIP SECTION 14.1. Acts of Bondholders; Evidence of Ownership. Except as otherwise stated herein, any action to be taken by Bondholders may be evidenced by one or more concurrent written instruments of similar tenor signed or executed by such Bondholders (or their beneficial owners) in person or by an agent appointed in writing. The initial purchasers of the Bonds from the Underwriter are hereby acknowledged by the Trustee as the beneficial owners thereof. The fact and date of the execution by any person of any such instrument may be proved by acknowledgment before a notary public or other officer empowered to take acknowledgments or by an affidavit of a witness to such execution. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of the Bonds shall be proved by the Bond Register. Any action by the owner of any Bond shall bind all future owners of the same Bond in respect of anything done or suffered by the Issuer or the Trustee in pursuance thereof. ARTICLE XV AMENDMENTS AND SUPPLEMENTS SECTION 15.1. Amendments and Supplements Without Bondholders’ Consent. This Indenture may be amended or supplemented at any time and from time to time, without the consent of the Bondholders, but with the consent of the Paying Agent, if the amendment or supplement would materially adversely affect or alter the duties or obligations of the Paying Agent under this Indenture, by a supplemental indenture authorized by a resolution of the Issuer and filed with the Trustee, for one or more of the following purposes: (i) to add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer; (ii) for any purpose not inconsistent with the terms of this Indenture or to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the owners of the Bonds; (iii) to permit the Bonds to be converted to certificateless securities or vice versa or securities represented by a master certificate held in trust, ownership of which, in either case, is evidenced by book entries on the books of the Bond Registrar, for any period of time, or to conform to the procedures of the Securities Depository to effect the book-entry system set forth in Section 2.13 hereof; (iv) to permit the appointment of a co-trustee under this Indenture; (v) to authorize different authorized denominations of the Bonds and to make correlative amendments and modifications to this Indenture regarding exchangeability of Bonds of different authorized denominations, redemptions of portions of Bonds of particular authorized denominations and similar amendments and modifications of a technical nature;   -37- -------------------------------------------------------------------------------- (vi) to modify, alter, supplement or amend this Indenture in such manner as shall permit the qualification hereof under the Trust Indenture Act of 1939, as from time to time amended; (vii) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to the Bondholders; and (viii) to conform to the requirements of any Rating Service. Before the Issuer and the Trustee shall enter into any supplemental indenture pursuant to this Section, there shall have been delivered to the Trustee a Favorable Opinion stating the requirements of such opinion and also stating that such supplemental indenture will, upon the execution and delivery thereof, be valid and binding upon the Issuer in accordance with its terms. SECTION 15.2. Amendments With Bondholders’ Consent. This Indenture may be amended or supplemented at any time or from time to time, except with respect to (i) the principal, redemption price , and interest payable upon any Bonds, (ii) the Interest Payment Dates, the dates of maturity or the redemption provisions of any Bonds, and (iii) this Article, by a supplemental indenture consented to by the Company, and if the amendment or supplement would materially adversely affect or alter the duties or obligations of the Paying Agent under this Indenture, with the consent of the Paying Agent, and approved by the Majority Holders which would be affected by the action proposed to be taken. This Indenture may be amended with respect to the matters enumerated in clauses (i) through (iii) of the preceding sentence with the unanimous consent of all Bondholders, the Company and the Paying Agent and the Trustee, if required by the preceding sentence of this Section. Before the Issuer and the Trustee shall enter into any supplemental indenture pursuant to this Section, there shall have been delivered to the Trustee a Favorable Opinion stating the requirements of such opinion and also stating that such supplemental indenture will, upon the execution and delivery thereof, be valid and binding upon the Issuer in accordance with its terms. SECTION 15.3. Amendment of Agreement. The Issuer and the Company may enter into, with the consent of the Trustee but without the consent of the holders of the Bonds, any amendment, change, addition to, consent, waiver, or modification of the Agreement (i) to cure any ambiguity, formal defect, omission or inconsistent provisions , (ii) to conform to the requirements of the Indenture or the Rating Service, or (iii) to make any other change that does not adversely affect the interest of the Bondholders. If the Issuer and the Company propose to amend the Agreement in such a manner as would adversely affect the interests of the Bondholders, the Trustee shall notify Bondholders of the proposed amendment and may consent thereto with the consent of at least a majority in aggregate principal amount of the Bonds then Outstanding which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the owners of all Bonds then Outstanding, consent to any amendment which would (i) decrease the payments payable, or change the date payments are so payable, under Section 5.03 of the Agreement, (ii) reduce the stated term of the Agreement, (iii) reduce the Company’s obligations under Section 5.03 of the Agreement, or (iv) reduce the aforesaid aggregate principal amount of the Bonds, the owners of which are required to consent to such an amendment. SECTION 15.4. Amendment of Guarantee. The Guarantee may be amended only in accordance with the provisions thereof. SECTION 15.5. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Issuer in the execution and delivery of any supplemental indenture or amendment permitted by this Article and in so doing shall be fully protected by a Favorable Opinion that such supplemental indenture or amendment is so permitted and has been duly authorized by the Issuer and that all things necessary to make it a valid and binding agreement have been done.   -38- -------------------------------------------------------------------------------- SECTION 15.6. Consent of Company. Anything herein to the contrary notwithstanding, so long as the Company is not in default under the Agreement, a supplemental indenture under this Article which affects any right of the Company shall not become effective unless and until the Company shall have consented in writing to the execution and delivery of such supplemental indenture. ARTICLE XVI DEFEASANCE SECTION 16.1. Defeasance. (a) If the Issuer shall pay or cause to be paid to the holders and owners of the Bonds the principal of and interest to become due thereon at the times and in the manner stipulated therein, and if the Issuer shall keep, perform and observe all and singular the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it on its part and shall pay or cause to be paid all other sums payable hereunder by the Issuer, then these presents and the estate and rights hereby granted shall cease, terminate and be void, and thereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy the lien hereof, and reconvey to the Issuer the estate hereby conveyed, and assign and deliver to the Issuer any property at the time subject to the lien of this Indenture which may then be in its possession, except moneys or Governmental Obligations held by it for the payment of the principal of and interest on the Bonds. (b) Provision for the payment of Bonds shall be deemed to have been made when the Trustee holds in the Bond Fund, in trust and irrevocably set aside exclusively for such payment, (i) moneys sufficient to make such payment of principal, redemption premium, if any, and interest on the Bonds; and/or (ii) noncallable, nonprepayable Governmental Obligations (provided that in either case the Trustee shall have received a Favorable Opinion) maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys (without consideration of any reinvestment thereof) to make such payment of principal, redemption premium, if any, and interest on the Bonds. No Bonds in respect of which a deposit under clause (i) or (ii) above has been made shall be deemed paid within the meaning of this Article unless the Trustee is satisfied that the amounts deposited are sufficient to make all payments that might become due on the Bonds, with respect to which the Trustee may rely on a verification certificate or report of independent certified public accountants, a copy of which certificate or report shall also be furnished to Moody’s, if the Bonds are then rated by Moody’s and/or S&P, if the Bonds are then rated by S&P. Neither the obligations nor moneys deposited with the Trustee pursuant to this Section shall be withdrawn or used for any purpose other than, and shall be segregated and held in trust for, the payment of the principal, redemption price and interest on the Bonds with respect to which such deposit has been made. In the event that such moneys or obligations are to be applied to the payment of principal or redemption price of any Bonds more than 60 days following the deposit thereof with the Trustee, the Trustee shall mail a notice to the owners of the Bonds to be redeemed or deemed paid or redeemed, stating that such moneys or obligations have been deposited and identifying the Bonds for the payment of which such moneys or obligations are being held to all owners of Bonds for the payment of which such moneys or obligations are being held at their registered addresses and to S&P, if the Bonds are then rated by S&P, and Moody’s, if the Bonds are then rated by Moody’s.   -39- -------------------------------------------------------------------------------- (c) Anything in Article XVI to the contrary notwithstanding, if moneys or Governmental Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of the principal, or redemption price of the Bonds and the interest thereon and the principal or redemption price of such Bonds and the interest thereon shall not have in fact been actually paid in full, no amendment to the provisions of this Article shall be made without the consent of the owner of each of the Bonds affected thereby. The Issuer or the Company may at any time surrender to the Trustee for cancellation by it any Bonds previously authenticated and delivered hereunder, which the Issuer or the Company may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. ARTICLE XVII MISCELLANEOUS SECTION 17.1. No Personal Recourse. No recourse shall be had for any claim based on the Agreement, the Indenture or the Bonds against any member, officer or employee, past, present or future, of the Issuer or of any successor body as such, either directly or through the Issuer or any such successor body, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. SECTION 17.2. Deposit of Funds for Payment of Bonds. If the principal or redemption price of any Bonds becoming due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, has been paid or provision therefor made in accordance with Section 16.1, all interest on such Bonds shall cease to accrue on the due date and all liability of the Issuer with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter the owners of such Bonds shall be restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bonds, and the Trustee shall hold such funds in trust for such owners. Moneys which remain unclaimed two years after the due date shall, subject to any applicable provisions of Title 6 of the Texas Property Code, at the written request of the Company, and if the Company is not, at the time, to the knowledge of the Trustee, in default with respect to any covenant in the Agreement or the Bonds, be paid to the Company pursuant to its payment instructions, and the owners of the Bonds for which the deposit was made shall thereafter be limited to a claim against the Company. Such moneys shall be held in trust uninvested or invested in Governmental Obligations maturing the next day. SECTION 17.3. No Rights Conferred on Others. Nothing herein contained shall confer any right upon any person other than the parties hereto, the Company, the Bank and the owners of the Bonds. SECTION 17.4. Severability. If any term or provision of this Indenture or the Bonds or the application thereof for any reason or circumstance shall to any extent be held invalid or unenforceable, the remaining provisions or the application of such term or provision to persons and situations other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision hereof and thereof shall be valid and enforced to the fullest extent permitted by law. SECTION 17.5. Notices. Unless otherwise provided hereunder or in the Agreement, all notices, certificates or other communications hereunder to be given by any of the following parties to any of the other following parties shall be deemed to have been sufficiently given and received by such parties only upon   -40- -------------------------------------------------------------------------------- actual receipt and delivery thereof by mail, overnight delivery, by Electronic Notice, or by telephone, confirmed in writing, to the relevant party as follows:   Company:    Microgy Holdings, LLC    One Cate Street, 4th Floor    Portsmouth, New Hampshire 03801    Attention: Richard E. Kessel    Fax #: (603)431-2650    With a copy to:    General Counsel    Fax #: (603)433-6372 Issuer:    Gulf Coast Industrial Development Authority    910 Bay Area Boulevard    Houston, Texas 77058    Fax #: (281)488-3331    Attention: President Trustee; Paying Agent; Bond Registrar:    Wells Fargo Bank, National Association 4 Penn Center, Suite 810 1600 JFK Boulevard Philadelphia, Pennsylvania 19103 Fax#: (215)861-9460 Attention: Corporate Trust Services Group                Any Paying Agent other than the Trustee:    At the address designated to the Issuer and the Trustee All notices or other communications by the Trustee to any Bondholder hereunder shall be deemed to have been sufficiently given and received by such Bondholder upon the mailing thereof by first class mail. The Issuer, the Company, the Trustee, the Paying Agent, and the Bond Registrar may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. If the Company fails to timely make or pay any payment hereunder or under the Agreement or upon notification by the Internal Revenue Service that the interest on the Bonds is, or may be, subject to federal income taxation, the Trustee promptly shall inform the Division of such an occurrence, by sending written notice to the following address: Office of the Governor of the State of Texas Texas Economic Development and Tourism Office P.O. Box 12428 Austin, Texas 78711 Attention: Executive Director or the latest address specified by the Division in writing   -41- -------------------------------------------------------------------------------- SECTION 17.6. Successors and Assigns. All the covenants, promises and agreements in this Indenture contained by or on behalf of the Issuer, or by or on behalf of the Trustee, shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not. SECTION 17.7. Headings for Convenience Only. The descriptive headings in this Indenture are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 17.8. Counterparts. The Indenture may be executed in any number of counterparts, each of which when so executed and delivered shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 17.9. Applicable Law. This Indenture shall be governed by and construed in accordance with the laws of the State; provided, however, that the rights, duties, immunities and standards of care relating to the Trustee shall be governed by the law of the jurisdiction in which its Principal Office is located. SECTION 17.10. Notice of Change. The Trustee shall give notice to Moody’s (if the Bonds are then rated by Moody’s) at 99 Church Street, New York, NY 10007, Attention: Structured Transactions Group, Corporate Department, and S&P (if the Bonds are then rated by S&P) at 55 Water Street, New York, New York 10041, of any of the following events: (i) a change in the Trustee or Paying Agent; (ii) an amendment to the Indenture or the Agreement; or (iii) payment or provision therefor of all the Bonds. The Trustee makes this covenant as a matter of courtesy and accommodation only and shall not be liable to any Person for any failure to comply therewith. SECTION 17.11. Payments Due on non-Business Days. In any case where the date of payment of interest on or principal of any Bonds or the date fixed for redemption of any Bonds or any Purchase Date shall not be a Business Day, then payment of such interest or principal and any redemption premium or Purchase Price need not be made by such Paying Agent on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption or the Purchase Date, and no interest shall accrue for the period after such date.   -42- -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the Issuer has caused these presents to be signed in its name and behalf by the President and its corporate seal to be hereunto affixed and attested by the Secretary, and, to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers.         GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY       By:   /s/ Ron Crowder ATTEST:       President By:   /s/ [illegible]         Secretary       [SEAL]         -43- -------------------------------------------------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION,     as Trustee By:   /s/ Marvin Kierstead Title:   Vice President   -44- -------------------------------------------------------------------------------- EXHIBIT A TO THE TRUST INDENTURE FORM OF BOND   No. R-      $              THE FOLLOWING TWO BRACKETED PARAGRAPHS ARE TO BE DELETED IF BOND IS NOT BOOK ENTRY ONLY: [Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”) to the Issuer or its agent for registration of transfer, exchange, or payment, and any Bond 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. As provided in the Indenture referred to herein, until the termination of the system of book-entry-only transfers through DTC, and notwithstanding any other provision of the Indenture to the contrary, this Bond may be transferred, in whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC or a nominee of DTC, or by DTC or a nominee of DTC to any successor securities depository or any nominee thereof.]* UNITED STATES OF AMERICA STATE OF TEXAS GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY ENVIRONMENTAL FACILITIES REVENUE BONDS (MICROGY HOLDINGS PROJECT) SERIES 2006   Maturity Date:                                 CUSIP                      Dated Date: October 1, 2006    Issue Date:                     , 2006    Registered Owner:    Principal Amount: $                Interest Rate:             %      -------------------------------------------------------------------------------- * To be printed only on definitive Bonds The GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY (the “Issuer”), a nonstock, nonprofit industrial development corporation existing under the laws of the State of Texas particularly the Development Corporation Act of 1979, as amended, Article 5190.6, Vernon’s Texas Civil Statutes (the “Act”), and acting on behalf of the Gulf Coast Waste Disposal Authority (the “Governmental Unit”), for   A-1 -------------------------------------------------------------------------------- value received, hereby promises to pay (but only out of the sources hereinafter mentioned) to the Registered Owner set forth above, or registered assigns, on the Maturity Date, unless this Bond shall have been called for redemption in whole or in part, upon surrender hereof, the Principal Amount set forth above and to pay (but only out of the sources hereinafter mentioned) to the Registered Owner, or registered assigns, interest thereon at the rate set forth above calculated on the basis of a 360-day year of twelve 30-day months from the most recent Interest Payment Date (hereinafter defined) to which interest has been paid or duly provided for, or from the date of authentication hereof if such date is on an Interest Payment Date to which interest has been paid or duly provided for, or from the Issue Date specified above if no interest has been paid or duly provided for, such payments of interest to be made on each Interest Payment Date until the principal or redemption price hereof has been paid or duly provided for as aforesaid. The principal or redemption price of this Bond (or of a portion of this Bond, in the case of a partial redemption) is payable to the Registered Owner hereof in immediately available funds upon presentation and surrender hereof at the principal corporate trust office of the Trustee (hereinafter defined) or its successor, as paying agent (the “Paying Agent”), under the Trust Indenture dated as of October 1, 2006 (the “Indenture”) by and between the Issuer and Wells Fargo Bank, National Association, or its successor, as trustee (the “Trustee”) securing the series of Bonds of which this Bond is one. CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SPECIFIED THEREFOR IN THE INDENTURE. All payments of interest on Bonds shall be paid to the Registered Owner hereof whose name appears in the Bond Register kept by the Bond Registrar as of the close of business on the applicable Regular or Special Record Dates in immediately available funds by wire transfer to a bank within the continental United States or deposited to a designated account if such account is maintained with the Paying Agent as directed by the Registered Owner in writing or as otherwise directed in writing by the Registered Owner at least five Business Days prior to each Interest Payment Date. The Regular Record Date for any Interest Payment Date shall be the close of business on the 15th day (whether or not a Business Day) of the calendar month immediately preceding such Interest Payment Date. Any interest on any Bond which is payable, but is not punctually paid or provided for, on any Interest Payment Date and within any applicable grace period (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Registered Owner hereof on the relevant Regular Record Date by virtue of having been such Registered Owner, and such Defaulted Interest shall be paid to the person in whose name this Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be no more than 15 nor fewer than 10 days prior to the date of proposed payment. This Bond is registered as to both principal and interest in the Bond Register kept by the Bond Registrar and may be transferred or exchanged, subject to the further conditions specified in the Indenture, only upon surrender hereof at the office of the Bond Registrar. This Bond is payable solely from the sources hereinafter mentioned. THE BONDS SHALL BE DEEMED NOT TO CONSTITUTE A DEBT OF THE STATE OF TEXAS, THE GOVERNMENTAL UNIT, OR OF ANY OTHER POLITICAL CORPORATION, SUBDIVISION, OR AGENCY OF THE STATE OR A PLEDGE OF THE FAITH AND CREDIT OF ANY OF THEM. NO RECOURSE SHALL BE HAD FOR ANY CLAIM BASED ON THE AGREEMENT, THE INDENTURE, OR THE BONDS AGAINST ANY MEMBER, OFFICER OR EMPLOYEE, PAST, PRESENT OR FUTURE, OF THE ISSUER, OR OF ANY SUCCESSOR BODY THERETO, EITHER DIRECTLY OR THROUGH THE ISSUER, OR ANY SUCH SUCCESSOR BODY, UNDER ANY CONSTITUTIONAL PROVISION, STATUTE OR RULE OF LAW OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY OR OTHERWISE. NEITHER THE STATE OF TEXAS, THE GOVERNMENTAL UNIT, NOR ANY POLITICAL CORPORATION, SUBDIVISION, OR AGENCY OF THE STATE OF TEXAS SHALL BE OBLIGATED TO PAY PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, OR INTEREST ON THE BONDS AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS, THE GOVERNMENTAL UNIT, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION, OR AGENCY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, OR INTEREST ON THE BONDS. THIS BOND IS A SPECIAL REVENUE OBLIGATION OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES DESCRIBED HEREIN AND IN THE INDENTURE AND THE HOLDER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT FROM MONEYS DERIVED BY TAXATION OR ANY REVENUES OF THE ISSUER EXCEPT THE FUNDS PLEDGED TO THE PAYMENT HEREOF.   A-2 -------------------------------------------------------------------------------- This Bond is one of a duly authorized issue of revenue bonds of the Issuer issued in the aggregate principal amount of $             designated “Gulf Coast Industrial Development Authority Environmental Facilities Revenue Bonds (Microgy Holdings Project) Series 2006” (the “Bonds”) issued under the Indenture. The Bonds are being issued by the Issuer for the purpose of financing a portion of the costs of acquiring, constructing and improving certain solid waste disposal facilities (each a “Facility,” and, collectively, the “Project”). The Issuer will loan the proceeds of the Bonds to Microgy Holdings, LLC (the “Company”) pursuant to the provisions of a Loan Agreement, dated as of October 1, 2006 (the “Agreement”), between the Issuer and the Company. The Bonds are payable solely from and secured by a pledge of the Trust Estate, which includes, among other things, (i) all of the right, title and interest of the Issuer in and to the Revenues, including, without limitation, “Loan Payments” made by the Company pursuant to the Agreement, payments received by the Trustee pursuant to a Guarantee Agreement, dated as of October 1, 2006 (the “Guarantee”), from the Company and MST Production Ltd., MST GP, LLC, MST Estates, LLC, Rio Leche Estates, L.L.C., Mission Biogas, L.L.C., and Hereford Biogas, L.L.C. (the “Subsidiary Guarantors”) to the Trustee, and from payments received by the Trustee pursuant to a Collateral Trust Agreement, dated as of October 1, 2006, among Wells Fargo Bank, National Association, as collateral trustee, the Company, and the Subsidiary Guarantors, (ii) the Agreement and all right, title and interest of the Issuer under and pursuant to the Agreement, insofar as they relate to all the Bonds issued and outstanding under the Indenture (except for the indemnification and expense reimbursement rights and other rights contained in the Agreement and any rights of the Issuer to receive notices, certificates, requests, requisitions, directions and other communications under the Agreement), including, without limitation, all payments to be received under and pursuant to and subject to the provisions of the Agreement, and (iii) all amounts on deposit in the Bond Fund, the Construction Fund, the Debt Service Reserve Fund, or other funds created under the Indenture (other than the Rebate Fund). Except as otherwise specified in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably both as to principal (redemption price, including redemption premium) and interest with all other Bonds issued under the Indenture, to which reference is made for a description of the rights of the owners of the Bonds; the rights and obligations of the Issuer; the rights, duties and obligations of the Trustee; and the provisions relating to amendments to and modifications of the Indenture, to all of which the Registered Owner of this Bond assents by acceptance of this Bond. Reference is also hereby made to the Agreement for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations thereunder of the Issuer, the Trustee and the Company and the modification or amendment of the Agreement. FOR SO LONG AS THIS BOND IS HELD IN BOOK-ENTRY FORM REGISTERED IN THE NAME OF CEDE & CO. ON THE REGISTRATION BOOKS OF THE ISSUER KEPT BY THE TRUSTEE, AS BOND REGISTRAR, THIS BOND, IF CALLED FOR PARTIAL REDEMPTION IN ACCORDANCE WITH THE INDENTURE, SHALL BECOME DUE AND PAYABLE ON THE REDEMPTION DATE DESIGNATED IN THE NOTICE OF REDEMPTION GIVEN IN ACCORDANCE WITH THE INDENTURE AT, AND ONLY TO THE EXTENT OF, THE REDEMPTION PRICE, PLUS ACCRUED INTEREST TO THE SPECIFIED REDEMPTION DATE; AND THIS BOND SHALL BE PAID, TO THE EXTENT SO REDEEMED, (i) UPON PRESENTATION AND SURRENDER THEREOF AT THE OFFICE SPECIFIED IN SUCH NOTICE OR (ii) AT THE WRITTEN REQUEST OF CEDE & CO., BY CHECK OR DRAFT MAILED TO CEDE & CO. BY THE TRUSTEE OR BY WIRE TRANSFER TO CEDE & CO. BY THE TRUSTEE IF CEDE & CO. AS BONDOWNER SO ELECTS. IF, ON THE REDEMPTION DATE, MONEYS FOR THE REDEMPTION OF BONDS TO BE REDEEMED, TOGETHER WITH INTEREST TO THE REDEMPTION DATE, SHALL BE HELD BY THE TRUSTEE SO AS TO BE AVAILABLE THEREFOR ON SUCH DATE, AND AFTER NOTICE OF REDEMPTION SHALL HAVE BEEN GIVEN IN ACCORDANCE WITH THE INDENTURE, THEN, FROM AND   A-3 -------------------------------------------------------------------------------- AFTER THE REDEMPTION DATE, THE AGGREGATE PRINCIPAL AMOUNT OF THIS BOND SHALL BE IMMEDIATELY REDUCED BY AN AMOUNT EQUAL TO THE AGGREGATE PRINCIPAL AMOUNT THEREOF SO REDEEMED, NOTWITHSTANDING WHETHER THIS BOND HAS BEEN SURRENDERED TO THE TRUSTEE FOR CANCELLATION. If an Event of Default occurs, the principal of all Bonds issued under the Indenture may become due and payable upon the conditions and in the manner and with the effect provided in the Indenture. No recourse shall be had for the payment of the principal of, redemption premium, if any, or interest on this Bond, or for any claim based hereon or on the Indenture, against any member, officer or employee, past, present or future, of the Issuer or of any successor body, as such, either directly or through the Issuer or any such successor body, under any constitutional provision, statute or rule of law, or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. Authorized Denominations Bonds will be issued in the denominations of $100,000 and integral multiples of $5,000 in excess thereof. Interest Payment Dates Interest is payable semiannually on each June 1 and December 1, commencing June 1, 2007, until maturity or prior redemption. Optional Redemption The Bonds shall be subject to redemption at the option of the Issuer, at the direction of the Company, in whole or in part, and if in part , in authorized denominations, from funds available for such purpose in the Bond Fund, on December 1, 2016, and on any date thereafter, at a redemption price equal to the principal amount of the Bonds to be redeemed and accrued interest, if any, to the date of redemption. Mandatory Redemption The outstanding Bonds are subject to mandatory redemption and shall be redeemed by the Issuer, in part, prior to their scheduled maturity, with money from the Bond Fund, at a redemption price equal to the principal amount thereof and accrued interest, if any, to the date of redemption, on December 1 of each of the following years, in the principal amounts, respectively, as shown in the following schedule:   Redemption Year   Principal Amount 2012   $ 950,000 2013     1,015,000 2014     1,085,000 2015     1,165,000 2016     1,245,000 2017     1,330,000 2018     1,425,000 2019     1,525,000 2020     1,630,000 2021     1,745,000 2022     1,865,000 2023     1,995,000 2024     2,135,000 2025     2,285,000 2026     2,445,000 2027     2,620,000 2028     2,800,000 2029     2,995,000 2030     3,205,000 2031     3,430,000 2032     3,670,000 2033     3,930,000 2034     4,205,000 2035     4,495,000 2036     4,810,000   A-4 -------------------------------------------------------------------------------- The principal amount of the Bonds so required to be redeemed on any such mandatory redemption date shall be reduced by the principal amount of any Bonds which, at least 45 days prior such redemption date, (1) shall have been acquired by the Trustee at the direction of the Company, at a price not exceeding the principal amount of such Bonds plus accrued interest to the date of purchase thereof and delivered to the Trustee for cancellation, or (2) shall have been redeemed pursuant to any other redemption provision herein and not previously so credited. Extraordinary Mandatory Redemption (i) Taxability. The Bonds shall be subject to mandatory redemption, at a redemption price equal to 106% of the principal amount being redeemed plus accrued interest to the redemption date on the one hundred eightieth day (or such earlier date as may be designated by the Company) after a final determination by a court of competent jurisdiction or an administrative agency (including the Internal Revenue Service), or receipt by the Company of an opinion of Bond Counsel obtained by the Company, to the effect that the interest payable on the Bonds is or will be included in the gross income of the owners thereof for federal income tax purposes, other than any Owner who is a “substantial user” of the Project or a “related person” within the meaning of Section 147(a) of the Code. Subject to the foregoing provisions, the Bonds shall be redeemed in whole unless, in the opinion of Bond Counsel mutually acceptable to the Issuer, the Trustee and the Company, the redemption of a portion of such Bonds would have the result that interest payable on the Bonds remaining outstanding after such redemption would not be includable in the gross income for federal income tax purposes of any owner of any such Bonds. Any such partial redemption shall be in such amount as is necessary to accomplish such result; and (ii) Excess Proceeds. The Bonds shall be subject to mandatory redemption, in part, on any date, to the extent that proceeds of the Bonds are transferred to the Bond Fund pursuant to Section 5.3 of the Indenture, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date. Extraordinary Optional Redemption The Bonds are also subject to optional redemption by the Issuer, at the written direction of the Company, in part, in each case in an amount not to exceed twenty-five percent (25%) of the original principal amount of the Bonds, at any time, at a redemption price equal to the principal amount being redeemed plus accrued interest to the redemption date, if: (i) the Company shall have determined that the continued construction or operation of a Facility is impracticable, uneconomical or undesirable due to (A) the imposition of taxes, other than ad valorem taxes currently levied upon privately owned property used for the same general purpose as such Facility, or other liabilities or burdens with respect to such Facility or the operation thereof, (B) changes in technology, in environmental standards or legal requirements or in the economic availability of materials, supplies, equipment or labor or (C) destruction of or damage to all or part of such Facility; (ii) all or substantially all of a Facility shall have been condemned or taken by eminent domain; or   A-5 -------------------------------------------------------------------------------- (iii) the construction or operation of a Facility shall have been enjoined or shall have otherwise been prohibited by any order, decree, rule or regulation of any court or of any federal, state or local regulatory body, administrative agency or other governmental body. (iv) a Facility or a portion thereof shall have been sold and the proceeds of sale shall not have been reinvested as provided in the Guarantee. The Company shall deliver notice to the Trustee of its intention to prepay the principal of, redemption premium, if any, and interest on the Bonds and cause the Bonds to be called for optional redemption at least ten (10) Business Days prior to the date the Trustee gives notice to the Registered Owners of the Bonds of the proposed redemption of the Bonds. The Trustee shall cause notice of any redemption of Bonds under the Indenture, which notice shall be prepared by the Company, to be mailed by first class mail, postage prepaid (except when DTC is the Registered Owner of all of the Bonds and except for any person or entity owning or providing evidence of ownership satisfactory to the Trustee of a legal or beneficial ownership in at least $1,000,000 of principal amount of Bonds who so requests, in which cases, by certified mail, return receipt requested), to the Registered Owners of all Bonds to be redeemed at the registered addresses appearing in the Bond Register kept for such purpose pursuant to Article II of the Indenture. Each such notice shall (i) be mailed at least 30 days prior to the redemption date for the Bonds, (ii) identify the Bonds to be redeemed if less than all Bonds are to be redeemed (specifying the CUSIP numbers, if any, assigned to the Bonds), (iii) specify the redemption date and the redemption price, (iv) state whether the notice is conditional or not as permitted by the Indenture, and (v) state that on the redemption date the Bonds called for redemption will be payable at the office of the Trustee designated in such notice, that from that date interest will cease to accrue and that no representation is made as to the accuracy or correctness of the CUSIP numbers printed therein or on the Bonds; provided, however, that so long as DTC or its nominee is the sole Registered Owner of the Bonds under the Book-Entry Only System, redemption notices will be sent to Cede & Co. Any failure on the part of DTC, a direct participant or indirect participant to give such notice to the Owner or any defect therein shall not affect the sufficiency or validity of any proceedings for the redemption of the Bonds. No defect affecting any Bond, whether in the notice of redemption or mailing thereof (including any failure to mail such notice), shall affect the validity of the redemption proceedings for any other Bonds. Selection of Bonds for Redemption Except as otherwise provided in the Indenture, the particular Bonds to be called for redemption shall be selected by the Trustee by lot or any other customary random method determined by the Trustee to be fair and reasonable provided that a portion of a Bond may be redeemed only in authorized denominations. Transfer of Bonds This Bond is transferable by the Registered Owner hereof at the designated office of the Bond Registrar, upon surrender of this Bond, accompanied by a duly executed instrument of transfer in form and with guaranty of signature satisfactory to the Bond Registrar, subject to such reasonable regulations as the Issuer or the Bond Registrar may prescribe, and upon payment of any tax or other governmental charge incident to such transfer. Upon any such transfer, a new Bond or Bonds in the same aggregate principal amount will be issued to the transferee. Except as set forth in this Bond and as otherwise provided in the Indenture, the person in whose name this Bond is registered shall be deemed the owner hereof for all purposes, and the Issuer, any Paying Agent, the Bond Registrar, the Authenticating Agent and the Trustee shall not be affected by any notice to the contrary.   A-6 -------------------------------------------------------------------------------- This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until either (i) the Certificate of Authentication hereon shall have been signed by the Trustee as Bond Registrar, or any successor, or (ii) a manually signed Comptroller’s Registration Certificate has been attached hereto or endorsed hereon. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Issuer, does not exceed or violate any constitutional or statutory limitation. IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed in its name by the manual or facsimile signature of its President and attested by the manual or facsimile signature of the Secretary, all as of the date first above written.         GULF COAST INDUSTRIAL DEVELOPMENT AUTHORITY       By:     ATTEST:       President By:             Secretary       [SEAL] (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds referred to in the within mentioned Indenture.     as Trustee By:       Authorized Signatory   Date of Authentication:     A-7 -------------------------------------------------------------------------------- (FORM OF ASSIGNMENT) ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto   --------------------------------------------------------------------------------   Please Insert Social Security or other Identifying Number of Assignee                  the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints              attorney or agent to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated:                              NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. [FORM OF COMPTROLLER’S REGISTRATION CERTIFICATE (to be attached to Initial Bonds only)] COMPTROLLER’S REGISTRATION CERTIFICATE:             REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this     Comptroller of Public Accounts of the State of Texas   A-8

Exhibit 10.6   Openwave Systems Inc. Executive Compensation Deferral Plan   Plan Participation Agreement   THIS AGREEMENT, made the      day of                     , 20    , by and between Openwave Systems Inc., a Delaware corporation (“the Company”), and             , an employee of the Company (the “Participant”).   RECITALS   The Company has adopted the Openwave Systems Inc. Executive Compensation Deferral Plan (the “Plan”) and the Participant has been selected for participation in the Plan. This Plan Participation Agreement is entered into to evidence the Participant’s participation in the Plan and to set forth the basis for determining the amount of his or her benefit under the Plan.   NOW, THEREFORE, the Company and the Participant hereby agree as follows:   1. Incorporation of the Plan. The Plan (and all its provisions), as it now exists and as it may be amended hereafter, is incorporated herein and made a part of this Agreement. A copy of the Plan is annexed hereto as Annex A.   2. Definitions. When used herein, terms that are defined in the Plan shall have the meanings given them in the Plan unless a different meaning is clearly required by the context.   3. No Interest Created. Neither the Participant nor his or her Beneficiary or other persons claiming under him or her shall have any interest in any assets of the Company, including policies of insurance, conferred by the Participant’s participation in the Plan. The Participant and his or her Beneficiary shall have only the right to receive benefits under and subject to the terms and provisions of the Plan and this Plan Participation Agreement.   4. Plan Benefits. The Participant will be entitled to benefits as provided under the terms of the Plan   5. Participant Acknowledgment Participant acknowledges that he or she is aware of and familiar with the provisions and restrictions of the Plan, that he or she has read and understood the Plan and Plan Participation Agreement, that he or she has had an opportunity to have the documents reviewed by legal counsel and that the Plan Participation Agreement will constitute a legal, valid and binding agreement of Participant.   6. Entire Agreement. The Plan and this Plan Participation Agreement contain the entire agreement and understanding of the Company and the Participant with respect to benefits available under the Plan and supersede and replace all prior agreements and understandings between the parties, written or oral, with respect thereto. -------------------------------------------------------------------------------- 7. Effect of New Law. I understand that amendments to the Plan may be necessary to comply with Section 409A of the Internal Revenue Code, and that these amendments may be retroactive to the effective date of the Plan.   IN WITNESS WHEREOF, the parties have executed this Plan Participation Agreement in duplicate originals on the day and year first above written.   Openwave Systems Inc. By:     -------------------------------------------------------------------------------- Name and Title (Participant)     -------------------------------------------------------------------------------- Signed   2

Exhibit 10.13   BUNGE LIMITED EQUITY INCENTIVE PLAN   AWARD AGREEMENT   – Notice of Performance-Based Restricted Stock Units Grant – Performance Period – Years 2005, 2006 and 2007 Target Operating Profit U.S. $[   ] – [NAME OF BUNGE BUSINESS UNIT]   Effective as of the Date of Grant set forth below, the Participant named below is hereby awarded an Award of Performance-Based Restricted Stock Units (the “Award” or “Performance-Based Restricted Stock Units”) under the Bunge Limited Equity Incentive Plan (the “Plan”) covering the Target Number of Performance-Based Restricted Stock Units set forth below, subject to the terms and conditions of the Plan and this Award Agreement (this “Award Agreement”).  This Award Agreement consists of this Notice of Performance-Based Restricted Stock Units Grant (the “Grant Notice”) and the attached Terms and Conditions Applicable to Performance-Based Restricted Stock Units.  Defined terms not explicitly defined in this Award Agreement but defined in the Plan shall have the same definitions as in the Plan.   Participant Information:   Name: Address:       Summary of Performance-Based Restricted Stock Units Terms:   Date of Grant: Target Number of Performance-Based Restricted Stock Units: Vesting Date:   Third anniversary of the Date of Grant.     The Participant and Bunge Limited, a company organized under the laws of Bermuda, and any successor thereto (“Bunge”), agree that this Award is granted under and subject to the terms and conditions of the Plan and this Award Agreement, and that this Award is granted for no consideration other than the Participant’s services.  The Participant acknowledges that he or she has reviewed the Plan and this Award Agreement in their entirety and has had an opportunity to obtain the advice of counsel and a qualified tax advisor prior to executing this Award Agreement.  The Participant hereby agrees to comply with the terms and conditions of the Plan and this Award Agreement and accepts as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to the Plan and this Award Agreement.   The Participant indicates acceptance of this Award, subject to the terms and conditions set forth in the Plan and the Award Agreement, by signing this Grant Notice and returning it to the undersigned representative of Bunge no later than             , 2005.  If a signed copy of this Grant Notice is not received by such date, this Award shall be void and of no force and effect.   BUNGE LIMITED PARTICIPANT     By:     By:     Name: Flávio Sá Carvalho [NAME] Title: Chief Personnel Officer     --------------------------------------------------------------------------------   BUNGE LIMITED EQUITY INCENTIVE PLAN   AWARD AGREEMENT   – Terms and Conditions Applicable to Performance-Based Restricted Stock Units –   1.                                      Grant.  Subject to the terms and conditions of the Plan and this Award Agreement, the Company has elected to grant the Participant an Award of Performance-Based Restricted Stock Units as of the Date of Grant.  Each Performance-Based Restricted Stock Unit shall entitle the Participant to receive the value of one Share, subject to the Participant’s satisfaction of the terms and conditions of the Plan and this Award Agreement.   2.                                      Vesting of Performance-Based Restricted Stock Units.    (a)                                  Vesting Date; Performance Level.  Subject to the other terms and conditions of the Plan and this Award Agreement, the Award shall vest and become nonforfeitable based upon the cumulative operating profit (“Cumulative Operating Profit”) of Bunge for the three consecutive fiscal years ending prior to the Vesting Date.  The portion of the Award that shall vest as of the Vesting Date shall be determined based upon the Cumulative Operating Profit achieved (with partial Shares rounded down so that only whole Shares shall vest) in the manner set forth in the table below (the “Vesting Table”).   Performance Level   Cumulative Operating Profit For the Years 2005, 2006 and 2007   % Vesting Below Threshold   Less than U.S. $[   ]   0% Threshold   U.S. $[   ]   50% of the Award Target   U.S. $[   ]   100% of the Award Maximum   U.S. $[   ]   200% of the Award   The Cumulative Operating Profit amount shall be determined in good faith by the Committee as soon as practicable following the end of fiscal year 2007.  Such determination shall be final and binding on the Participant and the Company.  In the event that the Cumulative Operating Profit is between performance levels, the portion of the Award that will become vested shall be interpolated by the Committee, and the Participant shall be advised by the Committee in writing as to the portion of the Award that vests as of the Vesting Date.  Any such determination by the Committee shall be final and binding on the Participant and the Company.   (b)                                 Portion of Award that Vests on the Vesting Date.  Except as otherwise provided in Section 3 below, a Participant must be employed by the Company on the Vesting Date for any portion of the Award to vest.  The portion of the Award that will vest on the Vesting Date shall be determined in accordance with the Vesting Table as follows:   2 --------------------------------------------------------------------------------   (I)                                     NO PORTION OF THE AWARD SHALL VEST, AND THE AWARD SHALL BE IMMEDIATELY FORFEITED, IF THE CUMULATIVE OPERATING PROFIT IS LESS THAN THE THRESHOLD AMOUNT SET FORTH IN THE VESTING TABLE.   (II)                                  IF THE CUMULATIVE OPERATING PROFIT EQUALS OR EXCEEDS THE THRESHOLD AMOUNT SET FORTH IN THE VESTING TABLE BUT IS LESS THAN THE TARGET AMOUNT SET FORTH THEREIN, THE PARTICIPANT SHALL VEST IN A PERCENTAGE OF THE TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED STOCK UNITS BETWEEN 50% AND 100% DETERMINED PROPORTIONALLY BASED UPON THE RELATIONSHIP BETWEEN THE ACTUAL CUMULATIVE OPERATING PROFIT AND THE THRESHOLD AND TARGET AMOUNTS THEREFORE.   (III)                               IF THE CUMULATIVE OPERATING PROFIT EQUALS THE TARGET AMOUNT SET FORTH IN THE VESTING TABLE, THE PARTICIPANT SHALL VEST IN THE TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED STOCK UNITS.   (IV)                              IF THE CUMULATIVE OPERATING PROFIT EXCEEDS THE TARGET AMOUNT SET FORTH IN THE VESTING TABLE BUT IS LESS THAN THE MAXIMUM AMOUNT SET FORTH THEREIN, THE PARTICIPANT SHALL VEST IN A PERCENTAGE OF THE TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED STOCK UNITS BETWEEN 100% AND 200% DETERMINED PROPORTIONALLY BASED UPON THE RELATIONSHIP BETWEEN THE ACTUAL CUMULATIVE OPERATING PROFIT AND THE TARGET AND MAXIMUM AMOUNTS THEREFORE.   (V)                                 IF THE CUMULATIVE OPERATING PROFIT EQUALS OR EXCEEDS THE MAXIMUM AMOUNT SET FORTH IN THE VESTING TABLE, THE PARTICIPANT SHALL VEST IN 200% OF THE TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED STOCK UNITS.   (VI)                              ANY PORTION OF THE AWARD THAT DOES NOT VEST IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 2(B) SHALL BE IMMEDIATELY FORFEITED.   (VII)                           EXCEPT AS OTHERWISE PROVIDED IN SECTION 3 BELOW, IN NO EVENT SHALL THE PARTICIPANT VEST IN MORE THAN 200% OF THE TARGET NUMBER OF PERFORMANCE-BASED RESTRICTED STOCK UNITS.   (c)                                  Payment of Awards.  Payment in settlement of the vested portion of an Award shall be made as soon as practicable following the Vesting Date in whole Shares (rounded down to the nearest whole share).  The number of Shares issued to a Participant shall equal the number of Shares underlying the vested portion of the Award receivable by such Participant following the Vesting Date.   (d)                                 No Rights as Shareholder.  A Participant shall have no rights as a shareholder with respect to any Award until Shares, if any, shall have been issued to the Participant following the Vesting Date, and except as expressly provided herein or in the Plan, no adjustment shall be made for dividends or distributions or other rights in respect of any Share for which the record date is prior to the date on which the Participant shall become the registered holder of such Shares.   (e)                                  Dividend Equivalent Payments.  Unless the Committee determines otherwise and subject to Section 2(f) below, if the Company pays any cash or other dividend or makes any other distribution in respect of the Shares underlying the Award, the Company shall maintain a bookkeeping record to which such amount of the dividend or distribution in respect to such Shares shall be credited, at such time and in such manner as is determined solely by the Committee, to an account for the Participant and paid in whole Shares at the time the Award is settled.  Any fractional Shares which become payable at the time the Award is settled shall be paid in cash.   (f)                                    Election to Defer Performance-Based Restricted Stock Units Prior to Vesting Date.  In accordance with such procedures established by the Committee from time to time, in its sole discretion, the   3 --------------------------------------------------------------------------------   Participant may irrevocably elect to defer all or a portion of the Performance-Based Restricted Stock Units in accordance with the terms of this Section 2(f) (a “Deferral Election”) and the terms of the deferred compensation plan (the “Deferred Compensation Plan”) set forth on a deferral election form that the Company may provide to the Participant at a later date (the “Deferral Election Form”).  In order to make a Deferral Election, the Participant must complete and submit the Deferral Election Form in accordance with the instructions included on such form by a date specified by the Chief Personnel Officer in his sole discretion.  Such Performance-Based Restricted Stock Units shall be credited automatically, without any further action on the Participant’s part, to the Participant’s account under the Deferred Compensation Plan on the Vesting Date and shall be subject to the terms of the Deferred Compensation Plan.   3.                                      Adjustments.   (a)                                  Adjustment to Number of Units.  An Award of Performance-Based Restricted Stock Units that has vested in accordance with Section 2(a) above may be adjusted, in the sole discretion of the Committee, so that the Target Number of Performance-Based Restricted Stock Units, as set forth on the Grant Notice, represents up to 20% fewer Performance-Based Restricted Stock Units.  The Committee shall specify the procedures applicable to implementing the provisions of this Section 3(a).  The consent of the Participant shall not be required for any action to be taken by the Committee under this Section 3(a).   (b)                                  Adjustment to Performance Goals.  The Committee may adjust the manner in which the threshold, target and maximum performance goals are defined as set forth above in Section 2 if it determines that the occurrence of external changes or other unanticipated business conditions have materially affected the fairness of the goals and have unduly influenced the Company’s ability to meet them, including without limitation, events such as material acquisitions, changes in the capital structure of the Company, and extraordinary accounting changes.   4.                                      Termination of Employment.   (a)                                  Termination of Employment for Cause; Resignation for Any Reason.  In the event that the Participant’s employment is terminated by the Company for Cause or as a consequence of the Participant’s resignation for any reason, the Award shall lapse and become void as of the date of such termination.   (b)                                 Termination of Employment for Any Other Reason.  In the event that the Participant’s employment terminates for any reason, other than by the Company for Cause or the Participant’s resignation for any reason, the Award shall vest on a pro rata basis from the Date of Grant until the date of the Participant’s termination of employment.  The settlement of the vested portion of the Award shall be based upon the achievement of the Cumulative Operating Profit of Bunge measured as of the last day of the fiscal quarter immediately preceding the Participant’s termination of employment.  The Award shall be settled in accordance with Section 2(c) as soon as practicable following the Participant’s termination of employment, subject to the restrictions imposed by Section 409A of the Internal Revenue Code of 1986, as amended, (the “Code”) and any regulations, rulings and other regulatory guidance issued thereunder; provided, however, that, in the event of the Participant’s termination of employment as described in this Section 4(b) prior to the first anniversary of the Date of Grant, the entire Award shall be forfeited as of the date of such termination without any payment.   5.                                      General Terms.   (a)                                  Transferability.  The Award is not transferable by the Participant, except by will or by the laws of descent and distribution or pursuant to a domestic relations order, if applicable.   4 --------------------------------------------------------------------------------   (b)                                 Award Not a Service Contract.  Neither this Award Agreement nor the Award granted hereunder is an employment or service contract, and nothing in this Award Agreement shall be deemed to create in any way whatsoever any obligation on the part of the Participant to continue in the employ of the Company, or of the Company to continue the Participant’s employment.  In addition, nothing in this Award Agreement shall obligate the Company or shareholders, the Board, officers or employees of Bunge or any other entity constituting the Company to continue any relationship that the Participant might have as a director, advisor, employee or consultant for the Company.   (c)                                  Withholding Obligations.  The Company shall be entitled to require the Participant, prior to delivery of any Shares, to remit to the Company an amount sufficient to satisfy any U.S. federal, state, local and/or foreign income tax, social tax or other applicable payroll tax withholding requirements.  The Company may, in its sole discretion, permit the Participant, after the delivery of Shares to the Participant, to satisfy U.S. federal, state, local and/or foreign income tax, social tax or other applicable payroll taxes by directing the Company to repurchase Shares that were issued to such Participant in accordance with all applicable laws and pursuant to any such rules as the Committee may establish from time to time.   (d)                                 Restrictive Covenants; Cooperation Obligations.   (I)                                     CONFIDENTIALITY.  THE PARTICIPANT UNDERSTANDS AND ACKNOWLEDGES THAT IN THE COURSE OF HIS OR HER EMPLOYMENT, THE PARTICIPANT SHALL HAVE ACCESS TO AND SHALL LEARN INFORMATION PROPRIETARY TO BUNGE, ITS PARENT COMPANIES AND SUBSIDIARIES (INDIVIDUALLY AND AS A GROUP, THE “BUNGE GROUP”) THAT CONCERNS THE TECHNOLOGICAL INNOVATIONS, OPERATION AND METHODOLOGY OF THE BUNGE GROUP, INCLUDING, WITHOUT LIMITATION, BUSINESS PLANS, FINANCIAL INFORMATION, PROTOCOLS, PROPOSALS, MANUALS, CLINICAL PROCEDURES AND GUIDELINES, SCIENTIFIC DATA, COMPUTER SOURCE CODES, PROGRAMS, SOFTWARE, KNOW-HOW AND SPECIFICATIONS, COPYRIGHTS, TRADE SECRETS, MARKET INFORMATION, DEVELOPMENTS (AS HEREINAFTER DEFINED), DATA AND CUSTOMER INFORMATION (COLLECTIVELY, “PROPRIETARY INFORMATION”). “DEVELOPMENTS” SHALL MEAN ALL DATA, DISCOVERIES, FINDINGS, REPORTS, DESIGNS, INVENTIONS, IMPROVEMENTS, METHODS, PRACTICES, TECHNIQUES, DEVELOPMENTS, PROGRAMS, CONCEPTS AND IDEAS, WHETHER OR NOT PATENTABLE, RELATING TO THE PRESENT OR PLANNED ACTIVITIES, OR THE PRODUCTS AND SERVICES OF THE BUNGE GROUP.  THE PARTICIPANT HEREBY AGREES THAT DURING THE PERIOD BEGINNING ON THE DATE OF GRANT AND CONTINUING IN PERPETUITY THEREAFTER, THE PARTICIPANT SHALL KEEP CONFIDENTIAL AND SHALL NOT DISCLOSE ANY SUCH PROPRIETARY INFORMATION TO ANY THIRD PARTY, EXCEPT AS REQUIRED TO FULFILL HIS OR HER DUTIES IN CONNECTION WITH EMPLOYMENT BY THE BUNGE GROUP, AND SHALL NOT MISUSE, MISAPPROPRIATE OR EXPLOIT SUCH PROPRIETARY INFORMATION IN ANY WAY.  THE RESTRICTIONS CONTAINED HEREIN SHALL NOT APPLY TO ANY INFORMATION WHICH (I) WAS ALREADY AVAILABLE TO THE PUBLIC AT THE TIME OF DISCLOSURE, OR SUBSEQUENTLY BECAME AVAILABLE TO THE PUBLIC, OTHERWISE THAN BY BREACH OF THIS AWARD AGREEMENT OR (II) THE DISCLOSURE OF WHICH WAS REQUIRED BY ORDER OF ANY COURT OR ADMINISTRATIVE AGENCY.  UPON ANY TERMINATION OF THE PARTICIPANT’S EMPLOYMENT WITH THE BUNGE GROUP, THE PARTICIPANT HEREBY AGREES TO RETURN IMMEDIATELY TO THE BUNGE GROUP ALL PROPRIETARY INFORMATION AND COPIES THEREOF IN THE POSSESSION OF THE PARTICIPANT.   (II)                                  NO COMPETING EMPLOYMENT.  DURING THE PERIOD BEGINNING ON THE DATE OF GRANT AND CONTINUING UNTIL THE END OF THE TWELFTH MONTH FOLLOWING THE PARTICIPANT’S TERMINATION OF EMPLOYMENT FOR ANY REASON WITH THE BUNGE GROUP (SUCH PERIOD TO BE REFERRED TO AS THE “RESTRICTED PERIOD”), THE PARTICIPANT SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF BUNGE, DIRECTLY OR INDIRECTLY, WHETHER AS OWNER, CONSULTANT, EMPLOYEE, PARTNER, VENTURER, OR AGENT, THROUGH STOCK OWNERSHIP, INVESTMENT OF CAPITAL, LENDING OF MONEY OR PROPERTY, RENDERING OF SERVICES, OR OTHERWISE (EXCEPT OWNERSHIP OF LESS THAN 5% OF THE NUMBER OF SHARES OUTSTANDING OF ANY SECURITIES WHICH ARE PUBLICLY TRADED), (A) COMPETE WITH THE BUNGE GROUP, OR (B) PROVIDE SERVICES TO, WHETHER AS AN EMPLOYEE OR CONSULTANT, OR OWN, MANAGE, OPERATE, CONTROL, PARTICIPATE IN OR BE CONNECTED WITH (AS A SHAREHOLDER, PARTNER OR SIMILAR OWNER) ANY CORPORATION, FIRM, PARTNERSHIP, JOINT VENTURE, SOLE PROPRIETORSHIP OR   5 --------------------------------------------------------------------------------   OTHER ENTITY WHICH COMPETES WITH THE BUNGE GROUP, EXCEPT FOR THE AFOREMENTIONED OWNERSHIP OF LESS THAN 5% OF ANY PUBLICLY TRADED SECURITIES.  THE RESTRICTED PERIOD SHALL BE EXTENDED BY THE LENGTH OF ANY PERIOD DURING WHICH THE PARTICIPANT IS IN BREACH OF ANY OF THE TERMS OF THIS SECTION 5(D)(II).   (III)                               RESTRICTIONS ON SOLICITATION.  DURING THE RESTRICTED PERIOD, AND EXCEPT AS REQUIRED PURSUANT TO THE PARTICIPANT’S DUTIES TO THE BUNGE GROUP IN CONNECTION WITH THE EMPLOYMENT RELATIONSHIP, THE PARTICIPANT SHALL NOT, DIRECTLY OR INDIRECTLY:  (I) SOLICIT OR CONTACT ANY CUSTOMER OF THE BUNGE GROUP (OR ANY OTHER ENTITY THAT THE PARTICIPANT KNOWS IS A POTENTIAL CUSTOMER WITH RESPECT TO SPECIFIC PRODUCTS OF THE BUNGE GROUP AND WITH WHICH THE PARTICIPANT HAS HAD CONTACT DURING THE PERIOD OF HIS OR HER EMPLOYMENT WITH THE BUNGE GROUP) FOR ANY COMMERCIAL PURSUIT THAT TO THE KNOWLEDGE OF THE PARTICIPANT IS IN COMPETITION WITH THE BUNGE GROUP OR THAT TO THE KNOWLEDGE OF THE PARTICIPANT IS CONTEMPLATED FROM TIME TO TIME DURING THE PERIOD OF HIS OR HER EMPLOYMENT WITH THE BUNGE GROUP BY ANY CORRESPONDING BUSINESS PLAN; (II) TAKE AWAY OR INTERFERE OR ATTEMPT TO INTERFERE WITH ANY CUSTOM, TRADE, BUSINESS OR PATRONAGE OF THE BUNGE GROUP, OR INDUCE, OR ATTEMPT TO INDUCE, ANY EMPLOYEES, AGENTS OR CONSULTANTS OF OR TO THE BUNGE GROUP TO DO ANYTHING FROM WHICH THE PARTICIPANT IS RESTRICTED BY REASON OF THIS SECTION 5(D); OR (III) OFFER OR AID OTHERS TO OFFER EMPLOYMENT TO EMPLOYEES OF THE BUNGE GROUP, OR INTERFERE OR ATTEMPT TO INTERFERE WITH ANY EMPLOYEES OF THE BUNGE GROUP.  THE RESTRICTED PERIOD SHALL BE EXTENDED BY THE LENGTH OF ANY PERIOD DURING WHICH THE PARTICIPANT IS IN BREACH OF ANY OF THE TERMS OF THIS SECTION 5(D)(III).   (IV)                              APPLICATION OF COVENANTS.  THE ACTIVITIES DESCRIBED IN THIS SECTION 5(D) SHALL BE PROHIBITED REGARDLESS OF WHETHER UNDERTAKEN BY THE PARTICIPANT IN AN INDIVIDUAL OR REPRESENTATIVE CAPACITY, AND REGARDLESS OF WHETHER PERFORMED FOR THE PARTICIPANT’S OWN ACCOUNT OR FOR THE ACCOUNT OF ANY OTHER INDIVIDUAL, PARTNERSHIP, FIRM, CORPORATION OR OTHER BUSINESS ORGANIZATION (OTHER THAN BUNGE).   (V)                                 INJUNCTIVE RELIEF.  WITHOUT LIMITING THE REMEDIES AVAILABLE TO BUNGE, THE PARTICIPANT ACKNOWLEDGES THAT A BREACH OF ANY OF THE COVENANTS CONTAINED IN THIS SECTION 5(D) MAY RESULT IN IRREPARABLE INJURY TO BUNGE FOR WHICH THERE IS NO ADEQUATE REMEDY AT LAW, THAT IT SHALL NOT BE POSSIBLE TO MEASURE DAMAGES FOR SUCH INJURIES PRECISELY AND THAT, IN THE EVENT OF SUCH A BREACH OR THREAT THEREOF, BUNGE SHALL BE ENTITLED TO SEEK A TEMPORARY RESTRAINING ORDER OR A PRELIMINARY OR PERMANENT INJUNCTION RESTRAINING THE PARTICIPANT FROM ENGAGING IN ACTIVITIES PROHIBITED BY THIS SECTION 5(D) OR SUCH OTHER RELIEF AS MAY BE REQUIRED TO SPECIFICALLY ENFORCE ANY OF THE COVENANTS IN THIS SECTION 5(D).   (E)                                  PLAN DOCUMENT CONTROLS.  IN THE EVENT OF ANY CONFLICT BETWEEN THE PROVISIONS OF THIS AWARD AGREEMENT AND THOSE OF THE PLAN, THE PROVISIONS OF THE PLAN SHALL CONTROL.   (f)                                    Applicable Law.  This Award Agreement shall be governed by and subject to the laws of the State of New York and to all applicable laws and to the approvals by any governmental or regulatory agency as may be required.   (g)                                 Validity.  The invalidity or unenforceability of any provision of this Award Agreement shall not affect the validity or enforceability of any other provision of this Award Agreement, which shall remain in full force and effect.  The parties intend that any offending provision shall be enforced to the fullest extent to which it is enforceable, that any unenforceable portion thereof be severed from this Award Agreement, and that this Award Agreement, as modified to sever any such unenforceable portion, be enforced to the fullest extent permitted by law.  In the event that all or any portion of this Award is forfeited pursuant to the terms of the Plan or this Award Agreement, such forfeiture shall be automatic and shall not require any further action by the Participant or the Company.   6 --------------------------------------------------------------------------------   (h)                                 Notices.  All notices and other communications provided for herein shall be in writing and shall be delivered by hand, telecopy or facsimile transmission or sent by certified or registered mail, return receipt requested, postage prepaid, addressed, if to the Participant, to the attention of the Participant at the mailing address set forth on the Grant Notice (or to such other address as the Participant shall have specified to Bunge in writing) and, if to Bunge, to it at its principal offices which are currently located at 50 Main Street, 6th Floor, White Plains, New York 10606, attention Chief Personnel Officer.  All such notices shall be conclusively deemed to be received and shall be effective, (i) if delivered by hand, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed.   (i)                                     Waiver.  The waiver by either party of compliance with any provision of this Award Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Award Agreement, or of any subsequent breach of such party of a provision of this Award Agreement.   (j)                                     Committee Decisions Final.  Any dispute or disagreement that arises under, or as a result of, or pursuant to, or in connection with, the interpretation or construction of the terms of this Award Agreement or the Award granted hereunder shall be determined by the Committee.  Any interpretation by the Committee of the terms of the Award shall be final and binding on all persons affected thereby.   (k)                                  Amendments.  The Committee shall have the power to alter or amend the terms of this Award Agreement as set forth herein from time to time, in any manner consistent with the provisions of Section 14 of the Plan, and any alteration or amendment of the terms of the Award by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person; provided, however, that, except as contemplated by Section 14 of the Plan and Section 3 hereof, no such alteration or amendment may, without the consent of the Participant, adversely affect the rights of the Participant under this Award.  The Committee shall give written notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.  Notwithstanding any provision herein to the contrary, the Board shall have the broad authority to amend this Award to take into account changes in applicable tax laws, securities laws, accounting rules and other applicable state and Federal laws, including without limitation, any amendments made pursuant to Section 409A of the Code and any regulations, rulings and other regulatory guidance issued thereunder.   (l)                                     Entire Agreement; Headings.  This Award Agreement and the other related documents expressly referred to herein set forth the entire agreement and understanding between the parties hereto.  The headings of sections and subsections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of this Award Agreement.   (m)                               Counterparts.  The Grant Notice to this Award Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.   (n)                                 Market Standoff Agreement.  The Participant, if requested by Bunge and an underwriter of Common Stock (or other securities) of Bunge, agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of Bunge held by the Participant during the period requested by the underwriter managing any public offering of Common Stock (or other securities) of Bunge following the effective date of a registration statement of Bunge filed under the U.S. Securities Act of 1933, as amended, provided that all similarly situated officers and directors of Bunge are required to enter into similar agreements.  Such agreement shall be in writing in a form satisfactory to Bunge and such underwriter.  Bunge may impose stop-transfer instructions with respect to the shares (or other securities) subject to the foregoing restriction until the end of such period.   7 --------------------------------------------------------------------------------   (o)                                 Share Ownership Guidelines.  The Participant, if subject to Bunge’s share ownership guidelines, agrees to comply with the conditions and restrictions imposed by such guidelines with respect to any Shares received in connection with the settlement of an Award.   (p)                                 Securities Laws Compliance.  No Shares shall be issued or transferred under this Award Agreement unless the Committee determines that such issue or transfer is in compliance with all applicable U.S. federal, state and/or foreign securities laws and regulations, including without limitation, Bermuda laws and regulations.   (q)                                 Change in Control.  Upon a Change in Control, the Participant’s Performance-Based Restricted Stock Units shall be subject to Section 13(b) of the Plan.   8 --------------------------------------------------------------------------------

Exhibit F.2.1 Form of Notice to Proceed Vestas-American Wind Technology, Inc. 1881 SW Naito Parkway, Ste. 100 Portland, Oregon  97201 Attention: President Facsimile: (503) 327-2001 Re: Top of Iowa Phase III Project:  Notice to Proceed This letter is a Notice to Proceed issued pursuant to Section 5.2 of the Wind Turbine Supply Agreement dated as of September 29, 2006 (the “(Agreement”), by and between Madison Gas and Electric Company, a Wisconsin corporation (“Buyer”), and Vestas-American Wind Technology, Inc., a California corporation (“Supplier”).  Capitalized terms used but not defined herein have the meanings set forth in the Agreement. Pursuant to Section 5.2 of the Agreement, Buyer hereby: (i) acknowledges receipt of the executed Supplier Parent Guaranty in accordance with Section 3.6.3 of the Agreement; (ii) acknowledges receipt of the certificates of insurance from Supplier in accordance with Article 12 and Exhibit F.2.4 of the Agreement; and (iii) directs Supplier to commence fulfillment of all of the Equipment Supply Obligations for the Project and, thereafter, to fulfill such Equipment Supply Obligations in accordance with the Agreement. [Signature page follows] BUYER: SUPPLIER: Madison Gas and Electric Company,   Vestas–American Wind Technology, Inc., a Wisconsin corporation   a California corporation Date: ____________________________ Date: ____________________________ By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: ____________________________ Title: ______________________________ Exhibit F.2.2 Form of Buyer Parent Guaranty THIS PARENT GUARANTY (this “Guaranty”), dated as of September 29, 2006, is made by MGE Energy, Inc., a Wisconsin Corporation (“Guarantor”), to and in favor of Vestas-American Wind Technology, Inc., a California corporation (“Supplier”). WHEREAS, Supplier and Madison Gas and Electric, a Wisconsin corporation (“Buyer”), have entered into that certain Wind Turbine Supply Agreement, dated as of the date hereof (as the same may be amended, restated or replaced from time to time, the “Guaranteed Agreement”). WHEREAS, pursuant to the terms and conditions of the Guaranteed Agreement, Buyer has retained Supplier to supply, deliver and commission the Wind Turbines and provide ongoing maintenance and service, as more particularly set forth in the Guaranteed Agreement. WHEREAS, Supplier is entering into the Guaranteed Agreement partly in reliance on this Guaranty. WHEREAS, Buyer is an Affiliate of Guarantor, and Guarantor will derive substantial direct and indirect economic and other benefits from the transactions contemplated in the Guaranteed Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. ADDITIONAL DEFINITIONS. Capitalized terms used and not defined herein shall have the meanings set forth in the Guaranteed Agreement.  In addition, as used herein, the following terms shall have the meanings indicated: “Government Approval” shall mean any authorization, consent, approval, license, ruling, permit, tariff, rate, certification, exemption, filing, variance, claim, order, judgment, decree, publication, notices to, declarations of or with or registration by or with any Governmental Authority. “Government Rule” shall mean (a) any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, or other governmental restriction, or any interpretation or administration of any of the foregoing by, any Governmental Authority which is binding on Guarantor, or (b) any directive, guideline, policy, requirement or any similar form of decision of or determination by any Governmental Authority which is binding on Guarantor, in each case, whether now or hereafter in effect. “Governmental Authority” shall mean any governmental authority or legal or administrative body, domestic or foreign, federal, state or local. “Guaranty Beneficiary” shall mean Supplier or any permitted assignee under the Guaranteed Agreement. “Guaranteed Obligations” shall mean all of the obligations of Buyer under the Guaranteed Agreement. “Persons” shall mean any individual, corporation, limited liability company, voluntary association, partnership, joint venture, trust, unincorporated organization or Governmental Authority (or any agency, instrumentality or political subdivision thereof). “Property” shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. ARTICLE 2. GUARANTY OF COMPLETION AND PAYMENT. Section 2.1. Guaranty. (a) Subject to the conditions precedent set forth in Section 2.01(c), Guarantor hereby irrevocably and absolutely guarantees, to and for the benefit of Guaranty Beneficiary, the payment and performance when due of the Guaranteed Obligations, all in accordance with the terms of the Guaranteed Agreement. (b) In the event that Guarantor itself assumes the Guaranteed Obligations and cures any continuing Buyer Events of Default that can, by their nature, be cured, Supplier hereby agrees that it shall perform its obligations under the Guaranteed Agreement in favor of Guarantor to the same extent and with the same effect as if Guarantor was named in the Guaranteed Agreement as Buyer and in accordance with the terms and conditions of the Guaranteed Agreement. (c) Notwithstanding anything to the contrary contained herein, the obligations of Guarantor to perform under Section 2.01(a) of this Guaranty are and shall be conditioned upon, and shall not come into effect, until all of the following have occurred: (i) Guaranty Beneficiary has made a demand on Buyer for payment or performance of the Guaranteed Obligations and (ii) Buyer has failed to pay or perform, following all applicable cure periods, the Guaranteed Obligations under the Guaranteed Agreement. (d) Guaranty Beneficiary shall provide written notice to Guarantor of any breach or dispute under the Guaranteed Agreement with respect to the Guaranteed Obligations that could result in a claim or demand under this Guaranty. (e) Guarantor shall not, under this Guaranty or any of its provisions, have any greater obligations or liability than Buyer under the Guaranteed Agreement, and the limitations and exclusions of obligations and liability included in the Guaranteed Agreement shall equally limit and exclude liability and obligations of Guarantor under this Guaranty. (f) Notwithstanding anything to the contrary contained herein, in the event of any claim under this Guaranty, Guarantor shall be entitled to assert any defense, set-off or counterclaim that Buyer could assert had such claim been made directly against Buyer under the Guaranteed Agreement. Section 2.2. Continuing Guaranty. Subject to Section 2.01(c), 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 or enforceability of this Guaranty, the Guaranteed Agreement or any other agreement, document or instrument related to the transactions contemplated hereby or thereby (including, without limitation, any amendment extending the manner, place or terms of payment or performance, renewal, or alteration of the Guaranteed Obligations); (b) except as provided in Section 2.01(c), the absence of any action to enforce this Guaranty or the Guaranteed Agreement or the waiver or consent by Guaranty Beneficiary with respect to any of the provisions hereof or thereof; (c) any bankruptcy, insolvency, reorganization, arrangement, adjustment, composition, liquidation or similar proceeding affecting Buyer or Guarantor; (d) any merger or consolidation of Buyer or Guarantor into or with any other Person, or any sale, lease or transfer of substantially all of the assets of  Buyer or Guarantor to any other Person; (e) any sale, transfer or other disposition by Guarantor of any direct or indirect interest it may have in Buyer; (f) the absence of any notice to, or knowledge by, Guarantor of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (a) through (e); or (g) the permitted assignment of any right, title or interest of Guaranty Beneficiary. Section a.1. Nature of Guaranty. Subject to Section 2.01(c), a separate action or separate actions may be brought and prosecuted against Guarantor or any other guarantor of the Guaranteed Obligations whether or not any action is brought or prosecuted against Buyer or any of such other guarantors or whether Buyer or any other such guarantor is joined in any such action. Guarantor waives the benefit of any statute of limitations affecting its liabilities hereunder or the enforcement thereof to the fullest extent permitted by law. Section a.2. Waivers. (a) Subject to the provisions of Section 2.01(c), Guarantor hereby unconditionally waives (i) notice of acceptance hereof, (ii) notice of any action taken or omitted to be taken by Guaranty Beneficiary in reliance hereon, (iii) any requirement that Guaranty Beneficiary be diligent or prompt in making demands or protests hereunder or asserting any other rights of Guaranty Beneficiary hereunder against Buyer, (iv) any requirement, and any right to require, that any right, remedy or power be exercised or any action be taken against any other guarantor or any collateral for the Guaranteed Obligations, (v) any bankruptcy, insolvency, reorganization, dissolution, sale of assets, arrangement, adjustment, composition, liquidation or similar event of either Buyer or Guarantor that might constitute a defense to any payment required under the applicable Guaranteed Agreement or hereunder and (vi) any event, occurrence or other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (b) Subject to the provisions of Section 2.01(c), Guarantor waives the right to require Guaranty Beneficiary to proceed against or exhaust any security held from Buyer or any other Person, or to pursue any other remedy in Guaranty Beneficiary's power whatsoever and Guarantor waives the right to have the Property of Buyer first applied to the discharge of the Guaranteed Obligations.  Subject to the provisions of Section 2.01(c), Guaranty Beneficiary may, at its election, exercise any right or remedy it may have against Buyer or any security now or hereafter held by Guaranty Beneficiary, including, without limitation, the right to foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of Guarantor hereunder, except to the extent the Guaranteed Obligations have been paid, and Guarantor waives any defense based or arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of Guarantor against Buyer or any such security, whether resulting from such election by Guaranty Beneficiary or otherwise. Section a.3. Additional Waivers; No Subrogation. Subject to the provisions of Section 2.01(c), until all of the Guaranteed Obligations have been satisfied: (i) Guarantor waives all rights it may have at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Guaranty Beneficiary) to seek contribution, indemnification, or any other form of reimbursement from Buyer, any other guarantor, or any other Person now or hereafter primarily or secondarily liable for any of the Guaranteed Obligations of Buyer to Guaranty Beneficiary, for any disbursement made by Guarantor under or in connection with this Guaranty or otherwise; and (ii) Guarantor waives any benefit of, and any right to participate in, any security, whether real or personal Property, now or hereafter held by Guaranty Beneficiary for the Guaranteed Obligations.  Except as otherwise specifically provided in this Guaranty, Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty. ARTICLE 2. AFFIRMATIVE COVENANTS OF GUARANTOR. Guarantor covenants and agrees that, so long as the Guaranteed Obligations remain outstanding: Section 2.1. Maintain Existence. Guarantor shall preserve and maintain its legal existence and all of its material licenses, rights, privileges and franchises required to perform its obligations under this Guaranty. Section 2.2. Comply with Laws. Guarantor shall comply with the requirements of all applicable Government Rules in connection with this Guaranty and from time to time obtain, and comply with, all Government Approvals as shall now or hereafter be necessary under applicable Government Rules in connection with this Guaranty. Section 2.3. Further Assurances.   Guarantor agrees, upon the written request of Guaranty Beneficiary, to execute and deliver to Guaranty Beneficiary, from time to time, any additional instruments or documents necessary or advisable, in the reasonable and good faith opinion of Guaranty Beneficiary, to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. Section 2.4. Currency. Guarantor agrees that payments hereunder on account of the Guaranteed Obligations shall be made in the currencies required under the Guaranteed Agreement (the “Agreed Currencies”) and if any payment is received in another currency (the “Other Currency”), such payment shall constitute a discharge of the liability of Guarantor hereunder only to the extent of the amount of the Agreed Currencies which Guaranty Beneficiary is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with normal procedures and after deducting any premium and costs of exchange in connection with such purchase. ARTICLE 3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants that: (a) it is a corporation duly organized and existing under the laws of Wisconsin and has the power and capacity to enter into this Guaranty and to perform its obligations hereunder; (b) this Guaranty has been duly authorized, executed and delivered by Guarantor and is a valid and binding obligation of Guarantor enforceable in accordance with its terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability affecting the rights and remedies of creditors and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law); (c) no declaration, filing or registration with, or notice to, or license, permit, certificate, registration, authorization, consent or approval of or from, any Governmental Authority is necessary or required for the consummation by Guarantor of the transactions contemplated by this Guaranty (other than those that have been obtained and are in full force and effect); and (d) the entering into of this Guaranty and the performance by Guarantor of its obligations hereunder does not and will not contravene, breach or result in any default under the articles, by-laws, or other organizational documents of Guarantor or under any Governmental Rule. ARTICLE 4. MISCELLANEOUS Section 4.1. Notices. Any notices, requests or other communications which shall be given to a party in connection with this Guaranty shall be in writing and personally delivered, or sent by telecopier followed by mail, postage prepaid, addressed to the party to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party. If to Guarantor: MGE Energy, Inc. 133 South Blair Street Madison, WI  53703 Attention:  Jeffrey C. Newman, Vice President and Treasurer Telephone:  (608) 252-7149 Facsimile:  (608) 252-7098 If to Supplier: Vestas-American Wind Technology, Inc. 1881 SW Naito Parkway, Suite 100 Portland, OR 97201 Attention: President Telephone: (503) 327-2000 Facsimile:  (503) 327-2001 Notices delivered by hand, or sent by facsimile, shall be deemed given the day so delivered or sent, if delivered or sent during regular business hours, local time, provided that in the case of facsimiles, the sender receives telephonic or electronic confirmation that the facsimile was received by the recipient. Notices mailed as provided herein shall be deemed given on the third Business Day following the date so mailed or on the date of actual receipt, whichever is earlier. Section 4.2. Amendments, Etc. No amendment or waiver of any provision of this Guaranty shall be effective unless the same shall be in writing and signed by the Guarantor and Guaranty Beneficiary and such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 4.3. Expenses, Etc. Guarantor shall pay to Guaranty Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its legal counsel, which Guaranty Beneficiary may incur in connection with the exercise or enforcement of any of the rights of Guaranty Beneficiary hereunder. Section 4.4. Severability. The provisions of this Guaranty are severable, and if any clause or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Guaranty in any jurisdiction. Section 4.5. Remedies Cumulative, Etc. Each right, power and remedy of Guaranty Beneficiary provided in this Guaranty or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Guaranty or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or partial exercise by Guaranty Beneficiary of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by Guaranty Beneficiary of all such other rights, powers or remedies, and no failure or delay on the part of Guaranty Beneficiary to exercise any such right, power or remedy shall operate as a waiver thereof. Section 4.6. Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be (i) if at any time any amount received by Guaranty Beneficiary in respect of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Guaranty Beneficiary upon the insolvency, bankruptcy or reorganization of Buyer, Guarantor or Guaranty Beneficiary or upon the appointment of any intervenor or conservator of, or trustee or similar official for Buyer, Guarantor or Guaranty Beneficiary or any substantial part of its assets, or otherwise, all as though such payments had not been made, or (ii) if at any time any amount in respect of the Guaranteed Obligations is due but unpaid to Guaranty Beneficiary. Section 4.7. Binding Effect and Benefit. This Guaranty shall bind Guarantor and shall inure to the benefit of Guaranty Beneficiary and its successors and assigns. Guarantor may not assign this Guaranty to any other Person. Section 4.8. Counterparts and Facsimile Signatures. This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate originals. Section 4.9. Consent to Jurisdiction. (a) THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER OR  PURSUANT TO THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD FOR ANY PRINCIPLES OF CONFLICTS OF LAW THAT WOULD DIRECT OR PERMIT THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. (b) SUBJECT TO THE PROVISIONS OF SECTION 5.13 HEREOF, ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR GUARANTY BENEFICIARY MAY BE BROUGHT AND ENFORCED IN, AND GUARANTOR AND GUARANTY BENEFICIARY HEREBY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK. (c) EACH OF GUARANTOR AND GUARANTY BENEFICIARY WAIVE ANY OBJECTION WHICH IT MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF SUCH COURTS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (d) EACH OF GUARANTOR AND GUARANTY BENEFICIARY IRREVOCABLY CONSENT TO SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY MANNER PERMITTED BY SUCH COURTS, INCLUDING REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO GUARANTOR OR GUARANTY BENEFICIARY, AS APPLICABLE, AT ITS ADDRESS SET FORTH IN THIS AGREEMENT (OR AS OTHERWISE NOTICED TO THE OTHER PARTY PURSUANT TO SECTION 5.01), IN EACH CASE SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. (e) EACH OF GUARANTOR AND GUARANTY BENEFICIARY AGREE THAT FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. (f) NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF GUARANTOR OR GUARANTY BENEFICIARY (A) TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR (B) TO BRING ANY SUIT, ACTION OR PROCEEDING AGAINST THE OTHER PARTY OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTIONS. (g) GUARANTOR AND GUARANTY BENEFICIARY EACH WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. Section a.1. Entire Agreement. The terms and conditions set forth in this Guaranty constitute the complete and exclusive statement of the agreement between Guaranty Beneficiary and Guarantor relating to the subject matter of this Guaranty superseding all previous negotiations and understandings, and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties intend that this Guaranty constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or arbitral proceeding, if any, involving this Guaranty. Section a.2. Headings and Titles. The headings and titles used in this Guaranty shall not be deemed a part thereof or be taken into consideration in the interpretation or construction of this Guaranty. Section a.3. Limitation on Damages. Notwithstanding anything to the contrary contained herein: (i) in no event shall Guarantor be liable for any special, indirect or consequential damages with respect to the Guaranteed Obligations, even if Guaranty Beneficiary or Guarantor has been advised of the possibility of such damages, and (ii) the liability of Guarantor for the Guaranteed Obligations shall not exceed an amount equal to the “Contract Price” as defined in the Wind Turbine Supply Agreement plus the aggregate of all “Fees” payable to Supplier under the Service Agreement. Section a.4. Dispute Resolution/Arbitration. Any controversy, claim or dispute between the parties hereto arising out of or related to this Guaranty, or the alleged breach, termination or invalidity hereof (“Dispute”), will be submitted for arbitration before a single arbitrator in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) in effect at the time of the arbitration (“Rules”) (but such arbitration shall not be required to be conducted under the auspices of AAA); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions (up to three (3) per party) and obtain documents from the other party regarding the subject matter of the arbitration.  Experts retained by a party for the Dispute shall prepare reports in accordance with Fed. R. Civ. P. 26, which reports shall be exchanged as directed by the arbitrator.  If the parties cannot agree upon an arbitrator within twenty (20) days of the service of the Arbitration Notice, then the arbitrator shall be selected pursuant to 9 U.S.C. sec. 5 or applicable state law.  Any party desiring arbitration shall serve on the other party its notice of intent to arbitrate (“Arbitration Notice”).  The Arbitration Notice shall be made within a reasonable time after the Dispute has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Dispute would be barred by the applicable statutes of limitations.  All arbitration shall take place in the City of Chicago, Illinois, unless otherwise agreed to by the parties.   Each party shall be required to exchange documents to be used in the arbitration proceeding not less than fifteen (15) days prior to the arbitration or as directed by the arbitrator.  The parties shall use all commercially reasonably efforts to conclude such arbitration as soon as practicable.  The arbitrator shall determine all questions of fact and law relating to any Dispute hereunder, including but not limited to whether or not any such Dispute is subject to the arbitration provisions contained herein.  The arbitration proceedings provided hereunder are hereby declared to be self-executing, and it shall not be necessary to petition a court to compel arbitration.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.   [EXECUTION PAGE FOLLOWS] IN WITNESS WHEREOF, Guarantor and Supplier have caused this Guaranty to be duly executed by their authorized representative as of the date first written above. “GUARANTOR” MGE ENERGY, INC., a a Wisconsin corporation By:________________________ Name:______________________ Title:_______________________ “SUPPLIER” VESTAS-AMERICAN WIND TECHNOLOGY, INC., a California corporation By:________________________ Name:______________________ Title:_______________________ Exhibit F.2.3 Form of Supplier Parent Guaranty THIS PARENT GUARANTY (this “Guaranty”), dated as of September 29, 2006, is made by Vestas Wind Systems A/S, a company organized and existing under the laws of the Kingdom of Denmark (“Guarantor”), to and in favor of Madison Gas and Electric Company, a Wisconsin corporation (“Buyer”). WHEREAS, Buyer and Vestas-American Wind Technology, Inc., a California corporation (“Supplier”), have entered into (i) that certain Wind Turbine Supply Agreement, dated as of the date hereof, (ii) that certain Warranty Agreement, dated as of the date hereof, and (iii) that certain Service and Maintenance Agreement, dated as of the date hereof (collectively, as may be amended, restated or replaced from time to time, the “Guaranteed Agreements”). WHEREAS, pursuant to the terms and conditions of the Guaranteed Agreements, Buyer has retained Supplier to supply, deliver and commission the Wind Turbines and provide ongoing warranty, maintenance and service, as more particularly set forth in the Guaranteed Agreements. WHEREAS, Buyer is entering into the Guaranteed Agreements partly in reliance on this Guaranty. WHEREAS, Supplier is an Affiliate of Guarantor, and Guarantor will derive substantial direct and indirect economic and other benefits from the transactions contemplated in the Guaranteed Agreements. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. ADDITIONAL DEFINITIONS. Capitalized terms used and not defined herein shall have the meanings set forth in the Guaranteed Agreements.  In addition, as used herein, the following terms shall have the meanings indicated: “Government Approval” shall mean any authorization, consent, approval, license, ruling, permit, tariff, rate, certification, exemption, filing, variance, claim, order, judgment, decree, publication, notices to, declarations of or with or registration by or with any Governmental Authority. “Government Rule” shall mean (a) any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, or other governmental restriction, or any interpretation or administration of any of the foregoing by, any Governmental Authority which is binding on Guarantor, or (b) any directive, guideline, policy, requirement or any similar form of decision of or determination by any Governmental Authority which is binding on Guarantor, in each case, whether now or hereafter in effect. “Governmental Authority” shall mean any governmental authority or legal or administrative body, domestic or foreign, federal, state or local. “Guaranty Beneficiary” shall mean Buyer or any permitted assignee under the Guaranteed Agreements. “Guaranteed Obligations” shall mean all of the obligations of Supplier under the Guaranteed Agreements. “Persons” shall mean any individual, corporation, limited liability company, voluntary association, partnership, joint venture, trust, unincorporated organization or Governmental Authority (or any agency, instrumentality or political subdivision thereof). “Property” shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. ARTICLE 2. GUARANTY OF COMPLETION AND PAYMENT. Section 2.1 Guaranty. (a) Subject to the conditions precedent set forth in Section 2.01(c), Guarantor hereby irrevocably and absolutely guarantees, to and for the benefit of Guaranty Beneficiary, the payment and performance when due of the Guaranteed Obligations, all in accordance with the terms of the Guaranteed Agreements. (b) In the event that Guarantor itself assumes the Guaranteed Obligations and cures any continuing Supplier Events of Default that can, by their nature, be cured, Buyer hereby agrees that it shall perform its obligations under the Guaranteed Agreements in favor of Guarantor to the same extent and with the same effect as if Guarantor was named in the Guaranteed Agreements as Supplier and in accordance with the terms and conditions of the Guaranteed Agreements. (c) Notwithstanding anything to the contrary contained herein, the obligations of Guarantor to perform under Section 2.01(a) of this Guaranty are and shall be conditioned upon, and shall not come into effect, until all of the following have occurred: (i) Guaranty Beneficiary has made a demand on Supplier for payment or performance of the Guaranteed Obligations and (ii) Supplier has failed to pay or perform, following all applicable cure periods, the Guaranteed Obligations under the Guaranteed Agreements. (d) Guaranty Beneficiary shall provide written notice to Guarantor of any breach or dispute under the Guaranteed Agreements with respect to the Guaranteed Obligations that could result in a claim or demand under this Guaranty. (e) Guarantor shall not, under this Guaranty or any of its provisions, have any greater obligations or liability than Supplier under the Guaranteed Agreements, and the limitations and exclusions of obligations and liability included in the Guaranteed Agreements shall equally limit and exclude liability and obligations of Guarantor under this Guaranty. (f) Notwithstanding anything to the contrary contained herein, in the event of any claim under this Guaranty, Guarantor shall be entitled to assert any defense, set-off or counterclaim that Supplier could assert had such claim been made directly against Supplier under the Guaranteed Agreements. Section 2.2 Continuing Guaranty. Subject to Section 2.01(c), 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 or enforceability of this Guaranty, the Guaranteed Agreements or any other agreement, document or instrument related to the transactions contemplated hereby or thereby (including, without limitation, any amendment extending the manner, place or terms of payment or performance, renewal, or alteration of the Guaranteed Obligations); (b) except as provided in Section 2.01(c), the absence of any action to enforce this Guaranty or the Guaranteed Agreements or the waiver or consent by Guaranty Beneficiary with respect to any of the provisions hereof or thereof; (c) any bankruptcy, insolvency, reorganization, arrangement, adjustment, composition, liquidation or similar proceeding affecting Supplier or Guarantor; (d) any merger or consolidation of Supplier or Guarantor into or with any other Person, or any sale, lease or transfer of substantially all of the assets of  Supplier or Guarantor to any other Person; (e) any sale, transfer or other disposition by Guarantor of any direct or indirect interest it may have in Supplier; (f) the absence of any notice to, or knowledge by, Guarantor of the existence or occurrence of any of the matters or events set forth in the foregoing subdivisions (a) through (e); or (g) the permitted assignment of any right, title or interest of Guaranty Beneficiary. Section 1.1 Nature of Guaranty. Subject to Section 2.01(c), a separate action or separate actions may be brought and prosecuted against Guarantor or any other guarantor of the Guaranteed Obligations whether or not any action is brought or prosecuted against Supplier or any of such other guarantors or whether Supplier or any other such guarantor is joined in any such action. Guarantor waives the benefit of any statute of limitations affecting its liabilities hereunder or the enforcement thereof to the fullest extent permitted by law. Section 1.2 Waivers. (a) Subject to the provisions of Section 2.01(c), Guarantor hereby unconditionally waives (i) notice of acceptance hereof, (ii) notice of any action taken or omitted to be taken by Guaranty Beneficiary in reliance hereon, (iii) any requirement that Guaranty Beneficiary be diligent or prompt in making demands or protests hereunder or asserting any other rights of Guaranty Beneficiary hereunder against Supplier, (iv) any requirement, and any right to require, that any right, remedy or power be exercised or any action be taken against any other guarantor or any collateral for the Guaranteed Obligations, (v) any bankruptcy, insolvency, reorganization, dissolution, sale of assets, arrangement, adjustment, composition, liquidation or similar event of either Supplier or Guarantor that might constitute a defense to any payment required under the applicable Guaranteed Agreement or hereunder and (vi) any event, occurrence or other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (b) Subject to the provisions of Section 2.01(c), Guarantor waives the right to require Guaranty Beneficiary to proceed against or exhaust any security held from Supplier or any other Person, or to pursue any other remedy in Guaranty Beneficiary's power whatsoever and Guarantor waives the right to have the Property of Supplier first applied to the discharge of the Guaranteed Obligations.  Subject to the provisions of Section 2.01(c), Guaranty Beneficiary may, at its election, exercise any right or remedy it may have against Supplier or any security now or hereafter held by Guaranty Beneficiary, including, without limitation, the right to foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of Guarantor hereunder, except to the extent the Guaranteed Obligations have been paid, and Guarantor waives any defense based or arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of Guarantor against Supplier or any such security, whether resulting from such election by Guaranty Beneficiary or otherwise. Section 1.3 Additional Waivers; No Subrogation. Subject to the provisions of Section 2.01(c), until all of the Guaranteed Obligations have been satisfied: (i) Guarantor waives all rights it may have at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Guaranty Beneficiary) to seek contribution, indemnification, or any other form of reimbursement from Supplier, any other guarantor, or any other Person now or hereafter primarily or secondarily liable for any of the Guaranteed Obligations of Supplier to Guaranty Beneficiary, for any disbursement made by Guarantor under or in connection with this Guaranty or otherwise; and (ii) Guarantor waives any benefit of, and any right to participate in, any security, whether real or personal Property, now or hereafter held by Guaranty Beneficiary for the Guaranteed Obligations.  Except as otherwise specifically provided in this Guaranty, Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty. ARTICLE 2. AFFIRMATIVE COVENANTS OF GUARANTOR. Guarantor covenants and agrees that, so long as the Guaranteed Obligations remain outstanding: Section 2.1 Maintain Existence. Guarantor shall preserve and maintain its legal existence and all of its material licenses, rights, privileges and franchises required to perform its obligations under this Guaranty. Section 2.2 Comply with Laws. Guarantor shall comply with the requirements of all applicable Government Rules in connection with this Guaranty and from time to time obtain, and comply with, all Government Approvals as shall now or hereafter be necessary under applicable Government Rules in connection with this Guaranty. Section 2.3 Further Assurances.   Guarantor agrees, upon the written request of Guaranty Beneficiary, to execute and deliver to Guaranty Beneficiary, from time to time, any additional instruments or documents necessary or advisable, in the reasonable and good faith opinion of Guaranty Beneficiary, to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. Section 2.4 Currency. Guarantor agrees that payments hereunder on account of the Guaranteed Obligations shall be made in the currencies required under the Guaranteed Agreements (the “Agreed Currencies”) and if any payment is received in another currency (the “Other Currency”), such payment shall constitute a discharge of the liability of Guarantor hereunder only to the extent of the amount of the Agreed Currencies which Guaranty Beneficiary is able to purchase with the amount of the Other Currency received by it on the Business Day next following such receipt in accordance with normal procedures and after deducting any premium and costs of exchange in connection with such purchase. ARTICLE 3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants that: (a) it is a company duly organized and existing under the laws of the Kingdom of Denmark and has the power and capacity to enter into this Guaranty and to perform its obligations hereunder; (b) this Guaranty has been duly authorized, executed and delivered by Guarantor and is a valid and binding obligation of Guarantor enforceable in accordance with its terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability affecting the rights and remedies of creditors and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law); (c) no declaration, filing or registration with, or notice to, or license, permit, certificate, registration, authorization, consent or approval of or from, any Governmental Authority is necessary or required for the consummation by Guarantor of the transactions contemplated by this Guaranty (other than those that have been obtained and are in full force and effect); and (d) the entering into of this Guaranty and the performance by Guarantor of its obligations hereunder does not and will not contravene, breach or result in any default under the articles, by-laws, or other organizational documents of Guarantor or under any Governmental Rule. ARTICLE 4. MISCELLANEOUS. Section 4.1 Notices. Any notices, requests or other communications which shall be given to a party in connection with this Guaranty shall be in writing and personally delivered, or sent by telecopier followed by mail, postage prepaid, addressed to the party to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party. If to Guarantor: VESTAS WIND SYSTEMS A/S Alsvej 21 DK-8900 Randers Denmark Attn:  Manager, Legal Department Telephone:  (011) 45 97 30 00 00 Facsimile:   (011) 45 97 30 00 01 If to Buyer: Madison Gas and Electric Company 133 South Blair Street Madison, WI  53703 Attention:  Gregory A. Bollom, Assistant Vice President – Energy Planning Telephone: (608) 252-4748 Facsimile: (608) 252-7098 Notices delivered by hand, or sent by facsimile, shall be deemed given the day so delivered or sent, if delivered or sent during regular business hours, local time, provided that in the case of facsimiles, the sender receives telephonic or electronic confirmation that the facsimile was received by the recipient. Notices mailed as provided herein shall be deemed given on the third Business Day following the date so mailed or on the date of actual receipt, whichever is earlier. Section 4.2 Amendments, Etc. No amendment or waiver of any provision of this Guaranty shall be effective unless the same shall be in writing and signed by the Guarantor and Guaranty Beneficiary and such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 4.3 Expenses, Etc. Guarantor shall pay to Guaranty Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its legal counsel, which Guaranty Beneficiary may incur in connection with the exercise or enforcement of any of the rights of Guaranty Beneficiary hereunder. Section 4.4 Severability. The provisions of this Guaranty are severable, and if any clause or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Guaranty in any jurisdiction. Section 4.5 Remedies Cumulative, Etc. Each right, power and remedy of Guaranty Beneficiary provided in this Guaranty or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Guaranty or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or partial exercise by Guaranty Beneficiary of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by Guaranty Beneficiary of all such other rights, powers or remedies, and no failure or delay on the part of Guaranty Beneficiary to exercise any such right, power or remedy shall operate as a waiver thereof. Section 4.6 Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be (i) if at any time any amount received by Guaranty Beneficiary in respect of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Guaranty Beneficiary upon the insolvency, bankruptcy or reorganization of Supplier, Guarantor or Guaranty Beneficiary or upon the appointment of any intervenor or conservator of, or trustee or similar official for Supplier, Guarantor or Guaranty Beneficiary or any substantial part of its assets, or otherwise, all as though such payments had not been made, or (ii) if at any time any amount in respect of the Guaranteed Obligations is due but unpaid to Guaranty Beneficiary. Section 4.7 Binding Effect and Benefit. This Guaranty shall bind Guarantor and shall inure to the benefit of Guaranty Beneficiary and its successors and assigns. Guarantor may not assign this Guaranty to any other Person. Section 4.8 Counterparts and Facsimile Signatures. This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. The facsimile signatures of the parties shall be deemed to constitute original signatures, and facsimile copies hereof shall be deemed to constitute duplicate originals. Section 4.9 Consent to Jurisdiction. (a) THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER OR  PURSUANT TO THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD FOR ANY PRINCIPLES OF CONFLICTS OF LAW THAT WOULD DIRECT OR PERMIT THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. (b) SUBJECT TO THE PROVISIONS OF SECTION 5.13 HEREOF, ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR GUARANTY BENEFICIARY MAY BE BROUGHT AND ENFORCED IN, AND GUARANTOR AND GUARANTY BENEFICIARY HEREBY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK. (c) EACH OF GUARANTOR AND GUARANTY BENEFICIARY WAIVE ANY OBJECTION WHICH IT MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF SUCH COURTS AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (d) EACH OF GUARANTOR AND GUARANTY BENEFICIARY IRREVOCABLY CONSENT TO SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY MANNER PERMITTED BY SUCH COURTS, INCLUDING REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO GUARANTOR OR GUARANTY BENEFICIARY, AS APPLICABLE, AT ITS ADDRESS SET FORTH IN THIS AGREEMENT (OR AS OTHERWISE NOTICED TO THE OTHER PARTY PURSUANT TO SECTION 5.01), IN EACH CASE SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. (e) EACH OF GUARANTOR AND GUARANTY BENEFICIARY AGREE THAT FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. (f) NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF GUARANTOR OR GUARANTY BENEFICIARY (A) TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR (B) TO BRING ANY SUIT, ACTION OR PROCEEDING AGAINST THE OTHER PARTY OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTIONS. (g) GUARANTOR AND GUARANTY BENEFICIARY EACH WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. Section 4.10 Entire Agreement. The terms and conditions set forth in this Guaranty constitute the complete and exclusive statement of the agreement between Guaranty Beneficiary and Guarantor relating to the subject matter of this Guaranty superseding all previous negotiations and understandings, and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties intend that this Guaranty constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or arbitral proceeding, if any, involving this Guaranty. Section 4.11 Headings and Titles. The headings and titles used in this Guaranty shall not be deemed a part thereof or be taken into consideration in the interpretation or construction of this Guaranty. Section 4.12 Limitation on Damages. Notwithstanding anything to the contrary contained herein,: (i) in no event shall Guarantor be liable for any special, indirect or consequential damages with respect to the Guaranteed Obligations, even if Guaranty Beneficiary or Guarantor has been advised of the possibility of such damages, and (ii) the liability of Guarantor for the Guaranteed Obligations shall not exceed the limitations thereon set forth in the Guaranteed Agreements. Section 4.13 Dispute Resolution/Arbitration. Any controversy, claim or dispute between the parties hereto arising out of or related to this Guaranty, or the alleged breach, termination or invalidity hereof (“Dispute”), will be submitted for arbitration before a single arbitrator in accordance with the provisions contained herein and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) in effect at the time of the arbitration (“Rules”) (but such arbitration shall not be required to be conducted under the auspices of AAA); provided, however, that notwithstanding any provisions of such Rules, the parties shall have the right to take depositions (up to three (3) per party) and obtain documents from the other party regarding the subject matter of the arbitration.  Experts retained by a party for the Dispute shall prepare reports in accordance with Fed. R. Civ. P. 26, which reports shall be exchanged as directed by the arbitrator.  If the parties cannot agree upon an arbitrator within twenty (20) days of the service of the Arbitration Notice, then the arbitrator shall be selected pursuant to 9 U.S.C. sec. 5 or applicable state law.  Any party desiring arbitration shall serve on the other party its notice of intent to arbitrate (“Arbitration Notice”).  The Arbitration Notice shall be made within a reasonable time after the Dispute has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Dispute would be barred by the applicable statutes of limitations.  All arbitration shall take place in the City of Chicago, Illinois, unless otherwise agreed to by the parties.   Each party shall be required to exchange documents to be used in the arbitration proceeding not less than fifteen (15) days prior to the arbitration or as directed by the arbitrator.  The parties shall use all commercially reasonably efforts to conclude such arbitration as soon as practicable.  The arbitrator shall determine all questions of fact and law relating to any Dispute hereunder, including but not limited to whether or not any such Dispute is subject to the arbitration provisions contained herein.  The arbitration proceedings provided hereunder are hereby declared to be self-executing, and it shall not be necessary to petition a court to compel arbitration.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.   . [EXECUTION PAGE FOLLOWS] IN WITNESS WHEREOF, Guarantor and Buyer have caused this Guaranty to be duly executed by their authorized representative as of the date first written above. "GUARANTOR" VESTAS WIND SYSTEMS A/S, a company organized under the laws of the Kingdom of Denmark By Name: Title: By Name: Title: "BUYER" Madison Gas and Electric Company, a Wisconsin corporation By Name:   Title:   See version 4.

EXHIBIT 10.2 CERIDIAN CORPORATION BENEFIT EQUALIZATION PLAN Fourth Declaration of Amendment Pursuant to the retained power of amendment contained in Section 4.2 of the Ceridian Corporation Benefit Equalization Plan, the undersigned hereby amends the Plan in the manner described below. 1.             THIS FOURTH DECLARATION OF AMENDMENT WILL APPLY ONLY TO BENEFITS THAT ARE SUBJECT TO THE PROVISIONS OF SECTION 409A OF THE CODE, NAMELY THE AMOUNT THAT EXCEEDS THE BENEFIT THAT WAS ACCRUED AND VESTED UNDER THE PLAN AS OF DECEMBER 31, 2004 (THE “GRANDFATHERED AMOUNT”).  THE GRANDFATHERED AMOUNT WILL CONTINUE TO BE SUBJECT TO THE TERMS OF THE PLAN WITHOUT REGARD TO THE FOURTH DECLARATION OF AMENDMENT, AND THE GRANDFATHERED AMOUNT IS NOT INTENDED TO BE SUBJECT TO SECTION 409A OF THE CODE.  THIS FOURTH DECLARATION OF AMENDMENT IS EFFECTIVE JANUARY 1, 2005, EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED OTHERWISE.  FOR PURPOSES OF ADMINISTERING THE PLAN AND PAYMENTS UNDER THE PLAN, THE GRANDFATHERED AMOUNT WILL BE TREATED AS MAINTAINED UNDER A PLAN THAT IS SEPARATE FROM THE NON-GRANDFATHERED AMOUNT THAT IS SUBJECT TO THIS FOURTH DECLARATION OF AMENDMENT. 2.             SECTION 2.2(A) IS AMENDED AND RESTATED AS OF JANUARY 1, 2005 TO READ AS FOLLOWS: “(A)        Payment of a benefit to any Participant determined pursuant to Section 2.1(B) or surviving spouse or other person determined pursuant to Section 2.1(C) will be made or commence, as the case may be, at the same time and in the same form as his or her benefit under the Pension Plan provided the election is made under the Pension Plan on or before December 31, 2006; otherwise, payment of the benefit will be determined and made as follows: (1)           Form.  Payment will be in the form of an actuarial equivalent lump sum payment calculated as of the first day of the fourth calendar month that begins after the calendar month during which the Participant terminates employment (the “Calculation Date”), calculated in the manner provided under the Pension Plan. (2)           Payment.  The payment will be made on or as soon as administratively practicable after the Calculation Date. (3)           Termination of Employment.  A Participant will be treated as terminating employment if (i) his or her employment relationship is severed with the Company and all persons with whom the Company would be considered a single employer under Section 414(b) or 414(c) of the Code (“Affiliates”) (for any reason, including death) provided such termination constitutes a “separation from service” within the meaning of Section 409A of the Code, or (ii) he or she experiences a change in employment status with the Company and its “Affiliates” that constitutes a “separation from service” within the meaning of Section 409A of the Code. -------------------------------------------------------------------------------- (4)           Death.  If a Participant dies before the Calculation Date, then the Participant’s surviving spouse is entitled to the benefit determined under Section 2.1(c).  If the Participant dies after the Calculation Date and before receipt of his or her benefits, the lump sum payment will be paid to the Participant’s surviving spouse, or if the Participant is not survived by a spouse, to the Participant’s estate, on the date on which the Participant would have received the payment had he or she survived.” 3.             SECTION 2.2(D)(2) IS AMENDED EFFECTIVE JANUARY 1, 2005 BY ADDING THE FOLLOWING LANGUAGE TO THE END OF SUCH SECTION: “Notwithstanding the foregoing provisions of this Clause (2), no Participant is eligible to make an election after December 31, 2006.” 4.             SECTION 2.2(D)(3) IS AMENDED EFFECTIVE JANUARY 1, 2005 BY ADDING THE FOLLOWING LANGUAGE TO THE END OF SUCH SECTION: “Notwithstanding the foregoing provisions of this Clause (3), no Participant is eligible to revoke an election after December 31, 2006.” 5.             SECTION 2.2(E) IS DELETED EFFECTIVE JANUARY 1, 2005. 6.             SECTION 2.3(D) IS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005 TO READ AS FOLLOWS: “(D)        If a Participant who is receiving or entitled to receive a benefit pursuant to the Plan is reemployed with a Participating Employer or an Affiliate of a Participating Employer and, in connection with such reemployment, his or her Pension Plan benefit payment is suspended, his or her benefit under this Plan will not be suspended for the same period.  Any additional benefits earned under the Plan will be paid following the Participant’s subsequent termination of employment.” 7.             ARTICLE 2 IS AMENDED BY ADDING A NEW SECTION 2.6 TO READ AS FOLLOWS: “2.6         Six-Month Suspension for Specified Key Employee.  If at the time of the Participant’s termination of employment (other than on account of death) the Participant is a “specified employee” for purposes of complying with the requirements of Section 409A(a)(2)(B)(i) of the Code, any payment due the Participant will be suspended and not paid until the first day immediately following the date that is six (6) months after the date of the Participant’s termination of employment (or if earlier, upon the Participant’s death).  Any payment that is delayed by operation of this Section 2.6 will be credited with simple interest equal to the annual interest rate in effect under the Pension Plan for determining lump sum amounts multiplied by a fraction the numerator of which is the number of days the payment is suspended and the denominator of which is 365.” 2 -------------------------------------------------------------------------------- 8.             SECTION 4.3(A)(2) IS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005 TO READ AS FOLLOWS: “(2)         if (and only to the extent) the benefit has become subject to tax under Section 409A of the Code, cause the Participant’s benefit under the Plan to be distributed to the Participant in the form of an immediate lump sum; and/or” 9.             SECTION 4.4 IS AMENDED EFFECTIVE AS OF JANUARY 1, 2005 BY ADDING A NEW SUBSECTION (D) TO READ AS FOLLOWS: “(D)        Notwithstanding the provisions of Section 4.4(B), acceleration of distributions following a termination of the Plan will be made if and only to the extent and at the times permitted under Section 409A of the Code.”   The undersigned has caused this instrument to be executed by its duly authorized officers this 25th day of October, 2006.   CERIDIAN CORPORATION         Attest: /s/ William E. McDonald   By /s/ Gary M. Nelson     Deputy Secretary   Name: Gary M. Nelson     Title: Executive Vice President, Chief   Administrative Officer, General Counsel and   Corporate Secretary   3 --------------------------------------------------------------------------------

EXHIBIT 10.2 THIRD AMENDMENT TO HASBRO, INC. 2003 STOCK INCENTIVE PERFORMANCE PLAN The Hasbro, Inc. 2003 Stock Incentive Performance Plan (the "2003 Plan"), as amended, is hereby further amended in the manner set forth below by this third amendment (the “Third Amendment”).  The effective date for this Third Amendment is May 24, 2006 (the “Effective Date”).  Any terms used  herein and not otherwise defined shall have the meanings ascribed to such terms in the 2003 Plan. 1. Effective with respect to all Awards to be made on or after the Effective Date, the following amendment to the definition of a Change in Control, as such term is currently used in the 2003 Plan, be and hereby is made: In the first sentence of Section (i) of the definition of a “Change in Control”, the figure “20%” be and hereby is replaced with the figure “35%”, such that the threshold for acquisition of beneficial ownership of Outstanding Stock or for the acquisition of the combined voting power of Outstanding Voting Securities to be considered a Change in Control, subject to the existing exceptions set forth in the 2003 Plan, is raised from “20% or more” to “35% or more”.

Exhibit 10.8.8 FEDERAL HOME LOAN BANK OF CHICAGO BOARD OF DIRECTORS 2006 COMPENSATION POLICY GENERAL The Board of Directors of the Federal Home Loan Bank of Chicago (“Bank”) hereby adopts this directors’ compensation policy for 2006 (“Policy”). COMPENSATION POLICY METHODOLOGY The goal of the Policy is to appropriately compensate the Directors for actual attendance and participation at the meetings of the Board of Directors and the committees of the Board and also for work performed on behalf of the Board of Directors and the Bank apart from such meetings. Under this policy, compensation consists of per-meeting fees. The fees are intended to compensate Directors for: (1) their time spent reviewing the material sent to them on a periodic basis by the Bank; (2) making themselves available and participating in any necessary telephonic meetings and for chairing meetings; (3) actual time spent attending the meetings; and (4) fulfilling the responsibility of directors. PAYMENT AND FEE STRUCTURE Each Director, other than the Chairman and the Vice Chairman, will receive (i) $2,700 for each day spent in attendance at one or more meetings of the Board or its committees; or (ii) in the case of a Director who chairs one or more Committee meetings, $2,900 for each day chairing such Committee. The Chairman of the Board of Directors will receive $4,300 for each day spent in attendance presiding at one or more meetings of the Board of Directors or the Executive Committee and for each day spent attending other committee meetings. The Vice Chairman will receive $3,500 for each day spent in attendance at one or more meetings of the Board or its committees. Meeting fees of $1,500 per day will also be paid to Directors for their participation in any other special meetings or events (where no other fee or compensation is paid to such Director) on behalf of the Board of Directors and the Bank at the request of the Federal Housing Finance Board or at other events approved by the Board of Directors. -------------------------------------------------------------------------------- COMPLIANCE WITH LEGAL REQUIREMENTS In no event shall any Director be paid amounts which would exceed the annual limitations on compensation set forth in Section 7(i) of the Federal Home Loan Bank Act (12 U.S.C. §1427(i)), as amended by the Gramm-Leach-Bliley Act of 1999, and as adjusted by the Federal Housing Finance Board pursuant to 12 C.F.R. §918.3. EXPENSES Each Director will be reimbursed for necessary and reasonable travel, subsistence and other related expenses incurred in connection with the performance of their official duties (including telephonic meetings or meetings called at the request of the Federal Housing Finance Board or other FHLB System body) as are payable to senior officers of the Bank under the Bank’s Travel Policy.   APPROVED BY THE BOARD OF DIRECTORS Dated: December 13, 2005 /s/ Peter E. Gutzmer Corporate Secretary   – 2 –

EXHIBIT 10.13 GLOBAL SIGNAL INC. OMNIBUS STOCK INCENTIVE PLAN (As amended December 21, 2005) Section 1.  Purpose of Plan. The name of this plan (formerly the Pinnacle Holdings Inc. Stock Option Plan and prior to that the Pinnacle Holdings Inc. Employee Stock Option Plan) is the Global Signal Inc. Omnibus Stock Incentive Plan (the ‘‘Plan’’). The Plan was adopted by the Board (as hereinafter defined) on October 31, 2002, amended and restated on August 20, 2003, and further amended and restated on February 11, 2004 (the ‘‘2004 Amendments’’). The purpose of the Plan is to provide additional incentive to selected management employees, directors and Consultants of the Company or its parents or subsidiaries whose contributions are essential to the growth and success of the Company's business, in order to strengthen the commitment of such persons to the Company or its parents or subsidiaries, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant (a) Options, (b) Stock Appreciation Rights, (c) awards of Restricted Shares, Deferred Shares, Performance Shares or unrestricted Shares, or (d) any combination of the foregoing. Section 2.  Definitions. For purposes of the Plan, the following terms shall be defined as set forth below: (a) ‘‘Administrator’’ means the Board, or if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 3 hereof. (b) ‘‘Affiliate’’ means an affiliate of the Company (or other referenced entity, as the case may be) as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act; provided, that, for the sake of clarity, with respect to the Company, the term Affiliate shall not be understood to apply to any of the limited partners of Greenhill Capital Partners, L.P. solely as a result of their status as such. (c) ‘‘Beneficial Owner’’ (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act. (d) ‘‘Board’’ means the Board of Directors of the Company. (e) ‘‘Cause’’ means (i) the continued failure by the Participant substantially to perform his or her duties and obligations to the Company or any of its parents or subsidiaries, including without limitation repeated refusal to follow the reasonable directions of his or her employer, knowing violation of law in the course of performance of the duties of Participant's employment with the Company or any of its parents or subsidiaries, engagement in misconduct which is materially injurious to the Company or any of its parents or subsidiaries, repeated absences from work without a reasonable excuse, or intoxication with alcohol or illegal drugs while on the Company's or any its parents or subsidiaries' premises during regular business hours (other than any such failure resulting from his or her incapacity due to physical or mental illness); (ii) fraud or material dishonesty against the Company or any of its parents or subsidiaries; or (iii) a conviction or plea of guilty or nolo contendere for the commission of a felony or a crime involving material dishonesty. Determination of Cause shall be made by the Administrator in its sole discretion. (f) ‘‘Change in Capitalization’’ means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities or property by reason of a (i) merger, consolidation, reclassification, recapitalization, or other reorganization, (ii) stock dividend, stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend or other distribution, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 5 hereof is appropriate. 1 -------------------------------------------------------------------------------- (g) ‘‘Change in Control’’ means the first to occur of (i) any Person becoming the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the then outstanding voting stock (stock then entitled to vote generally in the election of directors) of the Company or any entity controlling the Company, including, without limitation, pursuant to a merger, consolidation or other reorganization or (ii) a sale (a ‘‘Qualifying Asset Sale’’) of all or substantially all of the assets of the Company to another entity where stockholders of the Company immediately prior to the effectiveness of such asset sale do not own, immediately following the effectiveness of such asset sale, 50% or more of the total voting power of the voting stock of the purchasing entity in substantially the same proportions as their ownership of the Company prior to such asset sale (it being understood that no transaction determined by the Administrator, in its good faith, to be a securitization or financing transaction shall be deemed a sale of all or substantially all of the assets of the Company). (h) ‘‘Code’’ means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (i) ‘‘Committee’’ means any committee or subcommittee the Board may appoint to administer the Plan. To the extent necessary and desirable, the Committee shall be composed entirely of individuals who meet the qualifications referred to in Section 162(m) of the Code, Rule 16b-3 under the Exchange Act and the applicable stock exchanges. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Company’s Certificate of Incorporation or Bylaws, as amended from time to time, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee’s members. (j) ‘‘Common Stock’’ means the common stock, par value $.01 per share, of the Company. (k) ‘‘Company’’ means Global Signal Inc., a Delaware corporation (or any successor corporation). (l) ‘‘Consultant’’ means a consultant or advisor, whether or not a natural person, engaged to render bona fide services to the Company, or any of its parents or subsidiaries. (m) ‘‘Deferred Shares’’ means the right to receive Shares at the end of a specified deferral period granted pursuant to Section 9 below. (n) ‘‘Disability’’ means (i) any physical or mental condition that would qualify a Participant for a disability benefit under any long-term disability plan maintained by the Company, (ii) when used in connection with the exercise of an Incentive Stock Option following termination of employment, disability within the meaning of Section 22(e)(3) of the Code, or (iii) such other condition as may be determined in the sole discretion of the Administrator to constitute Disability. (o) ‘‘Eligible Recipient’’ means a key employee, director or Consultant of the Company or any its parents or subsidiaries who has been selected as an eligible participant by the Administrator. (p) ‘‘Exchange Act’’ shall mean the Securities Exchange Act of 1934, as amended from time to time. (q) ‘‘Exercise Price’’ means the per share price at which a holder of an award granted hereunder may purchase the Shares issuable upon exercise of such award. (r) ‘‘Fair Market Value’’ as of a particular date shall mean the fair market value of a share of Common Stock as determined by the Administrator in its sole discretion; provided, however, that (i) if the Common Stock is admitted to trading on a national securities exchange, fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such exchange on the last day preceding such date on which a sale was reported, (ii) if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation (‘‘Nasdaq’’) System or other comparable quotation system and has been designated as a National Market System (‘‘NMS’’) security, fair market value of a share of Common Stock on any date shall be the closing sale price reported for such share on such system on the last date preceding such date on which a sale was reported, or (iii) if the Common Stock is admitted to quotation on the Nasdaq System but has not been designated as an NMS security, fair market value of a share of Common Stock on any date shall be the average of the 2 -------------------------------------------------------------------------------- highest bid and lowest asked prices of such share on such system on the last date preceding such date on which both bid and ask prices were reported. (s) ‘‘Incentive Stock Option’’ shall mean an Option that is an ‘‘incentive stock option’’ within the meaning of section 422 of the Code, or any successor provision, and that is designated in the applicable Option agreement as an Incentive Stock Option. (t) ‘‘Non-Officer Director’’ means a director of the Company who is not (i) an officer or employee of the Company or of any of its parents or subsidiaries or (ii) the Beneficial Owner, whether directly or indirectly, of ten percent (10%) or more of the Common Stock. (u) ‘‘Nonqualified Stock Option’’ means any Option that is not an Incentive Stock Option, including any Option that provides (as of the time such Option is granted) that it will not be treated as an Incentive Stock Option. (v) ‘‘Option’’ means an option to purchase shares of Common Stock granted pursuant to Section 7 hereof. (w) ‘‘Participant’’ means (i) any Eligible Recipient selected by the Administrator, pursuant to the Administrator's authority in Section 3 below, to receive grants of Options, Stock Appreciation Rights, awards of Restricted Shares, Deferred Shares, or Performance Shares or any combination of the foregoing, and upon his or her death, his or her successors, heirs, executors and administrators, as the case may be and (ii) any Non-Officer Director who is eligible to receive Shares pursuant to Section 10 below. (x) ‘‘Performance Shares’’ means Shares that are subject to restrictions based upon the attainment of specified performance objectives granted pursuant to Section 9 below. (y) ‘‘Person’’ shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) Fortress Investment Group LLC or any of its Affiliates, (iii) Greenhill Capital Partners, L.P. or any of its Affiliates, (iv) any member of any group (as defined in Rule 13d-3 under the Exchange Act) of which any of the entities indicated in the foregoing clauses (i)-(iii) is a member, other than any of such entities indicated in the foregoing clauses (i)-(iii), for so long as such member of such group does not own, directly or indirectly, more than 50% of the economic interest in the Shares Beneficially Owned by such group, (v) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (vi) an underwriter temporarily holding securities pursuant to an offering of such securities, or (vii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (z) ‘‘Restricted Shares’’ means Shares subject to certain restrictions granted pursuant to Section 9 below. (aa) ‘‘Retirement’’ means a termination of a Participant's employment, other than for Cause, on or after attainment of age 65. (bb) ‘‘Shares’’ means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security. (cc) ‘‘Stock Appreciation Right’’ means the right pursuant to an award granted under Section 8 below to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Stock Appreciation Right or portion thereof is surrendered, of the Shares covered by such right or such portion thereof, over (ii) the aggregate Exercise Price of such right or such portion thereof. Section 3.  Administration. (a) The Plan shall be administered in accordance with the requirements of Section 162(m) of the Code (but only to the extent necessary and desirable to maintain qualification of awards under the Plan under Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3 under the Exchange Act (‘‘Rule 16b-3’’), by the Board or, at the Board's sole discretion, by the Committee, which shall be appointed by the Board, and which shall serve at the pleasure of the Board. 3 -------------------------------------------------------------------------------- (b) Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation: (1) to select those Eligible Recipients who shall be Participants; (2) to determine whether and to what extent Stock Options, Stock Appreciation Rights, awards of Restricted Shares, Deferred Shares or Performance Shares or a combination of any of the foregoing, are to be granted hereunder to Participants; (3) to determine whether Options are intended to be Incentive Stock Options or Nonqualified Stock Options, provided, however, that Incentive Stock Options can only be granted to employees of the Company or any of its parents or subsidiaries (within the meaning of Section 424(e) and (f) of the Code); (4) to determine the number of Shares to be covered by each award granted hereunder; (5) to determine the terms and conditions, not inconsistent with the terms of the Plan, of each award granted hereunder (including, but not limited to, (x) the restrictions applicable to awards of Restricted Shares or Deferred Shares and the conditions under which restrictions applicable to such awards of Restricted Shares or Deferred Shares shall lapse, and (y) the performance goals and periods applicable to awards of Performance Shares); (6) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Stock Options, Stock Appreciation Rights, awards of Restricted Shares, Deferred Shares or Performance Shares or any combination of the foregoing granted hereunder; (7) to determine the Fair Market Value; (8) to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of their employment for purposes Nonqualified Stock Options granted under the Plan; (9) to reduce the Exercise Price of any award granted hereunder to the then current Fair Market Value if the Fair Market Value of the Shares covered by such award has declined since the date such award was granted; (10) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and (11) to interpret the terms and provisions of the Plan and any award issued under the Plan (and any award agreement relating thereto), and to otherwise supervise the administration of the Plan. (c) Notwithstanding paragraph (b) of this Section 3, the automatic, nondiscretionary grants of Shares shall be made to Non-Officer Directors pursuant to and in accordance with the terms of Section 10 below. (d) All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company or any of its parents or subsidiaries acting on behalf of the Board or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any of its parents or subsidiaries acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation. Section 4.  Shares Reserved for Issuance Under the Plan. (a) Subject to Section 5 hereof, the total number of shares of Common Stock reserved and available for issuance under the Plan shall be equal to 6,715,000 shares, provided however, that commencing on the 4 -------------------------------------------------------------------------------- first day of the Company's fiscal year beginning in calendar year 2005, the number of shares reserved and available for issuance shall be increased by an amount equal to the lesser of (i) 1,000,000 shares or (ii) two percent (2%) of the number of outstanding shares of Common Stock on the last day of the immediately preceding fiscal year. Such Shares may consist, in whole or in part, of authorized and unissued Shares or treasury shares. From and after the date that Section 162(m) of the Code becomes applicable to the Company, the aggregate number of Shares with respect to which Options may be granted to any individual Participant during the Company's fiscal year shall not exceed 2,000,000 Shares. If an Option previously granted to any individual Participant is canceled in the same fiscal year of the Company in which it was granted, the canceled option will be counted against the limitation described in the immediately preceding sentence of this Section 4(a). (b) To the extent that (i) an Option expires or is otherwise terminated without being exercised, or (ii) any Shares subject to any award of Restricted Shares, Deferred Shares or Performance Shares granted hereunder are forfeited, such Shares shall again be available for issuance in connection with future awards granted under the Plan. If any Shares have been pledged as collateral for indebtedness incurred by a Participant in connection with the exercise of an award granted hereunder, such Shares as are returned to the Company in satisfaction of such indebtedness shall again be available for issuance in connection with future awards granted under the Plan. Section 5.  Equitable Adjustments. In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of shares of Common Stock reserved for issuance under the Plan and the maximum number of Shares that may be granted to any Participant in any calendar year, (ii) the kind, number and Exercise Price subject to outstanding Options and Stock Appreciation Rights granted under the Plan, and (iii) the kind, number and purchase price of Shares subject to outstanding awards of Restricted Shares, Deferred Shares and Performance Shares granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion, provided, however, that any fractional shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding award granted hereunder in exchange for payment in cash or other property of the aggregate Fair Market Value of the Shares covered by such award, reduced by the aggregate Exercise Price or purchase price thereof, if any. The Administrator’s determinations pursuant to this Section 5 shall be final, binding and conclusive. Section 6.  Eligibility. Except as set forth in Section 10 below, the Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients; provided however that Incentive Stock Options may only be granted to employees of the Company or any of its parents or subsidiaries (within the meaning of Section 424 (e) and (f) of the Code). Notwithstanding the foregoing, Non-Officer Directors shall be eligible for awards other than those set forth in Section 10, as determined by the Administrator from time to time. Section 7.  Options. (a) General. Each Participant who is granted an Option shall enter into an Option agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its discretion, which Option agreement shall set forth, among other things, the Exercise Price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. Each Option shall be clearly identified in the applicable Option agreement as either an Incentive Stock Option or a Nonqualified Stock Option. The provisions of each Option need not be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in paragraphs (b)-(l) of this Section 7 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. 5 -------------------------------------------------------------------------------- (b) Exercise Price. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant but shall not, (i) in the case of Incentive Stock Options, be less than 100% of the Fair Market Value on such date, (ii) in the case of Nonqualified Stock Options intended to qualify as ‘‘performance-based compensation’’ within the meaning of Section 162(m) of the Code, be less than 100% of the Fair Market Value on such date and (iii) in any event, be less than the par value (if any) of a Share. If a Participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or of any parents or subsidiaries (within the meaning of Section 424(e) and (f) of the Code) and an Incentive Stock Option is granted to such Participant, the option price of such Incentive Stock Option (to the extent required at the time of grant by the Code) shall be no less than 110% of the Fair Market Value on the date such Incentive Stock Option is granted. (c) Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten years after the date such Option is granted. Each Option's term is subject to earlier expiration pursuant to Section 7(i) upon a termination of employment, pursuant to Section 7(k) following any Change-in-Control-related acceleration of vesting and exercisability and pursuant to Section 7(l) following any dissolution-or-liquidation-related acceleration of exercisability (d) Exercisability. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished corporate performance goals, as shall be determined by the Administrator in the applicable Option agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exercised for a fraction of a share. (e) Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which, (x) in the case of unrestricted Shares acquired upon exercise of an Option, have been owned by the Participant for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate option price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the Administrator and permitted by applicable law or (iv) any combination of the foregoing. (f) Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company shall exceed $100,000, the portion of such Incentive Stock Options in excess of $100,000 shall be treated as Nonqualified Stock Options. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns (or is deemed to own under the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company unless (i) the Exercise Price of such Incentive Stock Option is at least 110% of the Fair Market Value of a share of Common Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (g) Rights as Stockholder. A Participant shall have no rights to dividends or any other rights of a stockholder with respect to the Shares subject to an Option until the Participant has given written notice of exercise, has paid in full for such Shares, has satisfied the requirements of Section 13 hereof and, if requested, has given the representation described in paragraph (b) of Section 14 hereof. (h) Transfers of Options. Except as otherwise determined by the Administrator, and in any event in the case of an Incentive Stock Option, no Option granted under the Plan shall be transferable by a 6 -------------------------------------------------------------------------------- Participant otherwise than by will or the laws of descent and distribution. Unless otherwise determined by the Administrator in accord with the provisions of the immediately preceding sentence, an Option may be exercised, during the lifetime of the Participant, only by the Participant or, during the period the Participant is under a legal disability, by the Participant's guardian or legal representative. The Administrator may, in its sole discretion, subject to applicable law, permit the gratuitous transfer during a Participant’s lifetime of a Nonqualified Stock Option, (i) by gift to a member of the Participant’s immediate family, (ii) by transfer by instrument to a trust for the benefit of such immediate family members, or (iii) to a partnership or limited liability company in which such family members are the only partners or members; provided, however, that, in addition to such other terms and conditions as the Administrator may determine in connection with any such transfer, no transferee may further assign, sell, hypothecate or otherwise transfer the transferred Option, in whole or in part, other than by will or by operation of the laws of descent and distribution. Each permitted transferee shall agree to be bound by the provisions of this Plan and the applicable Option agreement. (i) Termination of Employment or Service. (1) Unless the applicable Option agreement provides otherwise, in the event that the employment or service of a Participant with the Company or any of its parents or subsidiaries shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is 90 days after such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The 90-day period described in this Section 7(i)(1) shall be extended to one year after the date of such termination in the event of the Participant's death during such 90-day period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (2) Unless the applicable Option agreement provides otherwise, in the event that the employment or service of a Participant with the Company or any its parents or subsidiaries shall terminate on account of the Retirement, Disability, or death of the Participant, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (3) In the event of the termination of a Participant's employment or service for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination. (j) Other Change in Employment Status. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator. The Administrator shall follow the written policies of the Company (if any), including such rules, guidelines and practices as may be adopted pursuant to Section 3 hereof, as they may be in effect from time to time, with regard to such matters. (k) Acceleration Upon Change in Control. In the event of a Change in Control, if each outstanding Option is not assumed or continued, or an equivalent option or right is not substituted therefor pursuant to the Change-in-Control transaction's governing document (provided that such document need not address such continuation in the case where all Options continue following a Change in Control in accordance with their terms as in existence immediately prior to such Change in Control, as would be the case, for example, in the case of a single Person’s acquisition by purchase of Shares of more than 50% of the total voting power of the Company), each Participant's outstanding Options that are not then vested and/or exercisable shall become fully vested and exercisable ‘‘immediately prior to’’ the effective date of such Change in Control and shall expire upon the effective date of such Change in Control. For purposes of this Section 7(k), ‘‘immediately prior to’’ shall mean sufficiently in advance of the Change-in-Control transaction that there will be time for the Participant to exercise his or her Option and participate in the 7 -------------------------------------------------------------------------------- Change-in-Control transaction in the same manner as all other holders of Common Stock. If an Option becomes fully vested and exercisable immediately prior to a Change in Control, the Administrator shall notify the Participant in writing or electronically that the Option has become fully vested and exercisable, and that the Option will terminate upon the Change in Control. For the purposes of this Section 7(k), an Option shall be considered assumed or an equivalent option or right substituted if, following the Change in Control, the Option or substituted option or right confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change-in-Control transaction by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change-in-Control transaction is not solely common stock of the acquiring entity or its Affiliate, the Administrator may determine prior to the effective date of such transaction, with the consent of the acquiring entity, to provide for the consideration to be received upon the exercise of the Option, for each Share subject to the Option, to be solely common stock of the acquiring entity or its Affiliate equal in fair market value to the per share consideration received by holders of shares of the Company's common stock in the Change-in-Control transaction. If a Change-in-Control transaction occurs which is a Qualifying Asset Sale or which includes a continuation, assumption or substitution with respect to the Options, and a Participant’s employment with the Company or any acquiring entity or Affiliate thereof is terminated by the employer other than for Cause on or after the effective date of the Change-in-Control transaction and prior to the first anniversary of the effective date of the Change-in-Control transaction, the Participant's outstanding Options that are not vested and/or exercisable on the date of such termination shall become fully vested and exercisable as of such date. (l) Acceleration Upon Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company (it being under stood that no merger or other reorganization shall qualify as a liquidation or dissolution of the Company unless the Administrator so determines, in its sole discretion) the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for a Participant to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the option would not otherwise be exercisable. To the extent that it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. Section 8.  Stock Appreciation Rights. (a) General. Stock Appreciation Rights may be granted either alone (‘‘Free Standing Rights’’) or in conjunction with all or part of any Stock Option granted under the Plan (‘‘Related Rights’’). In the case of a Nonqualified Stock Option, Related Rights may be granted either at or after the time of the grant of such Stock Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Stock Appreciation Rights shall be made; the number of Shares to be awarded, the price per share, and all other conditions of Stock Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more shares than are subject to the Stock Option to which it relates. The provisions of Stock Appreciation Rights need not be the same with respect to each Participant. Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in paragraphs (b) — (g) of this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. (b) Awards. The prospective recipient of a Stock Appreciation Right shall not have any rights with respect to such award, unless and until such recipient has executed an agreement evidencing the award (a ‘‘Stock Appreciation Right Agreement’’) and delivered a fully executed copy thereof to the Company, within a period of sixty days (or such other period as the Administrator may specify) after the award date. 8 -------------------------------------------------------------------------------- Participants who are granted Stock Appreciation Rights shall have no rights as stockholders of the Company with respect to the grant or exercise of such rights. (c) Exercisability. (1) Stock Appreciation Rights that are Free Standing Rights (‘‘Free Standing Stock Appreciation Rights’’) shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator at or after grant; provided, however, that no Free Standing Stock Appreciation Right shall be exercisable during the first six months of its term, except that this additional limitation shall not apply in the event of a Participant's death or Disability prior to the expiration of such six-month period. (2) Stock Appreciation Rights that are Related Rights (‘‘Related Stock Appreciation Rights’’) shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate shall be exercisable in accordance with the provisions of Section 7 above and this Section 8 of the Plan; provided, however, that a Related Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if and when the Fair Market Value of the Stock subject to the Incentive Stock Option exceeds the Exercise Price of such Option; provided, further, that no Related Stock Appreciation Right shall be exercisable during the first six months of its term, except that this additional limitation shall not apply in the event of a Participant's death or Disability prior to the expiration of such six-month period. (d) Payment Upon Exercise. (1) Upon the exercise of a Free Standing Stock Appreciation Right, the Participant shall be entitled to receive up to, but not more than, an amount in cash or that number of Shares (or any combination of cash and Shares) equal in value to the excess of the Fair Market Value as of the date of exercise over the price per share specified in the Free Standing Stock Appreciation Right (which price shall be no less than 100% of the Fair Market Value on the date of grant) multiplied by the number of Shares in respect of which the Free Standing Stock Appreciation Right is being exercised, with the Administrator having the right to determine the form of payment. (2) A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, an amount in cash or that number of Shares (or any combination of cash and Shares) equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Stock Appreciation Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised. (e) Non-Transferability. (1) Free Standing Stock Appreciation Rights shall be transferable only when and to the extent that an Option would be transferable under Section 7 of the Plan. (2) Related Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Option would be transferable under Section 7 of the Plan. (f) Termination of Employment or Service. (1) In the event of the termination of employment or service with the Company or any its parents or subsidiaries of a Participant who has been granted one or more Free Standing Stock Appreciation Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator at or after grant. (2) In the event of the termination of employment or service with the Company or any its parents or subsidiaries of a Participant who has been granted one or more Related Stock Appreciation Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Stock Options. 9 -------------------------------------------------------------------------------- (g) Term. (1) The term of each Free Standing Stock Appreciation Right shall be fixed by the Administrator, but no Free Standing Stock Appreciation Right shall be exercisable more than ten years after the date such right is granted. (2) The term of each Related Stock Appreciation Right shall be the term of the Stock Option to which it relates, but no Related Stock Appreciation Right shall be exercisable more than ten years after the date such right is granted. Section 9. Restricted Shares, Deferred Shares and Performance Shares. (a) General. Awards of Restricted Shares, Deferred Shares or Performance Shares may be issued either alone or in addition to other awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, awards of Restricted Shares, Deferred Shares or Performance Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares, Deferred Shares or Performance Shares; the Restricted Period (as defined in paragraph (c) of this Section 9), if any, applicable to awards of Restricted Shares or Deferred Shares; the performance objectives applicable to awards of Deferred Shares or Performance Shares; and all other conditions of the awards of Restricted Shares, Deferred Shares and Performance Shares. The Administrator may also condition the grant of the award of Restricted Shares, Deferred Shares or Performance Shares upon the exercise of Options, or upon such other criteria as the Administrator may determine, in its sole discretion. The provisions of the awards of Restricted Shares, Deferred Shares or Performance Shares need not be the same with respect to each Participant. (b) Awards and Certificates. The prospective recipient of awards of Restricted Shares, Deferred Shares or Performance Shares shall not have any rights with respect to any such award, unless and until such recipient has executed an agreement evidencing the award (a ‘‘Restricted Shares Award Agreement,’’ ‘‘Deferred Shares Award Agreement’’ or ‘‘Performance Shares Award Agreement,’’ as appropriate) and delivered a fully executed copy thereof to the Company, within a period of sixty days (or such other period as the Administrator may specify) after the award date. Except as otherwise provided below in this Section 9(c), (i) each Participant who is granted an award of Restricted Shares or Performance Shares shall be issued a stock certificate in respect of such shares of Restricted Shares or Performance Shares; and (ii) such certificate shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such award. The Company may require that the stock certificates evidencing Restricted Shares or Performance Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares or Performance Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such award. With respect to awards of Deferred Shares, at the expiration of the Restricted Period, stock certificates in respect of such shares of Deferred Shares shall be delivered to the Participant, or his legal representative, in a number equal to the number of Shares covered by the Deferred Shares award. (c) Restrictions and Conditions. The awards of Restricted Shares, Deferred Shares and Performance Shares granted pursuant to this Section 9 shall be subject to the following restrictions and conditions: (1) Subject to the provisions of the Plan and the Restricted Shares Award Agreement, Deferred Shares Award Agreement or Performance Shares Award Agreement, as appropriate, governing any such award, during such period as may be set by the Administrator commencing on the date of grant (the ‘‘Restricted Period’’), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Shares, Deferred Shares or Performance Shares awarded under the Plan; provided, however, that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment or service as a director or Consultant to the Company or any its parents or subsidiaries, the Participant's 10 -------------------------------------------------------------------------------- death or Disability or the occurrence of a ‘‘change in control’’ as defined in the Restricted Shares Award Agreement, Deferred Shares Award Agreement or Performance Shares Award Agreement, as appropriate, evidencing such award. (2) Except as provided in paragraph (c )(l) of this Section 9, the Participant shall generally have the rights of a stockholder of the Company with respect to Restricted Shares or Performance Shares during the Restricted Period. The Participant shall generally not have the rights of a stockholder with respect to Shares subject to awards of Deferred Shares during the Restricted Period; provided, however, that dividends declared and paid during the Restricted Period with respect to all or any number of Shares covered by such award of Deferred Shares may be paid to the Participant in accordance with a Deferred Shares Award Agreement approved by the Administrator at the time of grant of such award. Certificates for Shares of unrestricted Common Stock shall be delivered to the Participant promptly after, and only after, the Restricted Period shall expire without forfeiture in respect of such awards of Restricted Shares, Deferred Shares or Performance Shares except as the Administrator, in its sole discretion, shall otherwise determine. The rights of Participants granted awards of Restricted Shares, Deferred Shares or Performance Shares upon termination of employment or service as a director or Consultant to the Company or to any its parents or subsidiaries terminates for any reason during the Restricted Period shall be set forth in the Restricted Shares Award Agreement, Deferred Shares Award Agreement or Performance Shares Award Agreement, as appropriate, governing such awards. Section 10.  Non-Officer Director Grants. (a)  Annual Grant. Except as otherwise provided by the Administrator, on the first business day after the annual stockholders' meeting of the Company and each annual stockholders' meeting thereafter during the term of the Plan (beginning with the annual stockholders' meeting in 2005), each Non-Officer Director shall be granted that number of Shares, the aggregate Fair Market Value of which shall equal $15,000 on the date of grant (the ‘‘Non-Officer Director Shares’’). The Non-Officer Director Shares shall be fully vested as of the date of grant. (b)  Stock Availability. In the event that the number of Shares available for grant under the Plan is not sufficient to accommodate the awards of Non-Officer Director Shares, then the remaining Shares available for such automatic awards shall be granted to each Non-Officer Director who is to receive such an award on a pro-rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan. Section 11.  Amendment and Termination. The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any award theretofore granted without such Participant's consent. Unless the Board determines otherwise, the Board shall obtain approval of the Company's stockholders for any amendment that would require such approval in order to satisfy the requirements of sections 162(m) or 422 of the Code, any stock exchange rules on which the Common Stock is traded or other applicable law. The Administrator may amend the terms of any award theretofore granted, prospectively or retroactively, but, subject to Section 5 of Plan, no such amendment shall impair the rights of any Participant without his or her consent. Section 12.  Unfunded Status of Plan. The Plan is intended to constitute an ‘‘unfunded’’ plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. Section 13.  Withholding Taxes. Whenever cash is to be paid pursuant to an award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax 11 -------------------------------------------------------------------------------- requirements related thereto. Whenever Shares are to be delivered pursuant to an award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such a election may be made with respect to all or any portion of the Shares to be delivered pursuant to an award. Section 14.  General Provisions. (a) Shares shall not be issued pursuant to the exercise of any Option granted hereunder unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) The Administrator may require each person acquiring Shares to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. The certificates for such Shares may include any legend that the Administrator deems appropriate to reflect any restrictions on transfer which the Administrator determines, in its sole discretion, arise under applicable securities laws or are otherwise applicable. (c) All certificates for Shares delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. (h) The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment or service with the Company or any its parents or subsidiaries, as the case may be, nor shall it interfere in any way with the right of the Company or any its parents or subsidiaries to terminate the employment or service of any of its Eligible Recipients at any time. Section 15.  Effective Date. (a) The Plan became effective on November 1, 2002 (the ‘‘Effective Date’’). (b)   Subject to stockholder approval of the 2004 Amendments within twelve months following the adoption of such amendments by the Board, the 2004 Amendments shall become effective on February 11, 2004. Section 16.  Term of Plan. No award shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but awards theretofore granted may extend beyond that date. 12 --------------------------------------------------------------------------------

Execution Copy EXHIBIT 10.2   SECURITIES PURCHASE AGREEMENT   This Securities Purchase Agreement (this “Agreement”) is dated as of May 2, 2006, by and between HydroGen Corporation, a Nevada corporation (the “Company”), and CD Investment Partners, Ltd., a Cayman Islands company (the “Purchaser”).   RECITALS   A. The Company and the Purchaser are executing and delivering this agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission under the Securities Act. B. The Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) 200,000 shares (the “Shares”) of the Common Stock, par value $0.001 per share (the “Common Stock”), of the Company and (ii) a warrant, in the form attached hereto as Exhibit A (the “Warrant”), to acquire up to 50,000 additional shares of Common Stock (the shares of Common Stock issuable to the Purchaser upon exercise of or otherwise pursuant to the Warrant, collectively, the “Warrant Shares”). C. The Shares, the Warrant and the Warrant Shares issued to the Purchaser pursuant to this Agreement are collectively referred to herein as the “Securities”. D. The Company has engaged Piper Jaffray & Co. as its placement agent (the “Placement Agent”) for the offering of the Securities on a “best efforts” basis. E. Contemporaneous with the sale of the Shares and the Warrant, the parties hereto will enter into a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “Registration Rights Agreement”), pursuant to which, among other things, the Company will agree to provide certain registration rights under the Securities Act and applicable state securities laws. 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 hereby agree as follows:   ARTICLE I. DEFINITIONS   1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:   “Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.   -------------------------------------------------------------------------------- “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, as such terms are used in and construed under Rule 144. With respect to the Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.   “Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.   “Buy-In” has the meaning set forth in Section 4.1(e).   “Buy-In Price” has the meaning set forth in Section 4.1(e).   “Cash Placement Agent Fee” means the cash fee to be paid to the Placement Agent for services rendered to the Company in connection with the offering of the Securities.   “Commission” means the United States Securities and Exchange Commission.   “Common Stock” has the meaning set forth in the Recitals, and also includes any securities into which the Common Stock may hereafter be reclassified.   “Common Stock Equivalents” means any securities of the Company or any Subsidiary which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.   “Company Counsel” means Graubard Miller. “Company Deliverables” has the meaning set forth in Section 2.2(a).    “Company’s Knowledge” means with respect to any statement made to the knowledge of a party, that the statement is based upon the actual knowledge of the officers of such party having responsibility for the matter or matters that are the subject of the statement, after due inquiry and investigation. “Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.   “Disclosure Materials” has the meaning set forth in Section 3.1(h).   2 -------------------------------------------------------------------------------- “Effective Date” means the date on which the initial Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission.   “Effectiveness Deadline” means the date on which the initial Registration Statement is required to be declared effective by the Commission under the terms of the Registration Rights Agreement.   “Environmental Laws” has the meaning set forth in Section 3.1(l).   “Evaluation Date” has the meaning set forth in Section 3.1(v).   “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.   “GAAP” means U.S. generally accepted accounting principles, as applied by the Company.   “Indemnified Person” has the meaning set forth in Section 4.7(b).   “Intellectual Property” has the meaning set forth in Section 3.1(r).   “Lien” means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.   “Losses” has the meaning set forth in Section 4.7(a).   “Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) any material adverse impairment to the Company's ability to perform on a timely basis its obligations under any Transaction Document.   “Material Contract” means any contract of the Company that was filed as an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-B. “New York Courts” means the state and federal courts sitting in the City of New York, Borough of Manhattan.   “Outside Date” means May 12, 2006.   “Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.   “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.   3 -------------------------------------------------------------------------------- “Purchaser Deliverables” has the meaning set forth in Section 2.2(b).   “Purchaser Party” has the meaning set forth in Section 4.7(a).   “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchaser of the Registrable Securities (as defined in the Registration Rights Agreement).   “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.   “SEC Reports” has the meaning set forth in Section 3.1(h).   “Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(vi).   “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.   “Subscription Amount” means, with respect to the Purchaser, the Subscription Amount indicated on the Purchaser’s signature page to this Agreement.   “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X promulgated by the Commission under the Exchange Act.   “Trading Affiliate” has the meaning set forth in Section 3.2(h).   “Trading Day” means (i) a day on which the Common Stock is listed or quoted and traded on its primary Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.   “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.   “Transaction Documents” means this Agreement, the schedules and exhibits attached hereto, the Warrant, the Registration Rights Agreement, the Transfer Agent Instructions and any other documents or agreements executed in connection with the transactions contemplated hereunder.   4 -------------------------------------------------------------------------------- “Transfer Agent” means Computershare Trust Company, Inc., or any successor transfer agent for the Company.   “Transfer Agent Instructions” means, with respect to the Company, the Transfer Agent Instructions, in the form of Exhibit E, executed by the Company and delivered to and acknowledged in writing by the Transfer Agent.   “Warrant” has the meaning set forth in the Preamble to this Agreement.   ARTICLE II. PURCHASE AND SALE   2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, such number of shares of Common Stock and the Warrant to purchase a number of Warrant Shares, each as indicated below the Purchaser’s name on the signature page of this Agreement, for an aggregate purchase price for the Purchaser as indicated below the Purchaser’s name on the signature page of this Agreement. Upon confirmation that the other conditions to closing specified herein have been satisfied or duly waived by the Purchaser, the Company shall deliver to Lowenstein Sandler PC (“Placement Agent Counsel”), in trust, a certificate or certificates, registered in such name or names as the Purchaser may designate, representing the Shares and Warrant, with instructions that such certificates are to be held for release to the Purchaser only upon payment in full of the Purchase Price to the Company by the Purchaser. Upon such receipt by Placement Agent Counsel of the certificates, the Purchaser shall promptly, but no more than one Business Day thereafter, cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing the purchase price for such Purchaser as indicated below the Purchaser’s name on the signature page of this Agreement. On the date (the “Closing Date”) the Company receives the Purchase Price, the certificates evidencing the Shares and Warrants shall be released to the Purchaser (the “Closing”). The Closing of the purchase and sale of the Shares and Warrant shall take place at the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas, 18th Floor, New York, New York 10020, or at such other location and on such other date as the Company and the Purchaser shall mutually agree.   2.2 Closing Deliveries.   (a) At the Closing, the Company shall issue, deliver or cause to be delivered to the Purchaser the following (the “Company Deliverables”):   (i) This Agreement, duly executed by the Company;   (ii) One or more stock certificates, free and clear of all restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing the Shares, registered in the name of the Purchaser;   (iii) the Warrant, executed by the Company and registered in the name of the Purchaser, pursuant to which the Purchaser shall have the right to acquire up to 50,000 Warrant Shares on the terms set forth therein;   (iv) a legal opinion of Company Counsel, in the form attached hereto as Exhibit D, executed by such counsel and addressed to the Purchaser;   5 -------------------------------------------------------------------------------- (v) the Registration Rights Agreement, duly executed by the Company;   (vi) duly executed Transfer Agent Instructions acknowledged in writing by the Transfer Agent; and   (vii) a certificate of the Secretary of the Company (the “Secretary’s Certificate”), dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, certifying the current versions of the articles of incorporation, as amended, and by-laws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.   (b) At the Closing, the Purchaser shall deliver or cause to be delivered to the Company the following (the “Purchaser Deliverables”):   (i) This Agreement, duly executed by the Purchaser;   (ii) The Subscription Amount, in United States dollars and in immediately available funds;   (iii) the Registration Rights Agreement, duly executed by the Purchaser;   (iv) a fully completed and duly executed Selling Stockholder Questionnaire in the form attached as Annex B to the Registration Rights Agreement; and   (v) a fully completed and duly executed Accredited Investor Questionnaire and Stock Certificate Questionnaire in the forms attached hereto as Exhibits C-1 and C-2 respectively.   (c) Allocation. The portion of the Subscription Amount attributable to the Shares is $4.925 per share and the portion of the Subscription Amount attributable to each full Warrant to purchase Shares of Common Stock is $0.30 per Warrant.   ARTICLE III. REPRESENTATIONS AND WARRANTIES   3.1 Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser that, except as set forth in the Schedules delivered herewith:   (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than those listed in Schedule 3.1(a) hereto. Except as disclosed in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.   (b) Organization and Qualification. The Company and each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.   6 -------------------------------------------------------------------------------- (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents to which it is a party by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Shares and the Warrant and the subsequent issuance of the Warrant Shares upon exercise of the Warrant) have been duly authorized by all necessary corporate action on the part of the Company and no further corporate action is required by the Company, its Board of Directors or its stockholders. Each of the Transaction Documents to which it is a party has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application. Except as set forth on Schedule 3.1(c), there are no stockholders agreements, voting agreements, or other similar arrangements with respect to the Company’s capital stock to which the Company is a party or, to the Company’s Knowledge, between or among any of the Company’s stockholders.   (d) No Conflicts. The execution, delivery and performance of the Transaction Documents to which it is a party by the Company and the consummation by the Company of the transactions contemplated hereby or thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound, or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchaser herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company or a Subsidiary is bound or affected, except in the case of clauses (ii) and (iii) such as would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.   7 -------------------------------------------------------------------------------- (e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including the issuance of the Securities), other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) filings required by applicable state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filing of any requisite notices and/or application(s) to each applicable Trading Market for the issuance and sale of the Shares and the Warrant and the listing of the Shares and the Warrant Shares for trading or quotation, as the case may be, thereon in the time and manner required thereby, (v) the filings required in accordance with Section 4.6 and (vi) those that have been made or obtained prior to the date of this Agreement.   (f) Issuance of the Securities. The Shares and the Warrant Shares have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws and shall not be subject to preemptive or similar rights of stockholders. Assuming the accuracy of the representations and warranties of the Purchaser, the Shares and the Warrant Shares will be issued in compliance with all applicable federal and state securities laws. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable upon exercise of the Warrant.   (g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) is set forth in Schedule 3.1(g). All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance in all material respects with all applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase any capital stock of the Company. Except as specified in Schedule 3.1(g), there are no outstanding options, warrants or scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of the Company’s capital stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of capital stock of the Company, or options, securities or rights convertible or exchangeable into shares of capital stock of the Company. Except for customary adjustments as a result of stock dividends, stock splits, combination of shares, reorganizations, recapitalizations, reclassifications or other similar events, or as disclosed in Schedule 3.1(g) or any Schedule 13D or Schedule 13G or Company report on file with the Commission, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issuance and sale of the Securities will not, immediately or with the passage of time, obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchaser) and will not, result in a right of any holder of securities to adjust the exercise, conversion, exchange or reset price under such securities.   8 -------------------------------------------------------------------------------- (h) SEC Reports. The Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof since July 8, 2005 (the foregoing materials being collectively referred to herein as the “SEC Reports” and together with this Agreement and the Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of the date hereof, the Company is not aware of any event occurring on or prior to the Closing Date (other than the transactions contemplated by the Transaction Documents) that requires the filing of a Form 8-K after the Closing. As of their respective dates, or to the extent corrected by a subsequent restatement, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.   (i) Financial Statements. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing (or to the extent corrected by a subsequent restatement). Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments. All material agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject are included as part of or specifically identified in the SEC Reports.   (j) Tax Matters. Each of the Company and its Subsidiaries (i) has accurately and timely prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all material taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction.   (k) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or Schedule 3.1(k), (i) there have been no events, occurrences or developments that have had or that could reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the manner in which it keeps its accounting books and records, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock (other than in connection with repurchases of unvested stock issued to employees of the Company) and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except Common Stock issued in the ordinary course as dividends on outstanding preferred stock and pursuant to existing Company stock option or stock purchase plans or executive and director corporate arrangements disclosed in the SEC Reports and (vi) there has not been any material change or amendment to, or any waiver of any material right under, any contract under which the Company, any subsidiary thereof, or any of their assets is bound or subject. The Company does not have pending before the Commission any request for confidential treatment of information.   9 -------------------------------------------------------------------------------- (l) Environmental Matters. To the Company’s Knowledge, neither the Company nor any Subsidiary (i) is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) owns or operates any real property contaminated with any substance that is in violation of any Environmental Laws, (iii) is liable for any off-site disposal or contamination pursuant to any Environmental Laws, and (iv) is subject to any claim relating to any Environmental Laws; which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s Knowledge, threatened investigation that might lead to such a claim.   (m) Litigation. There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the Company’s Knowledge (based solely on officer and director questionnaires requested and obtained by the Company in connection with this offering), any current director or officer thereof (in his or her capacity thereof), is or has been during the five-year period prior to the Closing Date the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been and to the Company’s Knowledge, there is not pending or contemplated, any investigation by the Commission involving the Company or, to the Company’s Knowledge (based solely on officer and director questionnaires requested and obtained by the Company in connection with this offering) any current or former director or officer of the Company (in his or her capacity as such). Since July 8, 2005, the Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any subsidiary under the Exchange Act or the Securities Act.   (n) Employment Matters. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement. No executive officer of the Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary.   10 -------------------------------------------------------------------------------- (o) Compliance. Neither the Company nor any Subsidiary, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body having jurisdiction over the Company or its properties or assets, or (iii) is or has been in violation of, or, to the Company’s Knowledge, is in receipt of notice that it is in violation of, any statute, rule or regulation of any governmental authority applicable to the Company.   (p) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits, individually or in the aggregate, has not and could not reasonably be expected to result in a Material Adverse Effect, and, to the Company’s Knowledge, neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such permits.   (q) Title to Assets. Except for property that is specifically the subject of, and covered by, other representations and warranties as to ownership or title contained herein, the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to their respective businesses and good and marketable title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for Liens that do not, individually or in the aggregate, have or result in a Material Adverse Effect. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in material compliance.   (r) Patents and Trademarks. The Company and its Subsidiaries own, possess, license or have other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, Internet domain names, know-how and other intellectual property (collectively, the “Intellectual Property”) necessary for and material to the conduct of their respective businesses as now conducted. Except as set forth in the SEC Reports and except where such violations or infringements would not reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect, (a) there are no rights of third parties to any such Intellectual Property; (b) to the Company’s Knowledge, there is no infringement by third parties of any such Intellectual Property; (c) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others challenging the Company’s and its Subsidiaries’ rights in or to any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (d) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property; and (e) there is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by others that the Company and/or any of its Subsidiaries infringe or otherwise violate any patent, trademark, copyright, trade secret or other proprietary rights of others, and the Company is unaware of any other fact which would form a reasonable basis for any such claim.   11 -------------------------------------------------------------------------------- (s) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses and location in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any knowledge that it will be unable to renew its existing insurance coverage for the Company and the Subsidiaries as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.   (t) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports made on or prior to the date hereof, none of the officers or directors of the Company and, to the Company’s Knowledge, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary or to a presently contemplated transaction (other than for services as employees, officers and directors) that would be required to be disclosed pursuant to Item 404 of Regulation S-B promulgated under the Securities Act.   (u) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.   (v) Sarbanes-Oxley; Disclosure Controls. The Company is in compliance in all material respects with all of the applicable provisions of the Sarbanes-Oxley Act of 2002. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared. The Company's certifying officers have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the most recent periodic reporting period under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, except with respect to the remediation of the material weakness in internal control over financial reporting and the ineffectiveness of disclosure controls and procedures as described in the SEC Filings, there have been no significant changes in the Company's internal controls over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) or, to the Company's Knowledge, in other factors that could significantly affect the Company's internal controls over financial reporting.   12 -------------------------------------------------------------------------------- (w) Certain Fees. No person or entity will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, other than Piper Jaffray & Co. as placement agent with respect to the offer and sale of the Securities (which placement agent fees are being paid by the Company).   (x) Private Placement. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2(b)-(e), no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchaser under the Transaction Documents. The Company is eligible to register the Shares and the Warrant Shares for resale by the Purchaser using Form SB-2 promulgated under the Securities Act. Except as specified in Schedule 3.1(x), the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied or waived.   (y) No Directed Selling Efforts or General Solicitation. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has conducted any “general solicitation” or “general advertising” (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.   (z) No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, at any time within the past six months made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or stockholder approval provisions, including, without limitation, under the rules and regulations of any Trading Market.   (aa) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as specified in the SEC Reports, the Company has not, since July 8, 2005, received written notice from any Trading Market on which the Common Stock has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. To the Company’s Knowledge, the Company is in compliance in all material respects with the requirements for continued trading of the Common Stock on the Trading Market on which the Common Stock is currently quoted.   13 -------------------------------------------------------------------------------- (bb) Investment Company. Neither the Company nor any of its Subsidiaries is required to be registered as, and is not an Affiliate of, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.   (cc) Questionable Payments. Neither the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge, any directors, officers, employees, agents or other Persons acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to foreign or domestic political activity; (b) made any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees from corporate funds; (c) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended or (d) made any other unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.   (dd) Application of Takeover Protections. There is no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's charter documents or the laws of its state of incorporation that is or could reasonably be expected to become applicable to the Purchaser as a result of the Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and the Purchaser's ownership of the Securities.   (ee) Disclosure. The Company confirms that it and its officers and directors have not provided, and it has not authorized the Placement Agent to provide, the Purchaser with any information that constitutes or might constitute material, non-public information except insofar as the existence, provisions and terms of the Transaction Documents and the proposed transactions hereunder may constitute such information. The Company understands and confirms that the Purchaser will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Purchaser regarding the Company, its business and the transactions contemplated hereby, furnished by the Company or authorized by the Company and furnished by the Placement Agent on behalf of the Company (including the Company’s representations and warranties set forth in this Agreement) are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company nor any of its Subsidiaries or its or their business, properties, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed, except for the announcement of this Agreement and related transactions.   (ff) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed.   (gg) Consultation with Auditors. The Company has consulted its independent auditors concerning the accounting treatment of the transactions contemplated by the Transaction Documents, and in connection therewith has furnished such auditors complete copies of the Transaction Documents. The Company intends to account for the gross proceeds raised from the financing which is the subject of this Agreement as equity in its financial statements.   14 -------------------------------------------------------------------------------- 3.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows:   (a) Organization; Authority. The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by the Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action. Each of this Agreement and the Registration Rights Agreement has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.   (b) Investment Intent. The Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities and, upon exercise of the Warrant will acquire the Warrant Shares issuable upon exercise thereof, as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to the Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities or Warrant Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by the Purchaser to hold the Securities for any period of time. The Purchaser is acquiring the Securities hereunder in the ordinary course of its business. The Purchaser does not have any agreement, plan or understanding, directly or indirectly, with any Person to distribute any of the Securities.   (c) Purchaser Status. At the time the Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises the Warrant it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act. The Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act.   (d) General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.   (e) Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.   15 -------------------------------------------------------------------------------- (f) Access to Information. The Purchaser acknowledges that it reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information (other than material non-public information) about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of the Purchaser or its representatives or counsel shall modify, amend or affect the Purchaser's right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company's representations and warranties contained in the Transaction Documents.   (g) Residency. The Purchaser has its primary residence in the jurisdiction set forth following its name on the first page of this Agreement.   (h) Certain Trading Activities. Other than with respect to the transactions contemplated herein, since the earlier to occur of (1) the time that the Purchaser was first contacted by the Company, the Placement Agent or any other Person regarding an investment in the Company and (2) the tenth (10th) day prior to the date of this Agreement, neither the Purchaser nor any Affiliate of the Purchaser which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to the Purchaser’s investments or trading or information concerning the Purchaser’s investments, including in respect of the Securities, or (z) is subject to the Purchaser’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with the Purchaser or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities). The Purchaser shall not, and shall cause its Trading Affiliates not to, engage, directly or indirectly, in any transactions in the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities) during the period from the date hereof until such time as (i) the transactions contemplated by this Agreement are first publicly announced as described in Section 4.6 or (ii) this Agreement is terminated in full pursuant to Section 6.18. The Purchaser understands and acknowledges that the Commission currently takes the position that covering a short position established prior to effectiveness of a resale registration statement with shares included in such registration statement would be a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance. Except in compliance with the Securities Act and the rules and regulations promulgated thereunder and applicable state securities laws, the Purchaser will not engage in any Short Sales that result in the disposition of the Securities (including the Warrant Shares) acquired hereunder by the Purchaser.   16 -------------------------------------------------------------------------------- (i) Brokers and Finders. No Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company, or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.   (j) Independent Investment Decision. The Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents, and the Purchaser confirms that it has not relied on the advice of the business and/or legal counsel of any third party purchaser of the Company’s securities in making such decision. The Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice. The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities. The Purchaser understands that the Placement Agent has acted solely as the agent of the Company in this placement of the Securities and the Purchaser has not relied on the business or legal advice of the Placement Agent or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to the Purchaser in connection with the transactions contemplated by the Transaction Documents.   The Company acknowledges and agrees that the Purchaser has not made and does not make any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.   ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES   4.1 (a) Compliance with Laws. Notwithstanding any other provision of this Article IV, the Purchaser covenants that the securities may only be disposed of pursuant to an effective registration statement under, and in compliance with the requirements of, 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 compliance with any applicable state and federal securities laws. In connection with any transfer of the Securities other than pursuant to an effective registration statement, pursuant to Rule 144(k) or in connection with a pledge as contemplated in Section 4.1(b), except as otherwise provided herein, the transferor will provide to the Company, at its request, an opinion of counsel selected by the transferor, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Company and its legal counsel, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with its transfer agent, without any such legal opinion, except to the extent that the transfer agent requests such legal opinion, any transfer of Securities by the Purchaser to an Affiliate of the Purchaser, provided that the transferee agrees to the terms and conditions of the Securities, certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act and provided that such Affiliate does not request any removal of any existing legends on any certificate evidencing the Securities.   (b) Legends. Certificates evidencing the Securities will contain the following legend, until such time as they are not required under Section 4.1(c):   17 -------------------------------------------------------------------------------- [NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [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 OR BLUE SKY LAWS.   The Company acknowledges and agrees that the Purchaser may from time to time pledge, and/or grant a security interest in some or all of the legended Securities, in connection with applicable securities laws, pursuant to a bona fide margin agreement in compliance with a bona fide margin loan. Such a pledge would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion shall be required in connection with a subsequent transfer or foreclosure following default by the Purchaser transferee of the pledge. No notice shall be required of such pledge but Purchaser’s transferee shall promptly notify the Company of the pledge. The Purchaser acknowledges that the Company shall not be responsible for any pledges relating to, or the grant of any security interest in, any of the Securities or for any agreement, understanding or arrangement between the Purchaser and its pledgee or secured party. The Company’s indemnification obligations pursuant to this Agreement shall not extend to any Proceeding or Losses arising out of or related to this Section 4.1(b).   (c) Removal of Legends. Certificates evidencing Securities shall not be required to contain such legend or any other legend (i) while a registration statement (including the Registration Statement) covering the resale of such Securities is effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule 144 (assuming the transferor is not an affiliate of the Company), (iii) if such Securities are eligible for sale under Rule 144(k) (to the extent that the Purchaser provides a certification or legal opinion to the Company to that effect), or (iv) if such legend is not required under applicable requirements of the Securities Act (including controlling judicial interpretations and pronouncements issued by the Commission). The Company shall cause its counsel to issue the legal opinion referred to in the Transfer Agent Instructions to the Company’s transfer agent on the Effective Date. Any fees (with respect to the Transfer Agent, counsel to the Company or otherwise) associated with the issuance of such opinion or the removal of such legend shall be borne by the Company. If any portion of the Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, or if such Warrant Shares may be sold under Rule 144(k), then such Warrant Shares shall be issued free of all legends. Following the Effective Date or at such earlier time as a legend is no longer required for certain Securities, the Company will no later than three (3) Trading Days following the delivery by the Purchaser to the Company or the Transfer Agent (with notice to the Company) of (i) a legended certificate representing such Shares or Warrant Shares (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer) or (ii) an Exercise Notice in the manner stated in the Warrant to affect the exercise of the Warrant in accordance with its terms and an opinion of counsel to the extent required by Section 4.1(a), deliver or cause to be delivered to the Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section. 18 -------------------------------------------------------------------------------- (d) Acknowledgement. The Purchaser hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell the Shares, the Warrant Shares or any interest therein without complying with the requirements of the Securities Act. While the above-referenced registration statement remains effective, the Purchaser hereunder may sell the shares in accordance with the plan of distribution contained in the registration statement and if it does so it will comply therewith and with the related prospectus delivery requirements. To provide further assurance in connection with de-legending, the Purchaser hereunder commits that it will continue to hold the shares in its own name, and not in the name of a nominee, until such time as the shares are duly and properly sold in compliance with all relevant securities laws. Both the Company and its transfer agent, and their respective directors, officers, employees and agents, may rely on this subsection (d) and the Purchaser hereunder will indemnify and hold harmless each of such persons from any breaches or violations of this paragraph. (e) Buy-In. If within three (3) Trading Days after the Company’s receipt of a legended certificate representing such Securities (the “Delivery Date”), the Company shall fail to issue and deliver to the Purchaser a certificate representing such Securities that is free from all restrictive and other legends, and if on or after such Delivery Date the Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Purchaser of shares of Common Stock that the Purchaser anticipated receiving from the Company without any restrictive legend (a “Buy-In”), then the Company shall, within three (3) Trading Days after the Purchaser’s request and in the Purchaser’s sole discretion, either (i) pay cash to the Purchaser in an amount equal to the Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate shall terminate and such shares shall be cancelled, or (ii) promptly honor its obligation to deliver to the Purchaser a certificate or certificates representing such number of shares of Common Stock that would have been issued if the Company timely complied with its obligations hereunder and pay cash to the Purchaser in an amount equal to the excess (if any) of the Buy-In Price over the product of (a) such number of shares of Common Stock that the Company was required to deliver to the Purchaser on the Delivery Date, times (b) the closing bid price of the Common Stock on the Delivery Date. 4.2 Reservation of Common Stock. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. In the event that at any time the then authorized shares of Common Stock are insufficient for the Company to satisfy its obligations in full under the Transaction Documents, the Company shall promptly take such actions as may be required to increase the number of authorized shares.   4.3 Furnishing of Information. As long as the Purchaser owns the Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as the Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Shares and Warrant Shares under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell the Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.   19 -------------------------------------------------------------------------------- 4.4 No Integration. The Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchaser, or that will be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.   4.5 Subsequent Registrations. Other than pursuant to the Registration Statement and those certain Registration Rights Agreements between the Company and certain investors party thereto, dated July 8, 2005, the Company shall not file any registration statement (other than on Form S-8) with the Commission with respect to any securities of the Company.   4.6 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York City time) on the Trading Day immediately following the execution of this Agreement and by 9:00 a.m. (New York City time) on the Trading Day following the Closing Date, the Company shall issue press releases disclosing the transactions contemplated hereby and the Closing. On the Trading Day following the execution of this Agreement, the Company will file a Current Report on Form 8-K with the Commission describing the material terms of the Transaction Documents (and including as exhibits to such Current Report on Form 8-K the Transaction Documents), and on the Trading Day following the Closing Date, the Company will file an additional Current Report on Form 8-K to disclose the Closing. Thereafter, the Company shall timely file any filings and notices required by the Commission and the Trading Market on which the Common Stock is listed. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Purchaser, or include the name of the Purchaser in any press release or filing with the Commission (other than the Registration Statement) or any regulatory agency or Trading Market, without the prior written consent of the Purchaser, except to the extent such disclosure is required by law, request of the Staff of the Commission or Trading Market regulations.   20 -------------------------------------------------------------------------------- 4.7 Indemnification.   (a) Indemnification of Purchaser. In addition to the indemnity provided in the Registration Rights Agreement, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, partners, members, managers, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys' fees and costs of investigation (collectively, “Losses”) that any such Purchaser Party may suffer or incur as a result of or relating to any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made by the Company in any Transaction Document. In addition to the indemnity contained herein, the Company will reimburse each Purchaser Party for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. If and to the extent that such indemnification is unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of such losses permissible under applicable law.   (b) Conduct of Indemnification Proceedings. Promptly after receipt by any Person (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 4.7(a), such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditions, but if settled without such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any Losses by reason of such settlement or judgment. Without the prior written consent of the Indemnified Person, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.   4.8 Non-Public Information. The Company covenants and agrees that it and its officers and directors have not provided, and it has not authorized the Placement Agent to provide the Purchaser with any information that the Company believes constitutes material non-public information (other than the contemplated Transaction Documents and the transactions contemplated thereby), unless prior thereto the Purchaser shall have consented to the receipt thereof and executed a written agreement regarding the confidentiality and use of such information. Notwithstanding the foregoing, if the Company provides (inadvertently or otherwise) material non-public information to the Purchaser, other than in accordance with the immediately preceding sentence, the Company shall promptly take corrective action by disclosing such material non-public information in a Current Report on Form 8-K. The Company understands and confirms that the Purchaser shall be relying on the foregoing representations and covenants in effecting transactions in securities of the Company.   21 -------------------------------------------------------------------------------- 4.9 Listing of Securities. If the Company applies to have its Common Stock or other securities listed on any Trading Market, it shall include in such application the Shares and the Warrant Shares and will take such other action as is necessary to cause the Shares and the Warrant Shares to be listed on such Trading Market as promptly as practicable. The Company will use commercially reasonable efforts to continue the listing and trading of its Common Stock on a Trading Market and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with the Company’s reporting, filing and other obligations applicable to issuers whose securities are listed on such Trading Market.   4.10 Use of Proceeds. The Company intends to use the net proceeds from the sale of the Securities hereunder for working capital and general corporate purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables and accrued expenses in the ordinary course of the Company’s business and consistent with prior practices), or to redeem any Common Stock or Common Stock Equivalents or to settle any outstanding Action.   ARTICLE V. CONDITIONS PRECEDENT TO CLOSING 5.1 Conditions Precedent to the Obligations of the Purchaser to Purchase Securities. The obligation of the Purchaser to acquire Securities at the Closing is subject to the fulfillment to the Purchase’s satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by the Purchaser:   (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects (except to the extent that any such representation or warranty is already qualified by materiality, in which case it shall be true and correct in all respects) as of the date when made and as of the Closing Date, as though made on and as of such date;   (b) Performance. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing;   (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;   (d) Consents. The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Securities, all of which shall be and remain so long as necessary in full force and effect;   22 -------------------------------------------------------------------------------- (e) Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably could have or result in a Material Adverse Effect;   (f) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall have been at all times since such date listed for trading on a Trading Market;   (g) Company Deliverables. The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a);   (h) Compliance Certificate. The Company shall have delivered to the Purchaser a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, dated as of the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1(a), (b), (c), (d) and (f); and   (i) Termination. This Agreement shall not have been terminated in accordance with Section 6.18 herein.   (j) Contemporaneous Offering. Simultaneously with or prior to the Closing, the Company shall have sold securities to third party purchasers, who are not acting in concert with the Purchaser, for an aggregate minimum of $24,775,000. Such Securities shall be sold on, and have, such terms as the Company shall determine in its sole discretion.   5.2 Conditions Precedent to the Obligations of the Company to sell Securities. The Company's obligation to sell and issue the Securities at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:   (a) Representations and Warranties. The representations and warranties made by the Purchaser in Section 3.2 hereof shall be true and correct in all material respects as of the date when made, and as of the Closing Date as though made on and as of such date;   (b) Performance. The Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchaser at or prior to the Closing;   (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents;   23 -------------------------------------------------------------------------------- (d) Purchaser Deliverables. The Purchaser shall have delivered the Purchaser Deliverables in accordance with Section 2.2(b); and   (e) Termination. This Agreement shall not have been terminated in accordance with Section 6.18 herein.   (f) Contemporaneous Offering. Simultaneously with or prior to the Closing, the Company shall have sold securities to third party purchasers, who are not acting in concert with the Purchaser, for an aggregate minimum of $24,775,000. Such Securities shall be sold on, and have, such terms as the Company shall determine in its sole discretion.   ARTICLE VI. MISCELLANEOUS   6.1 Fees and Expenses. The Company and the Purchaser shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any and all other expenses incurred by such party in connection with the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities.   6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company and the Purchaser will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.   6.3 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 (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 5:00 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 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 follows:   If to the Company:       HydroGen Corporation 10 East 40th Street Room 3405 New York, New York 10016 Telephone No.: (212) 672-0380 Facsimile No.: (212) 672-0393 Attention: Chief Executive Officer 24 -------------------------------------------------------------------------------- With a copy to:            Graubard Miller The Chrysler Building 405 Lexington Avenue 19th Floor New York, New York 10174-1901 Telephone No.: 212-818-8614 Facsimile No.: (212) 818-8881 Attention: Andrew Hudders, Esq.   If to the Purchaser:      CD Investment Partners, Ltd.                        Two North Riverside Plaza                 Suite 600 Chicago, Illinois 60606 Telephone No.: (312) 466-3226 Facsimile No: (312) 559-1288 Attention: Investment Manager           With a copy to:       Greenberg Traurig                       77 W. Wacker Drive, Suite 2500                          Chicago, IL 60601                          Tel: (312) 456-8400                       Fax: (312) 456-8435  Attn: Peter H. Lieberman Todd A. Mazur or such other address as may be designated in writing hereafter, in the same manner, by such Person. 6.4 Amendments; Waivers; No Additional Consideration. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.   6.5 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.   25 -------------------------------------------------------------------------------- 6.6 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns. This Agreement, or any rights or obligations hereunder, may not be assigned by the Company without the prior written consent of the Purchaser. The Purchaser may assign its rights hereunder in whole or in part to any Person to whom the Purchaser assigns or transfers any Securities in compliance with this agreement and applicable law, provided such transferee shall agree in writing to be bound, with respect to the transferred Securities, by the terms and conditions of this Agreement that apply to the “Purchaser”.   6.7  No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except (i) each Purchaser Party is an intended third party beneficiary of Section 4.7, and (ii) Placement Agent is an intended third party beneficiary of Article III hereof, and each Purchaser Party or the Placement Agent, as the case may be, may enforce the provisions of such Sections directly against the parties with obligations thereunder.   6.8 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 New York, 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 and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts 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 the any of the Transaction Documents), 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 New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. 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 a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.   6.9 Survival. Subject to applicable statute of limitations, the representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Securities.   6.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.   26 -------------------------------------------------------------------------------- 6.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.   6.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights   6.13 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company for any losses in connection therewith. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.   6.14 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.   6.15 Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.   27 -------------------------------------------------------------------------------- 6.16 Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in any Transaction Document to a number of shares or a price per share shall be amended to appropriately account for such event.   6.17 Independent Nature of Purchaser's Obligations and Rights. The obligations of the Purchaser under any Transaction Document are several and not joint with the obligations of any third party purchaser of the Company’s securities, and the Purchaser shall not be responsible in any way for the performance of the obligations of any third party purchaser of the Company’s securities. The decision of the Purchaser to purchase Securities pursuant to the Transaction Documents has been made by the Purchaser independently of any third party purchaser of the Company’s securities and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or any Subsidiary which may have been made or given by any third party purchaser of the Company’s securities or by any agent or employee of any third party purchaser of the Company’s securities, and neither the Purchaser nor any of its agents or employees shall have any liability to any third party purchaser of the Company’s securities (or any other Person) relating to or arising from any such information, materials, statement or opinions. Nothing contained herein or in any Transaction Document, and no action taken by the Purchaser pursuant thereto, shall be deemed to constitute the Purchaser and any third party purchaser of the Company’s securities as a partnership, an association, a joint venture or any other kind of entity or group, or create a presumption that the Purchaser and any such third party purchaser of the Company’s securities are in any way acting in concert or as a group with respect to any matters. The Purchaser acknowledges that no third party purchaser of the Company’s securities has acted as agent for the Purchaser in connection with making its investment hereunder and that no third party purchaser of the Company’s securities will be acting as agent of the Purchaser in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. The Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any third party purchaser of the Company’s securities to be joined as an additional party in any proceeding for such purpose. To the extent that any such third party purchasers purchase the same or similar securities as the Purchaser hereunder or on the same or similar terms and conditions or pursuant to the same or similar documents, all such matters are solely in the control of the Company, not the action or decision of the Purchaser, and would be solely for the convenience of the Company and not because it was required or requested to do so by the Purchaser or any such third party purchaser. For clarification purposes only and without implication that the contrary would otherwise be true, the transactions contemplated by the Transaction Documents include only the transaction between the Company and the Purchaser and do not include any other transaction between the Company and any other third party purchaser of the Company’s securities.   28 -------------------------------------------------------------------------------- 6.18 Termination. This Agreement may be terminated and the sale and purchase of the Shares and the Warrant abandoned at any time prior to the Closing by either the Company or the Purchaser upon written notice to the other, if the Closing has not been consummated on or prior to 5:00 p.m. (New York City time) on the Outside Date; provided, however, that the right to terminate this Agreement under this Section 6.18 shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time. Nothing in this Section 6.18 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents. Upon a termination in accordance with this Section, the Company and the Purchaser shall not have any further obligation or liability (including arising from such termination) to the other party.   6.19 Delivery of Securities. Notwithstanding anything contained in this Agreement or any other Transaction Document to the contrary, unless otherwise directed in writing by the Purchaser, the Company shall, and shall cause its agents and representatives to, deliver all of the Purchaser's securities purchased pursuant to this Agreement (and all securities which are issuable to the Purchaser pursuant to the terms of this Agreement or any other agreement or instrument entered into, or delivered, in connection with execution of this Agreement or the consummation of the transaction contemplated hereby) to Goldman, Sachs & Co., One New York Plaza, New York, NY 10004, Attention: Justin Freedland, and copies of the certificates representing such securities shall be sent to the Purchaser in accordance with Section 6.3 of this Agreement. 29 -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.   HYDROGEN CORPORATION   By:_______________________________________    Name:    Title:    CD INVESTMENT PARTNERS, LTD.   By: CD Capital Management, LLC   Its: Investment Manager   By:_______________________________________    Name:    Title:    Purchase Price (Subscription Amount): $   Number of Shares to be acquired: ______________________   Underlying Shares subject to Warrant: ________________   (25.0% of the number of Shares to be acquired)   Tax ID No.: ____________________   Address for Notice:   __________________________________                                                                   __________________________________                         __________________________________                         Telephone No.: ______________________                                                    Facsimile No.: ________________________                        Attention: _______________________ Delivery Instructions: (if different than above) c/o _______________________________ Street: ____________________________ City/State/Zip: ______________________ Attention: __________________________ Telephone No.: ______________________   -------------------------------------------------------------------------------- EXHIBITS:   A:  Form of Warrant   B:  Form of Registration Rights Agreement   C-1:  Accredited Investor Questionnaire   C-2: Stock Certificate Questionnaire   D:  Form of Opinion of Company Counsel   E:  Transfer Agent Instructions   F:  Instruction Sheet   G: Wire Instructions   SCHEDULES:   3.1(a) Subsidiaries   3.1(c) Authorization; Enforcement   3.1(g) Capitalization   3.1(k) Material Changes   3.1(q) Title to Assets   3.1(x) Registration Rights   -------------------------------------------------------------------------------- EXHIBIT A   Form of Warrant   -------------------------------------------------------------------------------- EXHIBIT B   Form of Registration Rights Agreement     -------------------------------------------------------------------------------- EXHIBIT C-1 Accredited Investor Questionnaire CERTIFICATE   The undersigned certifies that the representations and responses below are true and accurate:   (a)  The Purchaser has been duly formed and is validly existing and has full power and authority to invest in the Company. The person signing on behalf of the undersigned has the authority to execute and deliver the Securities Purchase Agreement on behalf of the Purchaser and to take other actions with respect thereto.   (b) Indicate the form of entity of the undersigned:   __  Limited Partnership __  General Partnership __  Corporation   __ Revocable Trust (identify each grantor and indicate under what circumstances the trust is revocable by the grantor: (Continue on a separate piece of paper, if necessary.)   __ Other Type of Trust (indicate type of trust and, for trusts other than pension trusts, name the grantors and beneficiaries: (Continue on a separate piece of paper, if necessary.) __  Other form of organization (indicate form of organization ( )). (c)  Indicate the approximate date the undersigned entity was formed: (d)  In order for the Company to offer and sell the Securities in conformance with state and federal securities laws, the following information must be obtained regarding your investor status. Please initial each category applicable to you as the Purchaser of Securities of the Company.     __ (1) A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity;   __ (2) A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;   __ (3) An insurance company as defined in Section 2(13) of the Securities Act;   __ (4) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; --------------------------------------------------------------------------------   __ (5) A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;   __ (6) A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000;   __ (7) An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;   __ (8) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;     __ (9) An organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000; __(10)  A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of investing in the Company;   __(11)  An entity in which all of the equity owners qualify under any of the above subparagraphs. If the undersigned belongs to this investor category only, list the equity owners of the undersigned, and the investor category which each such equity owner satisfies. (Continue on a separate piece of paper, if necessary.) Dated:_______________  , 2006     ______________________________ Name of Purchaser     ______________________________________ Signature and title of authorized officer, partner or trustee   -------------------------------------------------------------------------------- EXHIBIT C-2   Stock Certificate Questionnaire   Pursuant to Section 2.2(b) of the Agreement, please provide us with the following information:   1. The exact name that the Shares are to be registered in (this is the name that will appear on the stock certificate(s)). You may use a nominee name if appropriate:   2. The relationship between the Purchaser of the Shares and the Registered Holder listed in response to Item 1 above:   3. The mailing address, telephone and telecopy number of the Registered Holder listed in response to Item 1 above:                           4. The Tax Identification Number of the Registered Holder listed in response to Item 1 above:     -------------------------------------------------------------------------------- EXHIBIT D   Form of Opinion of Company Counsel     -------------------------------------------------------------------------------- EXHIBIT E   Transfer Agent Instructions   As of _________, ____   Computershare Trust Company, Inc. 350 Indiana Street, Suite 800 Golden, CO 80401 Attn: _________________     Ladies and Gentlemen:         Reference is made to that certain Securities Purchase Agreement, dated as of _____________, 2006 (the “Agreement”), by and between HydroGen Corporation, a Nevada corporation (the “Company”), and CD Investment Partners, Ltd. (the “Holder”), pursuant to which the Company is issuing to the Holder shares (the “Shares”) of Common Stock of the Company, par value $0.001 per share (the “Common Stock”), and a warrant (the “Warrant”), which is exercisable into shares of Common Stock.         This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time):          (i)  to issue shares of Common Stock upon transfer or resale of the Shares; and          (ii)  to issue shares of Common Stock upon the exercise of the Warrant (the “Warrant Shares”) to or upon the order of the Holder from time to time upon delivery to you of a properly completed and duly executed Exercise Notice, in the form attached hereto as Annex I, which has been acknowledged by the Company as indicated by the signature of a duly authorized officer of the Company thereon together with indication of receipt of the exercise price therefor.         You acknowledge and agree that so long as you have previously received (a) written confirmation from the Company’s legal counsel that either (1) a registration statement covering resales of the Shares and the Warrant Shares has been declared effective by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), or (2) sales of the Shares and the Warrant Shares may be made in conformity with Rule 144(k) under the Securities Act (“Rule 144”) and (b) if applicable, a copy of such registration statement, then, unless otherwise required by law, within three (3) business days of your receipt of the notice referred to in (ii) above, you shall issue the certificates representing the Shares and the Warrant Shares so sold to the transferees registered in the names of such transferees, and such certificates shall not bear any legend restricting transfer of the Shares and the Warrant Shares thereby and should not be subject to any stop-transfer restriction.         A form of written confirmation (to be used in connection with any sale) from the Company’s outside legal counsel that a registration statement covering resales of the Shares and the Warrant Shares has been declared effective by the Commission under the Securities Act is attached hereto as Annex II.         Please be advised that the Holder is relying upon this letter as an inducement to enter into the Agreement and, accordingly, the Holder is a third party beneficiary to these instructions.   --------------------------------------------------------------------------------       Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions.   Very truly yours, HYDROGEN CORPORATION     By: __________________________________ Name: ________________________________ Title: ________________________________ Acknowledged and Agreed: COMPUTERSHARE TRUST COMPANY, INC. By: __________________________________ Name: ________________________________  Title: ________________________________   Date: _________________, 2006 -------------------------------------------------------------------------------- Annex I    Form of Exercise Notice   (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant)   To:  HydroGen Corporation         The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by HydroGen Corporation, a Nevada corporation (the “Company”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.         1.  The Warrant is currently exercisable to purchase a total of                      Warrant Shares.         2.  The undersigned Holder hereby exercises its right to purchase                      Warrant Shares pursuant to the Warrant.         3.  The holder [(i)] has paid the sum of $                     to the Company, simultaneously with this exercise notice, in accordance with the terms of the Warrant[, or (ii) hereby elects to utilize the cashless exercise option and convert _________________ percent (___%) of the value of the Warrant pursuant to the provisions of [Section 10(b)] of the Warrant].         4.  Pursuant to this exercise, the Company shall deliver to the holder                      Warrant Shares in accordance with the terms of the Warrant.         5.  Following this exercise, the Warrant shall be exercisable to purchase a total of                      additional Warrant Shares.   Dated:_______________, _____   Name of Holder: ______________________     By:________________________________   Name: _____________________________   Title: ______________________________   (Signature must conform in all respects to name of Holder as specified on the face of the Warrant)   -------------------------------------------------------------------------------- Acknowledgement         The Company hereby acknowledges this Exercise Notice and receipt of the appropriate exercise price and hereby directs Computershare Trust Company, Inc. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated __________, 2006, from the Company and acknowledged and agreed to by Computershare Trust Company, Inc.     HYDROGEN CORPORATION     By: __________________________________                               Name: ________________________________ Title: ________________________________   --------------------------------------------------------------------------------   Annex II   Form of Notice of Effectiveness of Registration Statement       Computershare Trust Company, Inc. 350 Indiana Street, Suite 800 Golden, CO 80401 Attn: _________________           Re: HydroGen Corporation   Ladies and Gentlemen:            We are counsel to HydroGen Corporation, a Nevada corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement, dated as of _____________, 2006, entered into by and between the Company and CD Investment Partners, Ltd. (the “Purchaser”) pursuant to which the Company issued to the Purchaser shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”) and a warrant exercisable for shares of Common Stock (the “Warrant”). Pursuant to that certain Registration Rights Agreement of even date, the Company agreed to register the resale of the Common Stock, including the shares of Common Stock issuable upon exercise of the Warrant (collectively, the “Registrable Securities”) under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company’s obligations under the Registration Rights Agreement, on                     , 2006, the Company filed a Registration Statement on Form SB-2 (File No. 333-                    ) (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) relating to the Registrable Securities which names the Purchaser as a selling stockholder thereunder.           In connection with the foregoing, we advise you that a member of the Commission’s staff has advised us by telephone that the Commission has entered an order declaring the Registration Statement effective under the Securities Act at ____ [a.m.][p.m.] on __________, 2006, and we have no knowledge, after telephonic inquiry of a member of the staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the Commission and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement.         This letter shall serve as our standing notice to you that the Common Stock may be freely transferred by the Purchaser pursuant to the Registration Statement so long as the Holders certify they have complied with the plan of distribution description in connection with their sales or transfer of the Common Stock set forth in the Registration Statement and with the prospectus delivery requirements of the Securities Act. You need not require further letters from us to effect any future legend-free issuance or reissuance of shares of Common Stock to the transferees of the Purchaser as contemplated by the Company’s Transfer Agent Instructions dated __________, 2006. This letter shall serve as our standing instructions with regard to this matter.   --------------------------------------------------------------------------------               Very truly yours,               Graubard Miller               By:_____________________________             -------------------------------------------------------------------------------- EXHIBIT F Instruction Sheet (to be read in conjunction with the entire Securities Purchase Agreement and Registration Rights Agreement) A.  Complete the following items in the Securities Purchase Agreement and/or Registration  Rights Agreement: 1.   Provide the information regarding the Purchaser requested on the signature page.  The Securities Purchase Agreement must be executed by an individual authorized  to bind the Purchaser. 2.  Exhibit C-1 - Accredited Investor Questionnaire:        Provide the information requested by Exhibit C-1.   3.  Exhibit C-2 - Stock Certificate Questionnaire:        Provide the information requested by the Stock Certificate Questionnaire. 4. Annex B to the Registration Rights Agreement-Selling Securityholder Notice and Questionnaire       Provide the information requested by the Selling Securityholder Notice and Questionnaire. 5.  Return the signed Securities Purchase Agreement and Registration Rights Agreement to: David Stadinski Piper Jaffray & Co. The Chrysler Building 405 Lexington Avenue, 58th Floor New York, New York 10174 Tel: (212) 284-9572 Fax: (212) 284-9579 Email: [email protected] B. Instructions regarding the transfer of funds for the purchase of Securities is set forth on Exhibit G to the Securities Purchase Agreement. -------------------------------------------------------------------------------- C. Upon the resale of the Registrable Shares by the Purchaser after the Registration Statement covering the Registrable Shares is effective, as described in the Securities Purchase Agreement, the Purchaser:   1. must confirm that a current prospectus is deemed to be delivered to such buyer in accordance with Rule 172; and   2. must send a letter to the Company so that the Registrable Shares may be properly transferred.   -------------------------------------------------------------------------------- EXHIBIT G   Wire Instructions     -------------------------------------------------------------------------------- Schedule 3.1(a)   Subsidiaries     HydroGen, LLC, an Ohio Limited Liability Company.     -------------------------------------------------------------------------------- Schedule 3.1(c)   Authorization; Enforcement     Voting Agreement between Company and Keating Reverse Merger Fund, LLC, dated July 7, 2005   -------------------------------------------------------------------------------- Schedule 3.1(g)   Capitalization   Common stock, par value $0.001                Shares authorized     65,000,000                      Issued and outstanding     7,614,904   Series B convertible preferred stock, par $0.001, authorized 10,000,000 shares,         no shares issued or outstanding                   Equity compensation plans approved by security holders:                           Maximum stock-based awards permitted under the plan     1,100,000                     Number of Stock Options Outstanding     247,735                              Amount available for future grants     852,265             Equity compensation plans not approved by security holders:                  Stock options granted prior to the above plan's approval     342,345     -------------------------------------------------------------------------------- Schedule 3.1(k)   Material Changes   None.     -------------------------------------------------------------------------------- Schedule 3.1(q)   Title to Assets   The Company owns no real property assets, and leases all of its facilities.   --------------------------------------------------------------------------------   Schedule 3.1(x)   Registration Rights       1. Registration rights agreement dated July 7, 2005, between Company and Security Management Company, LLC provides for registration of securities acquired by their funds in the private placement consummated of even date. The same registration rights were granted to the investors in HydroGen LLC which was consummated of even date. The rights require the Company to register the shares acquired in the investments within a certain time period which was met, and to maintain the currency and effectiveness of such registration statement. In the event the Company does not maintain that currency and effectiveness, the investors have piggyback registration rights on any subsequent registration statement of the Company.     2. In connection with two capital raising transactions by HydroGen LLC, the Company is obliged to provide piggy back registration rights to investors who acquired $100,000 or more of securities in the transactions. The Company has registered these securities, however, the piggy back right continues with respect to future registration statements if the initial registration statement is not current or effective for some reason.   --------------------------------------------------------------------------------